Estimation of the Demand Function for Milk and Dairy Products Using an Unconstrained AIDS Model: The Case of the TRA1 Region

This study was conducted to determine the structure and function of household demand for milk and dairy products in the TRA1 region. A proportionate sampling method was employed to calculate the target sample size, while the Almost Ideal Demand System (AIDS) model was utilized to analyze the empirical field data. Furthermore, the Seemingly Unrelated Regression (SUR) method was implemented to estimate the simultaneous equations of the system.

Descriptive statistics indicated that the average household size in the study area is 3 members. The average weekly household consumption was found to be approximately 5.1 liters of fluid milk, 2.4 kg of cheese, 4.4 kg of yogurt, and 1 kg of butter. Concurrently, the average total weekly expenditure allocated to these four commodities combined was 114.1 Turkish Liras (TRY).

Econometric estimation results revealed that the Marshallian (own-price) elasticities of demand for all investigated dairy products were inelastic under the model restricted by homogeneity and symmetry constraints. Similarly, the compensated Hicksian price elasticities—under homogeneity and symmetry constraints—confirmed that the demand for fluid milk, cheese, yogurt, and butter is price-inelastic. Based on the estimated Marshallian own-price elasticities, a 10% increase in the prices of fluid milk, cheese, yogurt, and butter would result in a reduction in their respective quantities demanded by 5%, 8.4%, 7.6%, and 6.9%.

In the unconstrained model, and based on the Marshallian cross-price elasticity values—which capture both income and substitution effects—butter emerged as a complementary good for two products (yogurt and cheese), while acting as a substitute product for fluid milk. Conversely, based on the Hicksian cross-price elasticities, which isolate the net substitution effect, butter was found to be a substitute product for all three commodities (milk, cheese, and yogurt). In other words, when controlling for the income effect, the substitute products that households shift toward due to rising butter prices are milk, cheese, and yogurt.