Strategic Food Demand Analysis in East Java: An Application of Linear Approximation of the Almost Ideal Demand System Model

Strategic food price stability is crucial for East Java, Indonesia’s second-largest economy and a major food producer, yet its households face significant welfare impacts from price fluctuations. This study aims to analyze the complete demand system for 11 strategic food commodities in East Java by estimating expenditure shares and a full matrix of demand elasticities to understand household consumption behavior. Utilizing cross-sectional data from 32,545 households in the March 2023 National Socio-Economic Survey (Susenas), this research employs the Linear Approximation of the Almost Ideal Demand System (LA/AIDS) model, estimated via the Seemingly Unrelated Regressions (SUR) method. The results reveal that Fish & Seafood (47%), Red Meat (19%), and Rice (10%) constitute the largest household food expenditure shares. Expenditure elasticity analysis identifies Red Meat (n=2.540), Poultry (n=1.255), and Fish & Seafood (n= 1.349) as luxury goods, while staple items like rice and sugar are necessities. Critically, rice commands the highest Marginal Expenditure Share (0.293), indicating it is the primary recipient of any additional household income. Own-price elasticities are negative for all commodities, with most being inelastic, confirming their status as staples. However, demand for corn, soybeans, and red meat is highly price-elastic. Cross-price elasticities reveal significant substitution and complementary relationships among the food groups, highlighting complex household consumption strategies. These findings provide crucial, evidence-based parameters for policymakers in East Java to design targeted food price stabilization policies and social assistance programs that account for the heterogeneous consumption behavior of households.