Engel's Law demonstrates that rises in income are followed by rises in food expenditure and an even higher rise in expenditure with other goods, so that the share of total income spent on food declines. Poorer and more vulnerable households spend a larger share of their income on food. The household share of food expenditure (as a proxy for income) is an indicator of household food security, especially helpful to understand the impact of food price fluctuations on the quality and quantity of household food consumption.
Changes in food prices may result in a higher share of total household expenditure on food. Very poor households consuming the lowest-cost foods may be unable to substitute for cheaper foods, reducing dietary quality or quantity consumed, and non-food expenditures that may be equally needed (e.g., on health and education) (Lele et al., 2016).
Method of Construction
This indicator is commonly calculated with data from Household Consumption and Expenditure Surveys (HCES) that include the monetary value of household consumption disaggregated into food and non-food items. The share of household expenditure on food is equal to:
The monetary value of non-purchased items, including consumption from own production and in- kind payments and transfers, must be imputed from available price information.
While no internationally agreed thresholds exist, Smith and Subandoro (2007) have proposed that households spending over 75% of their income on food are considered very high, and consequently food insecure, whereas 65-75% income expenditure on food is high, 50-65% is medium; and less than 50% is low.
This is one of the several indicators included in the ADePT-FSM (Food Security Module) software package, a free standalone software developed by the Food and Agriculture Organization (FAO) and the World Bank that allows users to easily derive food security indicators from household survey data. The software can be downloaded on the World Bank website. Please also see pages 35-36 of Moltedo et al. (2014) for detailed instructions on the analyzes of food security using household survey data, and Moltedo et al 2018, which offers instructions for using ADePT-FSM to generate diet-related indicators from household data. This indicator is also included in the FAO suite of food security indicators (FAO, 2016) as the share of food expenditures of the poor (population belonging to the first income quintile).
The household food expenditure share indicator is used by governments, non-profits and international organizations to assess trends in food security, and identify populations vulnerable to price shocks (Lele et al., 2016). For example, the World Food Programme (WFP) uses this indicator, often in combination with other indicators such as the Food Consumption Score (Rose et al., 2013).
Strengths and Weaknesses
Household share of food expenditure is useful because it is its sensitive to food price fluctuations, especially for staple foods. Another strength is that it can be derived from HCES data, which are typically nationally representative. However, this indicator may underestimate the food expenditure share if the survey data do not adequately capture the value of home production of food (Rose, 2012). The inclusion (or exclusion) of consumption from food produced at home and consumed away from home potentially limits comparability of this indicator across countries when calculated with HCES, because definitions of food and non-food expenditures differ across countries (Schmidhuber, 2003).
HCES data can be used to calculate this indicator. The World Bank Microdata Library has the most comprehensive and publicly accessible repository of data. Otherwise, data can be accessed,often for a fee, from the National Statistics Office, though each country has its own policies and procedures. The International Household Survey Network (IHSN) is an informal network to promote data standards and dissemination.