Estimation of Tea supply and demand elasticities in Iran(Application of threshold regression model)

Tea is one of strategic products in north of Iran with a history of 120 years. However, Per capita consumption of tea in Iran from 1977 to 2016 reached from 2.1 kg to 5.1 kg. Increasing consumption lead to accurate estimation of tea demand and supply and would help to adopt effective policies.

annual prices and demand data is used for estimation Threshold regression model. The supply elasticities are calculated by original Nerlovian partial adjustment framework.

The Hansen test showed that per capita income had two regimes (one threshold) in this study. The level of income threshold is about 20 million rials. This study, with the estimation of nonlinear structure in tea demand, showed that, income elasticity for both high and low income level is positive and significant

For low-income groups, tea is an inelastic and essential commodity that tends to become more elastic as income increases. Income elasticity of demand is positive and significant for both high and low income groups. The results showed that the possibility of increasing production by increasing the cultivation area is limited.