(Tiểu luận) factors affecting the demand for red meat in countries around the world in 2021

Trang 1 FOREIGN TRADE UNIVERSITY FACULTY OF INTERNATIONAL ECONOMICS ---***--- ECONOMETRICS 2 REPORT FACTORS AFFECTING THE DEMAND FOR RED MEAT IN COUNTRIES AROUND THE WORLD IN 2021 Clas

FOREIGN TRADE UNIVERSITY

FACULTY OF INTERNATIONAL ECONOMICS

Student’s name: Number Student ID Contribution

1 Nguyễn Quỳnh Anh 02 2013450004 10 0%

ECONOMETRICS 2 KTEE318.1 GROUP 4

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DECLARATION

The research “Factors affecting the demand for red meat in countries around the world

in 2021” was carried out by Group 4, consisting of members: Nguyen Quynh Anh, Nguyen Thanh Hang, Pham Khanh Linh, Do Thuy Linh and Nguyen Van Thuy Linh

We hereby declare that we have collected the data and conducted the research ourselves

We do not use any outside help and support or use information not mentioned at the References of this Research

Hanoi, 15/06/2022

ECONOMETRICS 2 KTEE318.1 GROUP 4

ACKNOWLEDGEMENTS

Our group sincerely appreciates all the lectures that Dr Dinh Thi Thanh Binh gave us! During the course time and the period we created this essay, you provided us with a wide range of valuable and interesting knowledge along with a lot of support and dedication whenever we had difficulties in studying Econometrics 2 For us, it is our honor and lucky

to have a wonderful teacher like you

We put all our efforts on completing this essay as results of what we gained after the course Our essay may have shortcomings but we really hope that you will enjoy this essay and give us suggestions and comments so that we can be better for the next time

If we have a chance, we hope that you will accompany us in many subjects in the future Thank you so much for everything you taught us! We will keep this knowledge in mind as long as possible

Have a great day and stay healthy our dear teacher!

Group 4

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SUMMARY

Topic: FACTORS AFFECTING THE DEMAND FOR RED MEAT IN COUNTRIES AROUND THE WORLD IN 2021

Student’s name - Student ID:

1 Nguyễn Quỳnh Anh - 2013450004

Lecturer: Dr Dinh Thi Thanh Binh

Faculty: International Economics

Keyword: red meat, demand, factors, the world

Our essay has the title: “Factors affecting the demand for red meat in countries around the world in 2021” This essay investigated the demand for meat in 123 countries around the world in 2021 using the econometrics method The objective of our essay is to demonstrate the accuracy of Demand Function in Microeconomics and to estimate the change in demand for red meat through the relationship between demand and other factors such as price of red meat, price of chicken meat, income and culture in the world market We collected data from valid sources like WORLDBANK, NUMBEO and FAOSTAT The data were analysed using the Ordinary Least Square method and multiple regression analysis Results show strong agreement with theoretical predictions, which is that the demand for red meat

is influenced by price of beef, price of chicken meat, income positively The results of hypothesis testing reveal a reverse relationship between demand for red meat and consumer’s taste and between demand for red meat and its price, according to the Demand Function The work presented here recommends that the government should implement policies to increase income per capita to augment demand for red meat

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TABLE OF CONTENTS

INTRODUCTION 7

SECTION 1: LITERATURE REVIEW 8

1.1 Definition and Theory of Demand 8

1.1.1 Demand 8

1.1.2 Factors affecting quantity demanded 8

1.2 Overview of the demand for red meat 10

1.3 Related published researches 11

1.4 Research hypothesis 14

SECTION 2: MODEL SPECIFICATION AND DATA 15

2.1 Methodology 15

2.1.1 Method used to derive the model 15

2.1.2 Method used to collect and analyze the data 15

2.2 Theoretical model specification 15

2.2.1 Proxy to measure 15

2.2.2 Specify the model 16

2.2.3 Theoretical relationship between dependent variable and independent variables 17

2.3 Data description 18

2.3.1 Sources of data 18

2.3.2 Descriptive statistics and interpretation for each variable 18

2.3.3 Correlation matrix between variables 20

SECTION 3: ESTIMATED MODEL AND STATISTICAL INFERENCES 21

3.1 Estimated model 21

3.2 Diagnosing the model problem 23

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3.2.1 Check for zero mean value of disturbances (Assumption 5) 23

