Pursuing International Competitiveness in Iranian Wheat Policy

After the war with Iraq which ended in 1988, Iran implemented several agricultural support policies based on Five-Year National Development Plans. The main objective of these plans in the agriculture sector was to make the agricultural economy more market-oriented and to encourage sustainable agriculture. This paper investigates the extent to which Iran's government has been able to achieve this objective in the case of wheat. For this purpose, Producer Support Estimate (PSE) and Consumer Support Estimate (CSE) indicators for Iranian wheat are calculated and discussed. Generally, producers’ and consumers’ support is achieved chiefly by distorting market prices. As will be shown, from 1989 to 2006, the PSE increased about 20 times (in real prices), while the level of production increased 1.69 times. However, the PSE had no significant causal relationship with either wheat yield or its area under cultivation. With respect to consumers’ support, this was found to be positive for Iranian wheat, a result that is uncommon for most developed and developing countries. Recent agricultural policies in Iran do not appear to encourage international competitiveness for wheat and are making the wheat economy more dependent on support prices. We suggest that policy makers reconsider the method of subsidization and the pricing system, at least in the case of wheat. JEL:Q1