Introduction: Given the high concentration of the food industry market in Iran and the events of recent years, including the Covid-19 pandemic, it is essential to examine the potential for substitution between farm inputs and marketing services. This investigation will help determine the derived demand functions. Therefore, this research aimed at examining the possibility of substitution and the elasticity of substitution for farm inputs and marketing services regarding red meat, chicken, egg, and milk products from spring 2015 to winter 2022. The present research introduced two main innovations that would distinguish it from previous studies on the farm input and marketing relationship in Iran. First, to estimate price and income elasticities, the Quadratic Almost Ideal Demand System (QUAIDS) was employed. This model offers more reliable results than traditional methods due to its higher flexibility and precision. Second, this study explicitly incorporated the COVID-19 pandemic to investigate the effect of this shock on demand relationships and elasticities. The pandemic and its limitations directly impacted household food prices and consumption by creating uncertainty and disrupting supply chains. These measures sharply reduced economic activity, ultimately affecting household income and consumer behavior. By incorporating these changes into the model, this research provided a more accurate and up-to-date analysis of the farm input and marketing relationship, the results of which were vital for current market conditions.
Materials and Methods: To investigate the possibility of substitution between farm inputs and marketing services, Wohlgenant’s model (1989) was utilized. This analysis required the examination of price and income elasticities, which were obtained from the Quadratic Almost Ideal Demand System (QUAIDS). In order to calculate the price and income elasticities, the price and per capita consumption data of livestock products were needed. In this research, seasonal time series data for the period of spring 2015-winter 2022 were used. The information related to the price of livestock products was obtained from the Joint Stock Company of the Support of Livestock Affairs. To calculate per capita consumption, we first gathered data on the production amounts of red meat, chicken, milk, and eggs from the Joint Stock Company for Livestock Affairs. Then, by summing the amount of output and the amount of import of red meat, chicken, milk and eggs and deducting the amount of export from the concerned amount and dividing it by the population of the country, the amount of consumption per capita was calculated. The amount of export and import of red meat, chicken, milk and eggs was extracted from the export and import report of the Ministry of Agriculture-Jahad (MAJ) of Iran, which is published monthly. Also, according to the investigation of the possibility of replacing farm inputs and marketing services, the information related to the index of meat processing and storage and the production of dairy products were obtained from the data collected by the Central Bank of Iran (CBI) and the population information was obtained from the estimated data of the Statistical Center of Iran (SCI).
Results and Discussion: The results of the elasticity calculation indicated that red meat and milk were luxury goods for Iranian consumers, and chicken and eggs were essential goods; also, the demand for red meat, chicken, eggs, and fish was inelastic in terms of price. The characteristics of symmetry and constant returns to scale were checked using the Wald test and based on the chi-square statistic. The elasticity calculation results showed that, for Iranian consumers, red meat and milk were considered luxury goods, whereas chicken and eggs were categorized as essential goods. In addition, the demand for red meat, chicken, eggs, and fish was found to be inelastic with respect to price. Therefore, support policies should focus on providing the minimum protein requirements for low-income households through schemes such as electronic food coupons to prevent essential goods from becoming inaccessible luxuries. Furthermore, given the low values of both self-price and cross-price elasticities, utilizing pricing policies for goods substitution may not be very effective in applying optimal demand management and consumption pattern planning. It is important to note that as mentioned earlier, the Wald test was used to verify the characteristics of symmetry and constant returns to scale, based on the chi-square statistic. The results indicated that the characteristics of symmetry and constant returns to scale were upheld. In fact, the marketing sector for livestock products operates competitively with constant returns to scale. The positive elasticity of substitution found for red meat, chicken, eggs, and milk suggests a substitution relationship between farm inputs and marketing services. Additionally, the significant elasticity of substitution for chicken, eggs, and milk confirms the existence of substitution between these inputs.
Conclusion and Suggestions: Considering the potential for substitutability among farm inputs, the implementation of waste reduction methods is crucial. This includes utilizing more skilled labor in the slaughtering and processing of products, enhancing equipment and technology in poultry farms, supporting the growth of packaging industries, and improving transportation processes. These measures are suggested to extend the shelf life of products.