3.2.2 Check for multi-collinearity 24

3.2.3 Check for homoskedasticity (Assumption 6) 24

3.2.4 Check for the normality of disturbances (Assumption 7) 25

3.3 Hypotheses postulated 26

3.3.1 Statistical significance of individual coefficients 26

3.3.2 Overall significance of the multiple regression 27

3.3.3 Consistency of the regression results with the theories 28

3.3.4 Mechanism of the relationships between variables 28

3.4 Conclusion 29

SECTION 4: RECOMMEND ATION 30

REFERENCES 31

APPENDIX 32

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INTRODUCTION

Red meat is a type of meat that has a bright red color and changes to darker color after cooking such as beef, pork, lamb, etc Red meat is known as one of the most popular cooking ingredients in the World It contains many nutrients such as iron, zinc, vitamin B12 and especially high protein, providing energy for human activities Red meat can also be easily made into dishes, from the casual to the high-end and brings delicious taste to people Therefore, it becomes one of the most consumed cooking ingredients in the World

In order to have an accurate view of the red meat consumption demand in all countries in the world, we have conducted a research called “Factors affecting the demand for red meat

in countries around the world in 2021”

Our research objective is to describe the factors affecting the demand for red meat and to show the relationship and influence level of each of these factors to the quantity demanded

of red meat in countries

The objects of our research are the demand for red meat in all countries in the world and 4 main factors affecting this, which are: prices of beef, prices of chicken, income and the taste

of these countries

Our research scope includes 3 parts: content scope, time scope and spatial scope The content scope is researching on factors affecting the demand for red meat in countries The time scope of the data in this research is in 2021 The spatial scope includes 123 countries This research consists of 3 main sections In section 1, we present 4 parts: the definition of all research objects mentioned in the research, the economic theories related to the research, other related researches and the research hypothesis In section 2, we mention 3 parts: the methodology to derive the model and analyze the data, the theoretical model specification and describing the data In the last section, we show the estimation of the model, the diagnosis of the regression model, the hypothesis testing and recommendations

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SECTION 1: LITERATURE REVIEW

1.1 Definition and Theory of Demand

1.1.1.2 Market demand and individual demand

The quantity demanded in a market is the sum of the quantity demanded by all the buyers

at each price Thus, the market demand curve is found by adding horizontally the individual demand curve (N.G Mankiw, 69)

Also according to Pindyck, “the market demand curve is the horizontal summation of the demands of each consumer” (R.S Pindyck, 122) The individual demand curve is a straight line, but the market demand curve can be kinked because the individual's willingness to buy prices may be different

Based on Pindyck's analysis of individual and market demand (R.S Pindyck, 124), we can conclude that the factors that influence the demand of many buyers will influence the demand of the market

1.1.2 Factors affecting quantity demanded

1.1.2.1 The law of demand (The relationship between quantity demanded of a good and its price)

“Other things being equal, when the price of a good rises, the quantity demanded of the good falls, and when the price falls, the quantity demanded rises” (N.G Mankiw, 67)

Demand Curve:

The demand curve shows how much of a good consumer is willing to buy as the price per unit changes (R.S Pindyck, 23)

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The demand curve is placed on a coordinate axis, the vertical axis represents price and the horizontal axis represents quantity The demand curve is a downward sloping line that shows the inverse relationship between price and quantity

In the law of demand, to simplify things, it is often assumed that factors such as consumer income, prices of related goods, consumer preferences, are constant factors However,

in reality, these factors do not always stand still, they change and affect the demand for a good

In the following we examine the relationship between other factors and the demand for a good

1.1.2.2 Income of consumers

According to N.G Mankiw theory, if a person's income decreases, they will be forced to spend less money on most goods, so their ability to buy is lower and that is the reason why their demand for goods reduces Similarly, if their income increases, their demand for goods also increases So, we say that the relationship between income and demand for goods is positive

However, all quantities of goods and income do not have a positive relationship If an increase in income leads to an increase in demand for a good, the good is normal good But,

if an increase in income leads to an increase in demand for a good, the goods are inferior goods Attitude toward any goods depends on the income of the buyer, not on the quality

of the goods

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1.1.2.3 Prices of related goods

There are two types of related goods: substitute goods and complementary goods (N.G Mankiw, 70)

With two goods considered as substitutes, an increase in the price of one lead to an increase

in the demand for the other Therefore, the relationship between the price of one good and the demand for the other is positive

With two goods considered complementary, an increase in the price of one lead to a decrease in demand for the other Therefore, the relationship between the price of one good and the demand for the other is inverse

