Qat Consumption in Yemen Severe Effects on National Economy [Archives:2001/52/Business & Economy]

Qat is a stimulant leaf chewed on a daily basis by a large percentage of Yemeni adults, who spend a high percentage of their income on Qat. Chewing Qat not only involves a loss of time and income for the chewers, but is believed to have many negative social and health repercussions. This note draws upon recent data to examine the impact of Qat on household expenditures in Yemen.
Recently, the Qat issue has received extensive coverage in the local media and has been addressed in the Second Five Year Plan. President Saleh has initiated some actions to tackle the Qat problem, by banning chewing in government buildings and during official duties, and urging low-income people not to deprive their families from basic needs. The President has concluded that the Qat problem will not be resolved by a political decision but by creating alternatives for Qat chewers (e.g., recreation areas) and by creating economic alternatives and incentives for farmers not to cultivate Qat. It should be noted that this is not the first time that the government of Yemen has tried to tackle the Qat problem. A former Prime Minister tried to discourage the use and cultivation of Qat in 1972, but his initiative failed.
Qat is an agricultural, social, and economic phenomenon in Yemen, and most Qat chewers are usually willingly to forego food in favor of buying Qat [Milich and Al-Sabbry (1995)]. Therefore, this note first presents the expenditure on Qat relative to other food and non-food commodities, in order to give the readers a clear picture of Qat expenditure by Yemeni consumers. Second, it tries to estimate the income elasticity of Qat consumption by ascertaining how Qat chewers change their spending on Qat as their income change.
The hypotheses in this analysis are based on Engels and Bennetts laws, which explain the behavior of households in allocating their budget on food and non-food items. Engels law states that the proportion of a familys budget devoted to food declines as the familys income increases. Bennetts law states the starchy staple ratio (low calories commodities and mostly grain and root crops) declines as household income increases.

Data
This note utilizes the 1998 Household Budget Survey (HBS) to examine how households budget among food and non-food expenditures. The 1998 HBS was conducted on 15,120 households by Yemens Central Statistical Office (CSO) to capture the different living standards between urban and rural areas and between higher and lower income households. The Survey results show that total expenditure per family is 30% higher in urban than in rural areas, with a monthly average expenditure per family equal to YR 38,351 (US$ 228) in urban areas and YR 29,380 (US$ 175) in rural areas. Between 1992 and 1998, food expenditure as a share of household expenditure decreased slightly, from 66% to 64%, which confirms that people living standards may have improved. However, the overall standard of living is fairly low, as suggested by the fact that non-food expenditures as a percentage of total of household expenditure is only 36% in 1998.
Food commodities in the 1998 HBS consist of 13 items, including Qat. Non-food expenditures consist of 15 items. For the purpose of this study, Qat has been excluded as a separate expenditure item and both food and non-food items are regrouped into four groups. The food commodities include: (1) cereals and pulses; (2) fruit and vegetables; (3) animal products and oils; and (4) other (coffee, tea, spices, sugar, tobacco, etc.). The non-food commodities include: (1) housing costs and durable goods; (2) clothing and makeup; (3) education and health; and (4) others (transportation, communication, personal services and remittances).
The categories of incomes and expenditures are divided into 15 classes, starting with YR 0-5,000 and ending with more than YR 100,000. Because of the non-availability of income data, and given the strong correlation between the distribution of households by expenditure level and income level (as shown in the following section) this study assumes that the budget shares of food and non-food at a given expenditure level will be similar to that at the corresponding income level. Moreover, Qat expenditures in the HBS are associated and grouped with spending on tobacco. Some studies have estimated that tobacco spending constituted about 24.4% of total spending on Qat and tobacco. Therefore, Qat expenditure was derived as 75.6% of the total expenditure on tobacco and Qat.

Share of Qat Expenditures in Total Household Budget
The household budget share on Qat had been previously estimated at between 10% to 28%.1 A recent study by Ward and Gatter (2000), using the 1992 HBS, found that Qat spending is about 5-10% of total household expenditure among different income levels.
The data of the 1998 HBS confirms the budgetary allocations on Qat are in similar ranges specified in the previous studies. While on average, 8.6% of household spending is allocated in Yemen for Qat (with slightly higher allocations in urban areas), there are significant differences in the ratio of spending on Qat across different income categories. For the category of YR 0-5,000 of monthly spending, only 2.9% is allocated to Qat. The ratio increases as income increases, peaking at 9.7% of total expenditure for the YR 60,000-70,000 monthly expenditures. The ratio starts to decline for higher spending categories reaching 7.9% for more than YR 100,000 monthly expenditures.
As discussed above, data from the 1998 HBS show that the share of Qat in household expenditures, or as a ratio of food spending, increases as income rises. For the poorest households, expenditures on Qat are less than 5% of total expenditures. Families with lower incomes and expenditures spend proportionately less on Qat than on food and non-food items as well.

Income Elasticity for Qat
Using expenditure categories, it is possible to estimate the income elasticity of Qat demand at different income (expenditure) levels. The income elasticity is the percentage change in the consumption of Qat for every percentage change in income. The average income elasticity of expenditure on Qat in Yemen across income categories is 1.20, 1.31 in urban areas and 1.19 in rural areas (excluding highest and lowest income categories).

It is worth noting that the elasticity tends to decline as income increases. That is to say, Qat consumption among low-income consumers is considerably more responsive to changes in income than among high-income consumers. In fact, there is a sharp drop-off in elasticity for the rich, with Qat consumption for the three richest groups quite inelastic, at around 0.2. On the other hand, Qat expenditures are fairly elastic to income changes for those in low-income and middle income households.

Conclusions
Qat consumption absorbs about 9% of total household spending in Yemen. And if the two household budget surveys for 1992 and 1998 are comparable, it seems that spending on Qat in Yemen is increasing.
Relative spending on Qat is, however, less among poor households than richer households. The ratio of Qat expenditures to food spending is also lower among poorer households.
Qat consumption is quite elastic with respect to income changes. This holds true for all income categories with the exception of the three highest income and expenditures categories of the 1998 HBS. Generally, the elasticity decreases as income increases.

For a review of previous studies and estimates, see Ward and Gatter (2000).

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