Analyzing the Effects of Reformed Raw Milk Floor Price Support Policy on Supply Chain of Dairy Products

Introduction: Variation in the supply and demand of agricultural products causes price changes and threatens the production of products and food security. One of the main and determining factors for ensuring food security is the proper determination of prices and their calculation based on the correct criteria and suitable for the conditions of the goods in the country and the region in question. Therefore, in agricultural planning, it is necessary to pay attention to unpredictable factors such as the price of agricultural products. The pricing policies of the government during the supply chain of agricultural products have always been one of the challenges faced by the policy makers of this sector, and one of the difficult tasks of the policy makers is to choose between the set of scenarios that are feasible in the implementation of the agricultural pricing policy, from the executive and legal point of view. Therefore, this study aimed at investigating the scenarios of increased price support policy and its effects on the consumption of raw milk at the beginning of the supply chain as well as dairy products at the end of the chain in 2019.
Materials and Methods: The required data were collected through the databases of Statistical Center of Iran (SCI), Ministry of Agriculture-Jahad (MAJ), Iran Dairy Industries Society (IDIS), The Islamic Republic of Iran Customs Administration (IRICA) and Road Maintenance and Transportation Organization (RMTO). Considering the continuity of different markets along the supply chain to model relationships between variables, from the partial equilibrium model as well as linear dynamic panel model, linear-logarithmic supply function and Almost Ideal Demand System (ADIS) were used to estimate the parameters in raw milk supply functions, dairy products supply functions and dairy products demand, respectively.
Results and Discussion: The study results showed that the amount of raw milk production in the previous period had a positive and significant effect on the amount of production in the current period, so that by increasing one ton of milk in the previous period, its production rate in the current period would increase by 0.31 percent; on the other hand, as a result of applying the floor price policy in different price scenarios, the supply of raw milk by raw milk producers would increase, enhancing its absorption by factories producing dairy products and as a result, the amount of production of dairy products would increase. Due to the fact that the cost of dairy products would increase for factories to buy raw milk, the supply prices of dairy products would increase as well. A proportion of the surplus production of factories would also be exported, which were reported 135,749 tons of yogurt and 97,672 tons of cheese according to the statistics of the Ministry of Agriculture-Jahad (MAJ) and in 2019. Also, according to the elasticities of the supply and demand functions of dairy products, the amount of additional welfare changes of raw milk producers and factories producing dairy products increases by 10 to 100 percent increase in the floor price support policy, while this would reduce the welfare surplus of the consumers of dairy products. In addition, the social welfare surplus increases following the implementation of the floor price increase policy, so that in the case of applying the floor price policy by 10 and 100 percent increase, its amount would reach 8985 and 160537 billion IRI rials, respectively.
Conclusions: The general conclusion of this study indicates that reforming the floor price policy above its equilibrium price in 2019 leads to an increase in the welfare of producers due to an increase in the price of raw milk and dairy products. On the other hand, it leads to a lack of support and a significant decrease in the welfare of consumers of dairy products due to the increase in the price of these products, which in the long run will lead to a decrease in the consumption of these products per capita in the society. Social welfare has also increased due to the increase in producers' welfare due to the reform of the floor price policy. Based on the importance of milk and dairy products in the basket of consumer goods of households and the fact that they are considered basic goods in the country and are relatively cheaper than protein products and are necessary for maintaining the health of people in any society and expanding its consumption culture, it is suggested that the government policies to support consumers dairy products in order to increase their welfare and also to increase the consumption of these products along with the appropriate price and maintain the quality of these products, such as the subsidy policy (which was included in the budget to a greater extent in previous years) and also apply the cheap food policy. In the long run, this can lead to an increase in production by considering the additional increase in the welfare of producers through the application of the floor price policy and benefit both producers and consumers.