ESTIMATION OF DEMAND FOR COCONUT IN SRI LANKA: AN APPLICATION OF ALMOST IDEAL DEMAND SYSTEM (AIDS)

Abstract

Coconut is the second most important food and it is a highly demanded agricultural commodity in Sri Lanka. Supply shock and the price fluctuation is one of the major problem faced by coconut consumer. Therefore, estimating coconut demand is a needful topic to predict coconut production. The study estimated the domestic coconut income demand elasticity, uncompensated and compensated price elasticities using the Almost Ideal Demand System (AIDS). Secondary time-series data from 1995 to 2016 were collected from secondary sources. Coconut consumption was fluctuating and the price showed an increasing trend throughout the years. Further, the demand was relatively the same for any price held in time. Estimated income (expenditure) elasticity of coconut is 0.825; the Marshallian (uncompensated) and Hicksian (compensated) price elasticity of coconut are 0.758 and 0.725 respectively. Indicate that, the price and expenditure demand for coconut was inelastic. Therefore, it is considered as an essential good in Sri Lanka. However, the demand would increase shortly with the population growth in Sri Lanka. Hence, it is necessary for increasing the coconut production in the country.