Engel’s law no longer applies – Poles are spending more on food

OLIPRA Prawo Engla przestało działać Polacy więcej wydają na żywność JAMNIK

According to Engel's law, as the household income increases, the share of income spent on food decreases. In Poland, this share has stabilized at a relatively high level in recent years despite rising household incomes.

For a long time Engel’s law was reflected by empirical data in Poland. According to data from Statistics Poland in 1998-2010 the share of expenditures on food and non-alcoholic beverages in total expenditures decreased from 31.62 per cent to 23.98 per cent, reaching the lowest level in history. In the following years, however, this share stabilized at a level slightly above 24 per cent. According to data from Statistics Poland, in 2017 it amounted to 24.36 per cent.

This means that in recent years the expenses of Polish households on food and non-alcoholic beverages have been increasing at rate similar to the increase in their disposable income, which is contrary to Engel’s law.

Poles are eating better and more expensive food

The stabilization of the share of food expenditures in total expenditures is primarily associated with changes in the structure of demand for food, in which an increasing role is played by more expensive products. This is due to a number of factors.

Firstly, as prosperity increases, consumers are increasing their spending on more luxurious food products. Instead of apples they buy more expensive exotic fruit, the place of potatoes is taken by Italian pasta, while chocolate and purchased sweets supplant the homemade apple pies.

Secondly, higher incomes combined with the growing popularity of the healthy lifestyle are conducive to an increase in spending on food of better quality. This leads to a growing popularity of organic food (e.g. non-GMO products, free-range eggs, organic fruit, etc.), and the so-called „clean label” products, i.e. products free of chemical additives, are becoming increasingly important in consumer choices.

Thirdly, greater dietary awareness, as well as the growing burden of diseases of civilization, are conducive to an increase in demand for functional foods (e.g. dairy products with increased protein content dedicated to people engaging in sports) and foods adapted to therapeutic diets (e.g. gluten-free food for people with celiac disease or lactose-free products for people with lactose intolerance).

Fourthly, the changes in lifestyle, manifested, among other things, in reduced fertility or an increasing share of single-person households, are conducive to an increase in demand for highly processed foods, including the so-called ready-to-eat foods. This assessment is supported by the results of Statistics Poland’s research from 2013 concerning the so-called „time budgets”. Compared to the previous survey from the turn of 2003 and 2004, the recent survey indicates an increase in the time spent on professional work, along with a decrease in the time spent on activities related to food processing.

This phenomenon is even reflected in the packaging used for food products, where packaging enabling consumption „on the go” is becoming increasingly visible.

The second major reason for the stabilization of the share of food expenditures in total expenditures is the relatively faster growth of food prices compared with the prices of other consumer goods. According to data from Statistics Poland, in 2010-2017 prices in the category of „food and non-alcoholic beverages” grew by 18.7 percent, while the increase for the entire consumer basket was 12 percent.

Due to foreign trade, food prices in Poland are gradually approaching the levels recorded in wealthier countries. At the same time the Balassa-Samuelson effect (the prices of non-tradable goods rise faster than the prices of tradable goods, due to faster productivity growth in the sector of tradable goods) exerts an upward pressure on prices of food which is not traded internationally, such as local products (e.g. baked goods or pastries).

Wasting food is not conducive to savings

Another factor which has a significant impact on the stabilization of the share of food expenditures in total expenditures is the waste of food. On the basis of data from the European Commission, we can estimate that in Poland households are wasting around 10 per cent of all purchased food. This is the result of the increasing affluence of the Polish society, as well as lifestyle changes which make it more difficult to plan consumption accurately. As a result, consumers are buying more food than they really need.

On the basis of international experience, it can be expected that in the coming years along with the growing incomes of the Polish society the share of wasted food in overall food expenditures will increase. This will be a factor hampering the decrease in the share of food expenditures in the total expenditures of households.

Engel’s law under the pressure of progress

While formulating his theory in 1857, Ernst Engel could not foresee three important factors. Firstly, in the 19th century food was less diverse, which was the result of logistics barriers related to the transport and storage of food. It was much harder to transport Brazilian oranges or Argentinian beef to Europe.

As a result, while in Engel’s times food consumption was usually limited to the local products, today consumers can choose from hundreds of types of cheese, fresh fruits, fish and meat from around the world. This enables them to increasingly substitute cheaper food with more expensive products within the same product group, which was not possible during Engel’s times.

Secondly, Engel did not predict that with the increasing availability of food from around the world and the increasing affluence of consumers, food consumption – in addition to satisfying the lower-order needs from the base of Maslow’s pyramid – would also become a way to fulfill higher-order needs from the top of pyramid. Luxury food can be used to fulfill the need for esteem and recognition, or self-fulfillment, acting as a substitute for services.

Thirdly, Engel did not predict that the less wealthy countries would adopt the food consumption patterns of wealthier countries at a faster rate than the rate of convergence of their incomes. The revolution that took place in the recording and flow of information (photography, movies, the Internet) and the clearly greater travel capabilities mean that consumers in less affluent countries are surrounded by patterns of behavior from wealthy countries on a daily basis and are trying to emulate them.

This assessment is supported by Eurostat data, according to which the relative stabilization of the share of food expenditures is recorded not only in Poland, but also in other EU countries which previously belonged to the communist bloc.

What is delayed is not lost

Despite the recently observed stabilization of the share of food expenditures in the structure of total expenditures of Polish households, we can expect that this share will be gradually decreasing in the coming years along with further increases in the incomes of Polish households.

Such a conclusion is supported by Eurostat data which indicate that the share of food expenditures in total expenditures in Poland still remains at a clearly higher level than in Western European countries. At the same time, in the coming years we can expect an increase in the share of expenditures falling in the „restaurants and hotels” category. Due to the changing lifestyles and the increasing affluence of the society as a whole, consumers are increasingly frequently eating out instead of preparing meals at home.

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