Demand for Natural Gas in Food and Beverage Industries of Iran

International Journal of Energy Economics and Policy ISSN: 2146-4553 available at http: www.econjournals.com International Journal of Energy Economics and Policy, 2016, 6(3), 588-593. Demand for Natural Gas in Food and Beverage Industries of Iran Lotfali Agheli* Economic Research Institute, Tarbiat Modares University, Iran. *Email: ABSTRACT Food and beverage industries play crucial roles in satisfying food requirements. They rely on various kinds of energy to prepare and process foodstuff. The relative prices, technology level, sector growth and machinery status determine use of energy carriers in these enterprises. This paper examines the relationships among natural gas use, value-added and energy prices in food and beverage industries of Iran during 1978-2014. The decision unit is food-manufacturing workplace. By considering microeconomic basics and applying co-integration approach, demand for natural gas is estimated. Due to the long-run nature of co-integrating relationships, the long run own- and cross- price elasticities and income elasticity are estimated. Our findings show that natural gas is a luxury input in food industry, it is highly elastic to its price; and electricity and oil products are substitutes for natural gas. In a growing food sector, we would expect natural gas use to increase more rapidly. Keywords: Natural Gas, Food Industry, Price Elasticity JEL Classifications: D21, Q13, Q41 1. INTRODUCTION The rapid economic growth of societies has resulted in formation new eating habits, so that the diversity in foodstuffs has been increased and traditional foods have been evolved into the ready and conserved foods. The expansion of food and beverage industries, on one hand, has raised the access to different kinds of foods, and on the other hand, it has created new threats for health due to changes in nature of foods amid conservation, processing and packaging. As a result, in order to reduce the negative effects of ready and processed foods, food standardization schemes such as hazard analysis and critical control points have been introduced. The urban lives and activities have declined share of home foods and have driven people to consume the ready foods. Food and beverage industries encompass a wide range of activities from materials preparation, production, processing, conservation and transportation. They include all operations, which transform raw materials originating from catching and harvesting farm and animal products to consumable foods. The main food and beverage industries in Iran consist of dairy industry, cereals, meat, edible oils, sweets and candies, vegetables, fruits and beverages. Currently, about 2900 food producers 588 are operating across the country in the following food groups: Hamburger, spaghetti, wafer and biscuits, beverages, meat, saffron, honey, cake, dates, bread, flour, protein, fish, ice cream, tomato sausage, tomato and so on. According to official data of Statistical Center of Iran, these firms employ 230 thousands workers totally. With an arid and semi-arid weather and a population over than 79 million people, Iran is planning to secure food for its citizens. The specific ideological view of the political system, in particular, self-sufficiency in agricultural sector, triggers the provision of safe and sufficient food in Iran. More specifically, article 2 of general policies of agriculture in Iran, which is approved by the Expediency Discernment Council of the System points to meet food security with an emphasis on production by domestic resources, to achieve self-sufficiency in basic products and to improve health of foodstuffs through reforms in consumption and production patterns (Offered General Policies: NO. 24-20-101391). In addition, article 7 refers to upgrade the quality of food. As indicated by Maslow’s hierarchy of needs, food is one of the basic needs for humans (Maslow, 1943). Everyday life is dependent on food along with water and air. In a normal environment, food supply is met by interaction of farmers, food businessmen and government. However, critical conditions such International Journal of Energy Economics and Policy | Vol 6 • Issue 3 • 2016 Agheli: Demand for Natural Gas in Food and Beverage Industries of Iran as war, natural disasters and trade sanctions result in lack of food. Food and beverage industries as connectors of farmers to consumers are responsible for providing healthy and standard foodstuffs for human beings and animals. These industries play crucial roles in food security for all nations, too. Various inputs are used to produce and to process the foods. Besides crude corps and grains, manpower, energy and machinery are vital inputs in the food processing and manufacturing. Due to vital shares of energy carriers in completing production chain, this paper investigates the factors affecting demand for natural gas use in food and beverage industries in Iran during 1978-2014. This paper includes 5 sections. Section 2 reviews pertinent literature. Section 3 devotes to materials and methods. In this section, the mathematical function is shaped in accordance with microeconomic demand theory. Section 4 contains discussion and results. Because of using annual time series, all variables are tested against unit root. Then, the co-integration approach was applied to derive long-run relationships among natural gas consumption and its main determinants such as value-added, own and cross prices of natural gas at firm level. Finally, Section 5 concludes. 2. REVIEW OF LITERATURE The most of studies on food have focused on economic analysis of household behavior, public policies, pricing and marketing, and food trade. For example, Attanasio et al. (2013) analyzed the welfare consequences of increases in food prices in Mexico using micro-level data and concluded that the poor have been affected by the increases in relative prices of foods. Manrique and Jensen (1997) found that the value of women’s time, income, and household demographic variables are main determinants of expenditures on convenience meat goods, especially across the large and high-income families in Spain. Arndt et al. (2016) studied the relationship between shifts in food prices and child nutrition status in a low income setting and concluded that food penury, driven by the food and fuel price crisis combined with a short agricultural production year, increases the malnutrition amongst under-five children in Mozambique. linear approximate almost ideal demand system. They obtained a mix of gross substitutes and complements, while net substitution is the dominant pattern. A number of researches have devoted to energy issues in food sector. For instance, Ogunjuyigbe et al. (2015) presented electrical energy conservation strategy in Nigerian food and beverage industries with the view of devising means to reduce their energy consumption. They studied the electrical energy consumption trends in the industry using a walk-through ene (...truncated)