Effects of input subsidy on running production function out of optimum point Chemical fertilizer in wheat production case study

To optimize chemical fertilizer consumption in agriculture sector is the issue to be studied in this paper. To this end, subsidy effect of fertilizer on non-optimized consumption of the input for wheat as a specific crop has been taken into account. In this study and through pervious review, production of the irrigated wheat in different provinces has been addressed and most profitable ratio has been extracted. In the next stage, by putting numerical values of both input and crop prices inside the function, optimized level of fertilizer consumption in each province has been determined. The production function which has been applied here is multifactor type with second square root.Wheat price also has been taken from state guaranteed purchasing prices. According to the result, Non- Optimized consumption of chemical fertilizers for producing irrigated wheat is quite clear. Comparison of the production and profit at their optimum points, clarifies that farmers would benefit much grater if the production turn back to its optimum point, and relatively will increase on average. Thus, it can be deducted that subsidy on fertilizers has led to over – consumption of such input. Also current pricing policy of chemical fertilizers which has been based upon direct subsidy payment through cheap chemical fertilizers is an inefficient policy and needs to be reviewed.