1.1.2.4 Taste of consumers

According to Mankiw theory (N.G Mankiw, 70), the most obvious determinant of a person's needs is their taste Conventional economists do not try to explain people's tastes because tastes are based on historical, tradition, religious beliefs, cultural norms and psychological forces that are beyond the realm of economics Economists do, however, examine what happens when tastes change When the public’s desires, emotions, or preferences change in favor of a product, so does the quantity demanded Likewise, when tastes go against it, that depresses the amount demanded

Demand Function:

Qx=f (Px, Py, I, T)

Where:

Qx: The quantity demanded of good X

Px: The price of good X

Py: The price of good Y (Good Y is the related good of good X)

I: Income of consumers

T: Taste of consumers

1.2 Overview of the demand for red meat

Red meat

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According to Cambridge Dictionary, red meat is meat from animals with four legs such as cows, pigs, and sheep The word “red meat” is used to distinguish it from white meat (poultry) and fish meat (seafood)

Quantity demanded of red meat in the World

Based on FAO data, the world's consumption of red meat tends to increase Worldwide per capita meat consumption is 42.4 kg in 2021 Global pork consumption is expected to increase to 127 million tonnes within the next 10 years and account for 33% of the total increase in consumption Global lamb consumption is expected to grow to 18 million tonnes

in the near term and account for 6% of additional meat consumed This shows a huge demand for red meat in the World

1.3 Related published researches

Factors affecting consumer demand for meat, Webster County, Iowa (Richard Edgar Lund, Iowa State University, 1967)

The research’s methodology is quantitative research, based on demand theory The research’s findings are: Factors affecting consumer demand associated with the retail market were summarized by the variables (a) retail price, (b) an index of newspaper advertising, and (c) an index of in-store promotion These three variables were quantified

in the form of data series pertaining to thirteen meat classes, five store groups, and seven weekly time periods Money paid for meats generally increased with both household income and age of household head but decreased with size of household The estimated elasticities of quantity purchased from a retail store (group) with respect to price, advertising, and in-store promotion are: (a) price: -1.305, (b) advertising: 0.042 and (c) in-store promotion: 0.023 The model indicated that the price elasticity becomes more negative

by the amount -0.844 for households with children

Based on the results, we see that income and quantity of meat purchased have a positive relationship while price and quantity demanded have an inverse relationship Based on elasticity, we see that for ordinary households, meat is not a necessary good, because people can replace it with other foods such as eggs, vegetables However, for households with children, meat is a necessary good because children need nutrients from meat in their diets Research has shown the relationships that factors affect the quantity of meat demanded, but the study still has some limitations First, the number of observations is 642/779 households, which may be biased The observation period is 7 weeks, this is a short period

ECONOMETRICS 2 KTEE318.1 GROUP 4

of time, so the study is only timed, not showing long-term results In addition, the collection

of data by questionnaires may cause the data obtained to be skewed due to the dishonesty

However, the study also has some limitations For example, there is a disparity in figures because statistical information in Mexico is reported mainly by two different agencies which are the Ministry of Industry and Trade and Ministry of Agriculture and Livestock

In addition, the study encountered some problems when estimating the income variable, making it difficult to form a clear picture of the real income elasticity

An analysis of factors' affecting the demand for milk in Montana (John Elliott Barrel, Montana State University, 1980)

The research’s methodology is quantitative research, based on demand theory The research’s findings are: Price has a negative effect on quantity demanded of milk, a 10 percent change in price will elicit a 26 percent change in quantity demanded Results of the analysis imply fluid milk is a normal good for young individuals (under 18 years of age) and families and an inferior good for older individuals (over 18 years of age) or families composed mainly of adults Increases in population size significantly increases the total consumption of fluid milk However, a 10 percent increase in the younger population increases consumption to a greater degree than a 10 percent increase in the older population (4.1 -vs- 2.7 percent) While nonfat dry milk is a substitute for fluid milk, the relationship

is quite weak A 10 percent increase in dry milk price led to increased fluid milk consumption of 1 percent

From the above results, it can be seen that price has a negative relationship with quantity

of fluid milk while the price of substitute goods (dry milk) and quantity of consumers have

a positive relationship with quantity demanded of fluid milk

However, the study also has some limitations, for example, the unit of measurement of milk demand is quite difficult to determine (because if measured by boxes, the types of milk are contained in different volume boxes) When measuring by volume (liters) is selected, it will

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However, the research has some limitations, that is, it only surveyed about 455 observations, a very small number compared to the total population in Turkey, so the research results are not highly representative In addition, due to the use of questionnaires

to collect data, false data may be obtained due to dishonest declarants

Analysis of consumer demand for pork and rice products in Nha Trang city (Nguyen Manh Tuong, Nha Trang University, 2011)

