Agricultural Sector Support Estimation (Emphasis on Exchange Rate Policies)

Purpose: The future growth of the demand for food consumption will bring significant opportunities for agriculture in the world, both quantitatively (the amount of consumption and variety) and qualitatively. Nevertheless, this sector is faced with many challenges to respond to the future demand in a sustainable way due to the changing conditions of production, including weather, etc. To strengthen the capacity of this sector so that it can respond to future challenges and opportunities, the use of different policies and tools is always considered important for the development plans of countries. Different countries of the world support this sector in various ways. The investigation of political developments in the field of agriculture in the world shows that a number of countries have always provided support based on past policies and a number of countries have taken new measures. But the type and amount of support is not clear in many countries. In this regard, it is interesting to note that industrialized and developed countries, as supporters of the free market system, provide the most support to the agricultural sector.
Methodology: In most countries, the amount of support for the agricultural sector is estimated based on the indicators introduced and modified by the Organization for Economic Cooperation and Development. It includes agricultural producer support estimate (the annual monetary value of gross transfers from consumers and taxpayers to agricultural producer), agricultural general services support, agricultural consumers support estimate (the annual monetary value of gross transfers from or to consumers of agricultural commodities), and the total support estimate for the agricultural sector.
Findings and Discussion: In case of an increase in marketing costs, the price supported by the government's pricing policies, exchange rate and budget support will increase with the aim of supporting the community of agricultural producers. The foreign exchange policy of allocating government currency to the import of agricultural products has gained different unexpected results every year. In 2016, this policy measure improved the situation for supporting agricultural producers, whereas, in 2017, the establishment of preferential currency reduced the support of all agricultural products. The continued establishment of official currency and the stabilized currency system in the years 2017-2019 negatively evaluated the protection of consumers. Different currency policies achieved different results every year. In those years, the policy of allocating preferential currency to the import of agricultural products worked to the detriment of the consumers of the agricultural sector. In 2017, different conditions were established and the establishment of government currency allocation policy increased the support of agricultural consumers. On average, the support of general services took a different share of the total support of the agricultural sector in each year. In 2016, with the change of foreign exchange policy and the allocation of government currency to the import of agricultural products and the strengthening of producer support, the share of support for public services was 13%. In 2017, considering the total support, this percentage was negative and equal to 22%. In 2016, the total support for the agricultural sector was evaluated positively, while, in terms of government currency allocation, the total support in 2018-2019 was negative.
Conclusions and Policy Implication: The negative results about the producer, consumer and total support indicators show that the combination of support policies and macro policies and exogenous variables such as border prices has not been effective. Also, with regard to the wide range of support tools, alternative policies with more optimal results can be chosen. Mandatory and suppressive pricing policies at the producer level can bring additional concerns to support domestic producers at the same time as global prices increase and the value of the national currency weakens. In the current situation of Iran and the increase in the exchange rate, it is necessary to take cautions in applying such policies. When the budgetary support decreases, it is obvious that budgetary restrictions cause the tendency to take distorting policies that impose less financial burden on the government. Therefore, it seems that, by gradually moving from adopting distorting policies towards budgetary and support payments, especially in the field of infrastructures, more favorable and optimal results can be gained.