Food-at-home or food-away-from-home price increases: which has a bigger impact on consumer welfare loss?

This paper investigates the effects on consumer welfare of changing food-at-home (FAH) and food-away-from-home (FAFH) prices in a period that witnessed two major economic shocks: the COVID-19 pandemic and subsequent abnormal inflation. Even though FAFH prices increased more than FAH during this period, we find that FAH price increases have led to more significant and volatile welfare losses compared to changes in FAFH prices. The article makes two contributions to the literature. First, using a complete demand system that is comprised of nine expenditure categories, including FAH, FAFH, and seven other broad non-food aggregates, we estimate the household welfare losses in consumer surplus from changing prices of FAH and FAFH incorporating the own- and cross-price effects. Our findings reveal that own-price effects dominate welfare losses with negligible cross effects, resulting in 11.2% and 7% losses in consumer welfare from FAH and FAFH price increases, respectively, as a percentage of total food spending after the COVID-19 pandemic. Second, the dominance of the own price effects suggests that the easier-to-estimate conditional demand systems (foods only) may be sufficient for conducting welfare analysis of changes in food prices.