Demand Analysis of Domestic Tea Market in Bangladesh: An Empirical Investigation

Abstract

Higher population pressure and efficient input-output marketing along with less farmland availability create severe environmental degradation in the rural and urban areas in Bangladesh. Satisfying continuous demand of consumers with proper flow of supply becomes a challenge for marketers. Therefore, demand analysis is one of the significant issues in consumption economics, where individual consumption responsiveness largely determines the economical development of a country.

Emergence of new entrants, tariff and trade barriers, unfavorable price trend and globalization has made Bangladesh tea industry very competitive. Knowledge about future demand and production of tea facilitate marketers to achieve a competitive position in the market. This study attempts to design a justified tea demand response model considering both the price and non-price variables using econometric representations. It has been assumed that when price is less sensitive with the changes of demand, then non-price factors as income, population size, advertisement and price of substitute products may affect the elasticities of demand.

A mixed-methods approach has been applied in this study. Both qualitative and quantitative data is collected to make a comprehensive understanding of the research problem. The qualitative data is collected with the in-depth interviewing method and analyzed with content analysis. On the basis of the findings of qualitative data, a tea demand model is designed to explore the relationship between dependent and independent variables.

Quantitative data is collected from the secondary authentic and reliable sources. For empirical analysis, time-series data is one of the important data. In this study, the aggregated time-series data from 1972-2017 of the concerned variables were collected. To measure the short-run and long-run tea demand elasticities, dynamic Error-Correction model (ECM), has been used. Along with, for forecasting possible tea consumption and production, Autoregressive Integrated Moving Average (ARIMA) model is applied in this study.

Results reveal that population growth significantly affects tea demand elasticity rather than price and income elasticities. Lagged consumption behavior form habit and has a positive influence on tea demand elasticity. A difference between short-run and long-run elasticites is reflected in this paper.

The ARIMA model selection criteria (AIC and BIC) reveals that ARIMA (1,1,0) and (0,1,0) explain a growing tendency of local demand and production of tea. The projected data confirm that the expected internal consumption increment (36%) is much higher than the increment of tea production (27%) by 2025, comparing the base period of 2017. Therefore, tea marketers and decision makers should concentrate more on increasing production to meet the growing internal consumption. This study signifies by providing concrete information about the future required amount of tea need to produce domestically. Some substantial guidelines and actions have been proposed to initiate in this paper.