The research’s methodology is quantitative research, based on demand theory Due to copyright restrictions, we were not able to read the conclusions of this research However,

we still find some limitations of the study, that is: the study only surveyed 430 out of about 100,000 households in the area of Nha Trang city, this is a too small number, not representative The period from April 24 to May 24, 2011 is a short time, so the research is only for that time

Summary of the results of some other related researches

A 1971 study of quantity demanded of milk of consumers in the Gainesville, Florida area by Prato estimated the price elasticity of demand to be -5.7

Prato points out that this value may be distorted due to the manner in which a weighted average price was constructed Consumers in higher income households did purchase greater quantities of milk than lower

A Microeconometric Analysis of Consumer Taste Determination and Taste Change for Beef (X M Gao, Eric J Wailes and Gail L Cramer, 1997)

These studies hypothesized that factors such as changes in the age distribution of the population, an increasing number of females in the work force, and an increasing number

of ethnic minorities have caused structural shifts in meat demand

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Estimations of Catch Fish Demand Function of Consumers in Uttar Pradesh (2015)

Consumer surveys are carried out to estimate the demand function of fish species Total amount of fish consumed per day in kg The prices of different fish species, the consumer's income is collected from the market When preference for fish increased by 1 unit, the quantity demanded for fish increased by 0.16 units The results demonstrate that when the price of substitute goods increases, the demand for the primary good increases As a result, when the price of fish increases, the demand for fish decreases The estimated fish price is -0.39, indicating that when fish prices increase by 1%, the quantity demanded for fish has decreased by 0.39%

1.4 Research hypothesis

Based on existing theories and knowledge, the price of meat, price of chicken, income of consumers and the number of consumers is believed to have an impact on the quantity demanded of meat In detail, the price of meat has a negative effect on the quantity demanded of meat (when price increases, demand will decrease) whereas the other factors are positively related to the meat’s quantity demanded (when these factors increase, demand will also increase)

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SECTION 2: MODEL SPECIFICATION AND DATA

2.1 Methodology

2.1.1 Method used to derive the model

Regression analysis is a method of inferrence, it allows us to make inferences about the whole population out of a representative sample In regression analysis, the sample statistics (or the regression coefficients β ) are used to estimate the population parameters β It is our mission to find the best possible estimates for the population model

Ordinary Least Squares (OLS) method is the easiest and the most popular way to estimate the parameters of a linear regression model OLS estimator minimize the sum of all squared residuals The OLS estimators is consistent when the model satisfies 7 basic assumptions

of the classical linear regression model Under those conditions, the method of OLS provides the least-squares estimators, in the class of unbiased linear estimators and have minimum variance Then, according to the Gauss -Markov theorem, OLS is BLUE, which

is stated for Best Linear Unbiased Estimator In fact, the Gauss-Markov theorem states that OLS produces estimates that are better than estimates from all other linear model estimation methods when the assumptions hold true

For the above reason, we decided to use the Ordinary Least Squares method to derive the model for our research

2.1.2 Method used to collect and analyze the data

The objective of our research is to clarify which factors among the independent variables truly have a significant impact on the dependent variable, which means that we have to calculate the differences in the effect of each factor on the demand of red meat by doing cross-country comparisons in the year 2021 specifically Thus, we conclude that there are four factors causing tremendous changes After determining the independent variables, we collect and analyze the data on reliable websites to examine the dependency of those variables

2.2 Theoretical model specification

2.2.1 Proxy to measure

Income

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The income of consumers in a country is determined through the gross domestic product per capital (GDP per captital) For ease of calculation, we make the unit of income in the form of thousand USD per capital

The formula to calculate GDP per capita is a country's gross domestic product (GDP) divided by its population

GDP per capital = GDP/population

Red meat price

The price of red meat represents the price received by processors for red meat Data is presented as an index, with the unit of USD per kilogram

Quantity demanded

The quantity demanded of a good shows the quantity of a good that consumers are willing

to buy at each market price In this report, we collect data on red meat consumption per capita in 123 countries, with the units of kilogram per capital

2.2.2 Specify the model

Based on related economic theory and previous research, the quantity demanded of red meat depends on 4 factors: price of red meat, price of chicken, income of consumers and religion Thus, we derive the multiple linear regression model as follow:

Population regression model:

