Tree Nuts Demand Analysis using the LA-AIDS Model: A Case of the Indian Economy Paradox

Abstract

India is one of the world's largest producers of tree nuts, yet it paradoxically remains a net importer of these commodities. This study aims to analyze the demand for imported tree nuts in India, motivated by the need to understand the factors contributing to this imbalance. The primary objective is to calculate income elasticities and own- and cross-price elasticities for five categories of imported tree nuts using the linear approximate almost ideal demand system model. Data is sourced from monthly import records from the United Nations Comtrade database covering 2014 to 2022. The tree nuts considered are almonds, cashews, pistachios, walnuts, and hazelnuts. Key findings reveal all imported tree nuts are normal goods. Cashews exhibit income elasticity (1.2), indicating a significant demand increase with rising incomes, while other nuts show income inelasticity. Cashews are price-elastic (-1.3), while other nuts are price-inelastic. Compensated cross-price elasticities indicate notable substitution effects, particularly between almonds and cashews. The study recommends enhancing domestic cashew production to meet growing demand and developing targeted marketing strategies to address competitive dynamics within the tree nut market. These strategies aim to reduce India's dependency on imports and promote a balanced, sustainable domestic market.