The Impacts of Wheat's Guaranteed Price on its Production in Iran

The government intervenes in the wheat market because it is important to Iranian household food basket and its self-sufficiency issue. Such cases about government intervention in the market for producer support and increasing the incentive of production are guaranteed price policy. So, this study will be examined the effect of increasing the guaranteed price of wheat to its world price levels in 2013 on the regional market’s index of this product by using spatial equilibrium model. The required information and data to solve this model has been collected from the Ministry of Agriculture Jihad, Government Trading Corporation of Iran, Islamic Republic of Iran Customs Administration, Islamic Republic of Iran Road Maintenance and Transportation Organization, Central Bank of Islamic Republic of Iran, Food and Agriculture Organization and the previous studies. This model has been estimated for 2010 as the latest year that was existed the required information about it. The results show that the increasing of wheat guaranteed price resulted in production growth in all provinces. The greatest percentage of increasing in this production happens in Ardabil, Khuzestan, South Khorasan, Fars and East Azerbaijan provinces. In average, the wheat production increase 54.32 percent in these provinces. With this policy applying, the amount of wheat consumption is reduced in all provinces. Because the wheat demand is inelastic in all the provinces so the amount of consumption reduction is negligible. The increasing of wheat guaranteed price increase the volume of wheat exported from the province and reduces the volume of wheat imported into the province in most of provinces. Finally, the results indicate that the effect of increasing the guaranteed price of wheat is composed the excess supply in market of East Azerbaijan, West Azerbaijan, Ardebil, Ilam, Khorasan Razavi, Khuzestan, Fars, Kurdistan, Kermanshah, Golestan, Lorestan, Markazi and Hamadan provinces.