1. Demand Analysis For Dairy Products in Tunisia: An Econometric Approach Boubaker DHEHIBI, Raoudha KHALDI Laboratoire de Recherches en Economie Rurale Institut National de la Recherche Agronomique de Tunisie Rue Hedi Karray, Ariana 2049, Tunisia General Settings Tunisian dairy sector was strongly supported by government intervention in the form of price policies and subsidies. Several government policies were instituted which influenced the dairy sector. Prices controls were put in at every level of milk production and marketing (production, processing and consumption). A national strategy of development of the sector was implemented in 1994 in order to reduce imports and reach self-sufficiency in dairy products at 2000. The evolution of the dairy consumption structure in recent years shows that the pattern of dairy consumption has been constantly changing (Khaldi and Naili, 2001; Laajimi et al., 2003; Dhehibi and Gil, 2003). Making available information on expected dairy products demand will facilitate policy makers to estimates social welfare and market adjustments under alternative policies (prices policy, subsidies policy, ect..) in order to identify the improvements that be made to achieve self sufficiency and ovoid the disequilibrium between demand and supply. Objectives 1.Estimate and determine the factors influencing the demand for dairy products in Tunisia using a quantitative approach. 2.Analyze and decompose the Quality Change Index (QCI) of dairy products consumption in Tunisia. Methodological Framework Empirical Model The CBS demand specification (Keller and Van Driel, 1985) for the ith type of dairy product is: i = 1, 2, …, k (1) Where; is total real dairy products expenditure implicitly; Qi is the quantity of the ith type of dairy food; Pi is the price of the ith type of dairy food; Y is the value of total expenditure in dairy products; Wi is the budget share of good i, wi = piqi/y; and k is the number of dairy goods. Data and Estimation Procedure Data Description The data annual consumption data for fresh milk, butter and cheese are collected from the Food Balance Sheet elaborated by the Food and Agricultural Organization (FAO). Consumption per capita of yogurt is approximated by the supply of this food elaborated by the Ministry of Industry for Tunisia divided by the population. Annual consumer price series for each commodity are found in the monthly statistical bulletin of Tunisia published by the INS (National Statistics Institute). Four dairy products are used in the analysis: 1) fresh milk; 2) yogurt; 3) butter; and 4) cheese. The sample period covers yearly data from 1973 to 2002. Estimation Procedure The CBS model (1) reads in differentials. In order to arrive at estimable equations it has to be converted to finite changes (Van Deriel et al., 1997). The empirical model is estimated using, with homogeneity, symmetry and negativity imposed, the Full Information Maximum Likelihood (FIML) procedure. The "cheese" equation was deleted to avoid singularity of the variance and covariance matrix of residuals due to the adding-up restriction. Quality Change and Its Decomposition in Tunisian Dairy Products Consumption For the CBS model, the QCI is given as: (2) Where; QCIis the Quality Change Index; i, j =1,., 4Attach to fresh milk, yogurt, butter and cheese; Ciare the coefficient associated with trends; The equation (2) decomposes the QCI into i) Trend Effect; ii) Real Expenditure Effect; iii) Substitution Effect and iv) Residual Effect, respectively Results and Discussion Econometric Analysis and Specification Test None of the equations of the model show autocorrelation problems. Model specification is acceptable from an econometric point of view. Parameter estimates of the CBS model are used to calculate the price and expenditure elasticities. Expenditure Elasticities Butter and cheese are considered luxury goods. Expenditure elasticity of milk is very close to unity, so it can be considered as a normal good. Expenditure elasticity of yogurt is less than the unity and suggest it a necessity in the Tunisian diet. Marshallian Own-price Elasticities The resulting demand for dairy products is inelastic. Own price elasticity of milk is the largest in absolute terms, followed by yogurt and cheese. Cheese product is more prices inelastic, implying that consumption of this dairy product is not sensitive to price change. If prices and total dairy expenditure changes at the same time, consumption would be more affected by income than prices. Hicksian Cross-price Elasticities Cheese has the strongest competitive relationship with milk. Another competitive relationship can be appointed between butter and yogurt. This result indicates that the price of better does not have an influence on the consumption of yogurt while the price of yogurt affects the consumption of better. A complementary relationship between butter and cheese implying that the consumption of butter is influenced by the price of cheese. Quality Change Index (QCI) There is a moderate increase in quality of consumption for dairy products by 0.068% per year. The real-expenditure effect decreases with the dispersion of expenditure elasticities among the four dairy products. The substitution effect is positive. The trend effect is positive and it is very similar to QCI. The change in QCI must be attributed to change in the trend effect. The residual effect is not significant. Concluding Remarks Butter and cheese are considered luxury goods from expenditure point of view. Demand for dairy products is inelastic. Strongest competitive relationship between cheese and milk. A complementary relationship between butter and cheese is outlined. There is a moderate increase in quality in consumption of dairy products by 0.068% per year Quality change of dairy products consumption in Tunisia decrease over the period of analysis (1973-2002).