Iranian wheat policy: Implications for trade

Until the mid- to late-1980s, the Iranian government's wheat policy was based on low consumer prices and guaranteed purchase prices below impart parity. This cheap-food policy highlighted the country's attempts to stimulate industrial development at the expense of the agricultural sector; however, the introduction of the First Five Year National Development Plan, in 1989, heralded a shift in economic policy in the direction of economic liberalization. Since that time, input subsidies have been phased out; the government procurement program has been limited to selected crops; and producer prices for some commodities (including wheat) have been raised toward import parity. The main objective of this new policy is to make the agricultural economy more market-oriented and to encourage sustainable development. The current wheat policy is a mixture of a consumption subsidy acid an import subsidy. The purpose of this chapter is to examine this evolution of Iranian wheat policy within an economic welfare framework. The present Iranian wheat policy is analyzed graphically. In the analysis, the shift in government policy is viewed as an increase in the political weight given to wheat producers. At the same time, continued economic development of the country is also likely to lead to more efficient and less distortionary methods of raising government revenue. This should lead to a reduction in the dead-weight losses of raising taxes. Both factors are expected to increase the appeal of consumer subsidies on wheat as opposed to import subsidies or a combination of the two subsidies.