𝐷𝐸𝑀𝐴𝑁𝐷𝑖= 𝛽0+ 𝛽1𝑃𝑅𝐼𝐶𝐸𝑖+ 𝛽2𝐶𝐻𝐼𝐶𝐾𝐸𝑁𝑃𝑅𝐼𝐶𝐸𝑖+ 𝛽3𝐼𝑁𝐶𝑂𝑀𝐸𝑖+

𝛽4𝑇𝐴𝑆𝑇𝐸𝐻𝐼𝑁𝐷𝑈𝑖+ 𝑢𝑖

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Therein:

- 𝐷𝐸𝑀𝐴𝑁𝐷𝑖: quantity demanded of red meat per person in each country (kilograms

per person)

- 𝑃𝑅𝐼𝐶𝐸𝑖: price of red meat ($ per kilogram)

- 𝐶𝐻𝐼𝐶𝐾𝐸𝑁𝑃𝑅𝐼𝐶𝐸𝑖: price of chicken ($ per kilogram)

- 𝐼𝑁𝐶𝑂𝑀𝐸𝑖: income of consumers (thousand $)

- 𝑇𝐴𝑆𝑇𝐸𝐻𝐼𝑁𝐷𝑈𝑖: countries with high percentage of Hindus

- 𝛽0: intercept terms

- 𝛽1; 𝛽2; 𝛽3; 𝛽4: partial regression coefficients

2.2.3 Theoretical relationship between dependent variable and independent variables

- Dependent variable: quantity demanded of red meat per person

- Independent variables: price of red meat, price of chicken, income of consumers, taste of consumers

In terms of consumers’ behavior, when the price of red meat rises, the amount of those which consumers are willing and able to buy decreases, provided other factors remain

constant As a result, the quantity demanded of red meat falls Thus, there can be a negative

relationship between price and quantity demanded of red meat

Meanwhile, with the same amount of money, when there is an increase in price of chicken, consumers tend to substitute those with another type of meat in order to have the same level

of utility with lower price, causing a decrease in demand for chicken and increase in demand

for red meat respectively It can be inferred that there is a positive relationship between the

price of chicken and the quantity demanded of red meat

Regarding expenditure, with a higher amount of income, consumers have a higher ability

to purchase goods, red meat in specific, consider red meat as a normal good Moreover, religion is one of the key factors that determines individuals’ dietary choice over red meat Countries with a higher percentage of Hindus, the quantity demanded of red meat will be lower

Thus, to clarify the relationship between red meat quantity demanded and other four factors,

we must base it on latter calculation and hypothesis testing

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2.3 Data description

2.3.1 Sources of data

There are three main sources that we use to collect and analyze our dataset

The Revision of World Population Prospects of official United Nations (UN) population

estimate and projection that have been prepared by the Population Division of the

Department of Economic and Social Affairs of the United Nations Secretariat and the World Economic Outlook Database, which prepared by the International Monetary Fund (IMF), guided by the standards professional standards in data collection, compilation and dissemination, providing us with reliable and quality sources of information Therefore, we have chosen to collect data on the official United Nations and International Monetary Fund website on population levels and GDP 123 countries in 2021

Another online tool that provides accessibility to systematic data is Numbeo - world’s largest database about food prices worldwide Thus, our price indexes of red meat and chicken were taken from Numbeo official website

Therefore, we use cross-sectional data (data collected by observing many objects at the one point of time)

2.3.2 Descriptive statistics and interpretation for each variable

The world has 195 countries, we chose to collect 123 observations in our research, accounting for 63% of the total, with more than 5 billion people Thus, our sample data represents the major of population

2.3.2.1 Demand of red meat

The demand of red meat is defined as the quantity of red meat that each consumer is willing and able to purchase at the period understudy We calculated it in the unit of kilograms per person

The mean quantity demanded of red meat is 54,3953 kilograms per person, the standard deviation is 28,1546; the minimum amount is 3,97 and the maximum is 121

2.3.2.2 Price of red meat

The amount of money each consumer has to be paid to acquire red meat is presented in our price of red meat indexes We calculated it in the unit of $ per kilogram

The average price for red meat takes the value of about 11,1679$ per kilogram with the standard deviation is 7,32 The minimum price is 3,4$ and the maximum is 49,24$

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2.3.2.5 Taste (Hindu)

10 countries with highest percentage of people follow Hinduism religion among 123 countries being studied Religion is one of the key factors that determines individuals’ dietary choice over red meat

The below table is a conclusion for the descriptive statistics of our sample data:

Variable Obs Mean Standard

deviation Min Max