Effect of Food Subsidy Reduction on Iranian Consumers

Subsidizing is one of the income transfer channels that are mainly paid in order to protect low-income groups and improve the income distribution. Budgetary constraints of developing countries and necessity of providing the poor with their basic needs are the main reasons of targeting subsidies. Evaluating the current consumption pattern of choosen commodities indicates a significant difference between rural and urban deciles in terms of physical amount and allocated expenditures. So, in terms of quality and quantity, higher income deciles are now more benefited. Consumption behavior of rural and urban consumers also revealed that the subsidized commodities are consumed as a complementary set. Impact of increasing price of the subsidized commodities on calorie intakes, income of deciles and poverty indices was investigated by using different scenarios of price increment. The nutritional effects of increasing price of all commodities together show that rural consumers is affected more than urban ones. In terms of calorie intakes through the most of deciles, increment of rice price affect urban consumers more than rural consumers and in the case of bread a reverse trend is observed. Among the rural and urban income deciles reduction in calorie intakes is also relatively irregular. Considering the income effects of increasing price of sugar and bread indicate that rural consumers experience a more reduction in income relative to urban consumers. The price increment of rice and all commodities together mainly affect low-income deciles in urban regions and high income deciles in rural regions. Based on the results, it is suggested that income deciles in both rural and urban regions to be recognized and subsidized commodities to be distributed among the deciles located under poverty line. However, in case of reduction in subsidies, it should take place by selected commodities and gradually.