How Price Sensitive Are Consumers? Evidence on the Demand Elasticity of Sugar-Sweetened Beverages in Bangladesh

Abstract The consumption of sugar-sweetened beverages (SSBs) has risen significantly in both developing and developed economies, despite well-documented evidence of their adverse health consequences. Although price-based regulations, primarily through SSB taxation, are widely recognized as a policy instrument to reduce consumption and improve public health outcomes, interventions targeting SSBs have received relatively limited attention in Bangladesh. Using the 2022 Household Income and Expenditure Survey (HIES) data and the Quadratic Almost Ideal Demand System (QUAIDS) model, we quantify own- and cross-price elasticities of SSBs to assess the responsiveness of SSB consumption to price changes.

We document a substantial escalation of SSB consumption, rising from 13.2% of households in 2016 to 36.7% in 2022. The estimated uncompensated own-price elasticities are -1.060, -1.103, and -0.880 for soft drinks (liters), tea consumed outside the home (cups), and tea consumed inside the home (kilograms), respectively, suggesting pronounced price responsiveness, particularly for soft drinks and tea outside the home. Own-price elasticities for soft drinks and tea outside the home are higher among rural and low-income households compared to urban and high-income households, indicating greater sensitivity among the marginalized groups.

In contrast, the elasticity estimates for tea consumed inside are higher in urban areas. The cross-price elasticity estimates suggest that soft drinks and tea consumed at home are complementary goods in the uncompensated case, while most SSB categories are found to be substitute goods across both uncompensated and compensated specifications. The findings highlight the potential effectiveness of targeted taxation policies in curbing SSB consumption, particularly soft drinks, and promoting public health in Bangladesh.