| Abstract
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The recent economic growth and a population growth of some four percent annually have dramatically increased Saudi Arabia's demand for food. Between 1973 and 1982 when the incomes were accelerating, imports of cereals, vegetables and fruits more than tripled, while that of meat increased even more. The present study investigates the consumption income relation, i.e., the Engle curve relationship, for thirteen food commodities in Saudi Arabia, taking into consideration the price effect. To get around the multicollinearity problem, the thirteen food commodities were separated into four groups, viz., staple foods, meat group, fresh fruits, and fresh vegetables based on the texture characteristics, marketing periods, and taste of the products. And to further simplify the estimation problem, the author considered only within group substitution. Estimations under constant and declining income elasticity models were made on each commodity within the group. The homogeneity and Slutsky restrictions were imposed. The results showed that food consumption was significantly affected by income level and that the effect of income on consumption demand varied among individual food commodities. In each food category, the income elasticity was below zero, confirming the Engel's law abundantly. The results also indicated that an increase in real income was likely to increase the consumption of meat, fresh fruits, and vegetables at the expense of staple foods. The results fell into three groups with respect to income response: the results which R2 clearly suggest declining income elasticity model; the results which R2 neither clearly confirm nor refute declining or constant income elasticity response; and the results which R2 clearly suggest constant income elasticity relationship. Since projected real income grows very moderately for the next seven-year-period and is overshadowed by population growth, no shifting in demand composition has occurred. However, when the real income was allowed to grow more rapidly, about 3 percent annually, the consumption of wheat, rice, mutton and lamb, beef and veal, and grapes increased by the same amount, while that of potatoes, chickens, bananas, eggplants, and dry onions, approached the saturation level. The consumption of oranges, apples, and tomatoes fell under undecided category.
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