Determinants of aggregate household demand for edible oils in Imo State

Edible oils substitutes seem to face a stiff competition in Imo State. This is because they are put to the same use in human diet. Groundnut oil seem to be the worse hit as demand for it is going down in the state, hence, the need to estimate its response to changes in it own price, and that of its substitute as well as consumers’ income. The data for the study were obtained from a stratified random sample of 92 consumers of the two products across the three agricultural zones in the state, using a well structured questionnaire. Analysis was done using both economic models and econometric tools like demand elasticities and choice dichotomous (logit) model. The study revealed that palm Kernel oil is price elastic but may not be a close substitute to groundnut oil as a piriori expected since its gross price elasticity is less than unity and negative. Surprisingly, increase in consumer’s income will lead to less than proportionate increase in demand for palm kernel oil but gives a more than proportionate increase in the demand for groundnut oil in the area. This makes Palm kernel oil an inferior product when compared with groundnut oil though the high cost of production has reduced the relative competitiveness of the two edible oils of plant origin in the state. At 10% significant level, there is the likelihood that palm kernel oil will be preferred to groundnut oil when its own price increases. The likelihood may decrease with increase in consumers’ income. Similarly, at 5% significant level, its preference may decrease with an increase in consumers’ age and formal educational attainment. The reasons may be high level of education and also may be due to the fact that age exposes the low quality of Palm Kernel oil and high risk of cardiovascular problems associated with it than with groundnut oil. The study suggests that palm kernel oil revenue can be increased if the product is sold at a reduced market price while higher prices will favour the revenue generated from groundnut oil. Palm Kernel oil should be refined further to improve its taste, colour and texture to enable it stand the competition posed by refined groundnut oil in the area.