The purpose of this paper is to estimate the elasticities of demand for different dairy products, such as fresh milk, powdered milk and yoghourt, in urban China.
The household survey data are drawn from the annual Urban Household Survey in a Chinese province from 2007 to 2009 by applying a three-stage budgeting approach with zero consumption.
The major findings show that fluid milk is the most popular dairy product among urban households in Guangdong province, China. Demand for fresh milk is price elastic with the highest value being −1.043, indicating that price-cutting promotion programs could be carried out by dairy enterprises to increase dairy consumption. With improvements in the living standards, the demand for dairy will lead to an expansion in the size of the dairy market and will simultaneously open up new development opportunities for dairy enterprises.
This study adopts an Almost Ideal Demand System model inserted into inverse Mills ratios in the third stage to resolve the common problem of obtaining censored data on zero consumption observations. The research findings will provide a reference for policy makers and for enterprises in developing some price-cutting promotion programs.
