Effect of Exchange Rate Misalignment on Agricultural Producer Support Estimates in Iran

Considering the importance of exchange rate misalignment in investigating agricultural support policies, the impact of exchange rate misalignment on agricultural producer support estimates was studied. In this study, first, real exchange rate was calculated by using an Autoregressive Distributed Lag model (ARDL) and then long-run equilibrium exchange rate and the amount of misalignment were determined. Moreover, market price support index and producer support estimates were calculated for selected crops (wheat, barley, corn, rice and dates) using nominal and equilibrium exchange rates. The impact of exchange rate misalignment on these indices was also estimated. The equilibrium exchange rate was estimated over 1973-2007 period and producer support estimates was calculated for period of 2002-2006. The results showed that agricultural support levels were highly sensitive to alternative exchange rate assumptions. Exchange rate misalignment showed support for agricultural producers less than its actual value during the selected period (2002-2006). In addition, the impact of generalization of calculated PSE for selected products to the total agricultural production was in proportion to the share of selected commodities in the total value of agricultural production.