Estimation of energy demand function in agricultural sector of Iran

Nowadays, factor of energy besides other factors such as labor and capital plays an important role in agricultural production. Energy is used as a factor for agricultural machines and instruments. Important discussion about this subject is the reaction rate of energy demand to price variations of energy and other factors. So, this study estimates the functions of energy demand in agricultural sector including electricity and diesel, and calculates the price and substitution elasticity (Allen and Morishima) between the used factors. For this purpose, trans-log cost function is used. The results showed that, the relationship between factors such as electricity and diesel, electricity and capital are substituted and the same, for diesel and capital are complemented. In general diesel in comparison with electricity is more sensitive to the variation of price (diesel & electricity). So, regarding that electricity is more cleaner and cheaper than other energy factors, it is recommended that policies encourage electricity demand and reduce diesel consumption; and for this purpose it is better to apply price policies such as diesel directly and consequently electricity to be affected.