Rice Market Liberalization in Iran: Welfare and Poverty

In an effort to achieve and maintain national self-sufficiency in basic agriculture products a variety of programs were adopted by the post-revolution government in Iran in the 1990s. A single rate system of foreign exchange was substituted for the multi rate one for several years.  With the aim of providing a certain environment for the private sector to be actively involved in staple food markets. As far as rice marketing is concerned, the government supplies only part of the domestic consumption of rice, namely the subsidized rice, and encourages the private sector to supply the rest of rice with a desired price almost close to the world level. In this study the welfare effects of directing the current intervened rice market towards a free market with no controlled policy is evaluated applying a partial equilibrium analysis to the 1978-1999 data. Then, the link between rice price change or accordingly real income and poverty is calculated by determining the proportion of households whose income is below the poverty line. The results show that while the loss in producers’ surplus is relatively high, rice consumers can gain from rice market liberalization. However, because of the decrease in the real income of households, the poverty rate is expected to increase by almost 27 to 76 percent in rural areas but remain unchanged in urban areas.