Welfare Impacts of the Subsidy Reform Policy on Wheat, Flour and Bread Market in Iran

Abstract
This study evaluates the economic effects of the liberalization of energy carrier prices on the wheat, flour and beard markets, using price endogenous mathematical programming model. The results showed that the reduction of subsidies resulted in decrease in wheat production and increase in price, import and wheat allocated to flour in the wheat market and as well, will lead to increase in price, import and flour allocated to bread in the market of flour and bread. Following these changes, the removal of energy subsidies in the short term and long term, cause decrease in the consumer’ surplus, net exports as well as increased producers surplus, government gain and the costs of production of flour and bread. Finally, it is recommended to implement complementary policies (such as improved seeds, reducing waste and improving flour and bread production technology) coinciding with performing the reform to compensate the reduction in social welfare.

JEL Classification: C02, C61, D18, D60, I31, I38, L11

Keywords:
Subsidy, Energy, Welfare, Market, Wheat, Flour, Bread