Estimating the Increase in the Cost Price of Agricultural Crops resulting from the Elimination of the Input Subsidies (A case study: Rice in Mazandaran Province)

Document Type : Research Paper

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Abstract

The Inputs subsidy is one of the common economic policies to support agriculture.Considering the government's decision on making the adjustments for subsidies, the effects of such decision on the increase of the cost production of rice in Mazandaran province has been investigated in this study. Because the amount of inputs consumption, and yield in deferent area is not same; the supported inputs (subsidized) among the farmers is different. In this study, measuring the effect of the subsidy modification on the cost production of rice has been considered using the field data. The data were derived from 150 questionnaires filled between producers of different varieties of rice in Mazandaran during 2009-2010. The used methode is included Translog cost estimation function as well as cost share of production inputs by using seemingly-unrelated regression models. The results show that one percent change in the inputs (seed and fertilizer) price causes to 0.06 percent increase in the cost of all rice varieties and 0.22 percent increase in the cost of high-quality varieties in Mazandaran. Moreover, obtaining the trend of changes in the input price after the "Objectively Subsidies Elimination Plan" and its effect on price elasticity, it was determined that eliminating input subsidies leads to 0.05 percent increase in the cost of all rice varieties and 0.17 percent increase in the cost of high- quality varieties in Mazandaran. Considering the differences in effects of eliminating subsidies on cost products, it is suggested that reducing the amount of support should be based on the type of the inputs.

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