Consequences of Food Safety Abolishing Energy Subsidies on Iranian Meat

مجله اقتصاد و توسعه کشاورزی

Article 1, Volume 30, Issue 1, April 2016, Pages 1-9   

Document Type: Research Article

DOI: 10.22067/jead2.v30i1.42324

Authors

F. Fathi^* ; M. Bakhshoodeh

Shiraz University

Abstract

Introduction: Policies of the Fifth Five-year Socio Economic Development Plan on Iran emphasize on improving factors such as air quality and food security, reduction of the risks and infections that threatens health as well as to change dietary patterns by improving food composition and safety. To this end, the government required to support measures to increase production of animal protein obtained from livestock and poultry. The Iranian targeted subsidy plan started in 2010 which increased energy prices significantly. The increase in energy price after start of targeted subsidies included gasoline (3.6-6.2 times), Kerosene (5.4 times), gas oil (8.1-18.9) and fuel oil (18.8). In terms of supply of animal protein, meat has an important role in nutrition and a major share in family food expenditure so that the willingness to consume it has been obvious in the country's consumer culture. On the other hand, according to international standards, every individual needs 70 grams of protein a day (for average body weight of 70 kg). About one-quarter of this amount (about 25 g) should be animal protein. With commence the second phase of a targeted subsidy plan, it is important to get familiar with the effects of this policy on the livestock and poultry industry. A change in livestock prices due to increased production and transport costs have increased the consumer price and have led to changes in the intake of animal protein and calories. With introduction of this plan and recognition of its need in the country, there has been a need to investigate the effects of increasing energy prices on the livestock and poultry industries and to quantify the effects of these policies. This study is trying to investigate the effects of the increase in energy prices for beef, sheep and poultry meat prices, including on a farm and retail prices under various scenarios, the amount of demand and supply and ultimately the effects on food security in Iran.
Materials and Methods: Equilibrium displacement models (EDMs) have used in applied economics. EDM allows the researchers to focus on result of various supply and demand shifter. In this study,to decide the effects of elimination of energy subsidy policy on meat producers and consumers. The model comprises horizontally linked beef, sheep, and poultry demands at the retail level as well as vertical linkages between the farm and retail sectors.
Results and Discussion: Scenarios for energy price rise are created following three steps. First, a 38 % increase created in prices of energy carriers. Then change in balance, an increase of 50 % considered as the second stage. Up to this point we have about 88 % rise in energy prices, which must raise by another 300 % to reach the global prices which created in the third scenario. Alongside policies for elimination of energy subsidies, there has been a policy of cash subsidies in the country. In this study, to calculate the effect of cash subsidy, it was necessary to calculate the increase in family expenditures in exchange for a certain percentage of increase in the meat price. Therefore, with increase of average meat price, the average family expenditures for meat were also calculated. This average is the value which will pay to families in cash. Like assumptions used in the demand model, if all income rise spent on food, the percentage of increase in expenditure can be calculated. Using this percentage and income elasticity elements, the effect of cash subsidies on increasing meat expenditure can be calculated. Though accepting the premise that all families spend their income rise to buy meat is difficult, it helps us take a general attitude about paying cash that increases demand and shocks the retail demand. Therefore, an increase of 2 and 5 % considered for the average family expenditure. A 2 percent increase in the family expenditure increased the demand for poultry, sheep, beef by about 0.63, 1.13 and 0.92 percent and a 5 percent increase in the family expenditure increased the demand, by 1.57, 2.82 and 2.29respectively.
Conclusion: The results show that if the increased demand is not proportional to the increase in production, it does not have a positive impact on families' food intake. The increases in prices of energy carriers have different effects on meat production. Increased prices of energy carriers encouraged sheep production, because the increase of energy price does not induce a significant effect on the industry which uses pastures as a main feeding resource. Moreover, increased poultry and beef and sheep prices in some scenarios led to substitution with sheep leading to changes in animal protein intake. Because the meat market is competitive, increased demand arising from cash subsidies will not lead to an increase in animal protein intake. To this end, production should increase, so that the price should be reduced and the family protein and calorie intake get close to international standards. In other words, the supply shock effect should neutral and the increase in retail demand cannot help the consumer. It is recommended that the amount of money being paid to families to increase retail demand, be paid to the manufacturing sector to modernize production industry, for example heating devices that help to save energy. Moreover, to counter the negative effects of the increase in the prices of energy carriers, poultry production system that consumes a large share of energy should be modified to increase productivity. Investigating ways to increase productivity and find its effect on the transfer of demand function in an Iranian meat market requires separate study.

Keywords

Equilibrium Displacement Model; Energy Prices; Food Safety; Meat Market

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