Assessing the Effectiveness of Guaranteed Purchasing Policy on Stabilizing Wheat Production in Iran

Wheat as a staple food of the Iranian people plays a special and essential role in ensuring the food security of the country. Therefore, due to the importance of wheat consumption in the country, several protection policies have been implemented to improve the self-sufficiency of this crop. However, official statistics show that despite the efforts made, the stable production of wheat in Iran remains far from reliable. Hence, for many years a significant portion of the country's wheat consumed is supplied by imports. Therefore, considering the importance of identifying dynamic processes in the wheat production and wheat supply chain in Iran such as climate change and population growth, this study aimed to evaluate the effectiveness of a guaranteed purchase policy in stabilizing wheat production for the time horizon of 2025 as a long-term period.
In this study, by designing a dynamic partial equilibrium model, the processes in the production and supply chain of wheat in Iran were simulated. Dynamic partial equilibrium models are among mathematical programming models and have the capability of simultaneously simulating different aspects of production and trade of goods with respect to dynamic processes in the field. Therefore, in this study, various components of wheat production and different dimensions of supply chain of this product from the beginning of inputs demands to the end of wheat storage were simulated for the period. The demand functions of inputs was estimated by using the profit function approach and the irrigated seemingly unrelated regression estimation method (ISUR). The econometric functions specified for yield, area under cultivation, import and export of wheat were also estimated using the autoregressive distributed lag model (ARDL). After estimating the required parameters, the dynamic partial equilibrium model was first calibrated to reproduce the mean value of the data for the years 2014 to 2016 as the base year. Then, the exogenous variables in the model were predicted using double exponential smoothing and additive Holt-Winters methods for the years 2017 to 2025 and the dynamic partial equilibrium model was simulated for this time period.
The results showed that the adoption of a guaranteed purchase policy in addition to encouraging farmers to allocate arable lands to wheat planting also influences their derived demand for allocating production factors. In this case, with the proper implementation of the policy, in addition to a minimal fluctuation of the area under cultivation, the limitation of the demand for production factors by the farmers is minimal and has the least possible fluctuation. Therefore, the results showed that the wheat yield fluctuation would also be as low as possible under this condition. In the following, the results showed that the total volatility of wheat production in the country will be minimal with the proper implementation of this policy and in the time horizon of 2025 if the guaranteed purchase policy is properly implemented, the average wheat production in the country will be about 12 million tons per year. Based on the results, according to the country's population growth process in the 2025 time horizon, an average of about 9.8 million tons of wheat is needed each year for bread production. In addition, about 2 million tons of wheat will be needed each year for the industrial sector. Thus, in the time horizon of 2025, an average of about 12 million tons of wheat would be needed each year. However, domestic production of wheat after deducting self-consumption, seed production, and process loss would eventually cover about 9.5 million tons of total demand. In this condition, on average, about 84 percent of the country's total consumption of wheat would be provided from domestic production per year.
Suggestion
According to the results, focusing on improving productivity in wheat production in the country with the aim of enhancing the yield of this crop is an important goal that by investing more in agricultural research policies as a complement to the purchase policy can guarantee a stable self-sufficiency. Therefore, in this study, it is suggested that in order to stabilize wheat production in the country, first, the maximum potential of guaranteed purchasing policy should be implemented and, secondly, policies related to wheat yield improvement should be taken into consideration. In this context, future research needs to address the question of how much production elasticity and supply of wheat and the index of self- sufficiency of this product will be due to technological and research changes in yield improvement.
JEL Classification: C02; Q18