A Model for the Wheat Market in Iran

A model of the Iranian wheat market is specified and fitted to data from 1981-2008. Severaldiagnostic tests were employed in the analysis to determine the specification of the model. Despitethe simplicity of the model and data problems, an examination of the econometric model leads toseveral conclusions with possible important policy implications for the wheat economy in Iran.The general results rejected adaptive expectation (AE) model in favor of partial adjustment (PA) toexamine the supply response. The estimated short run price elasticity is not fairly low and is -0.2because wheat is a strategic good that government has the responsibility of its supply, so withincreasing its price, government follow some strategies to decrease the amount of wheat that hadbeen supplied, on the other hand, price elasticity of supply is not low and is significant at fivepercent level that it denotes that the amount of supply affected largely from producer price in lastperiod. The results obtained from production function is that all the factors have positive effect onproduction except fertilizer that have negative effect on wheat production and with decreasing theamount of fertilizer in wheat production, yield will increase. The demand function showed thatwheat is a Giffen good and barley is an appropriate substantial good for wheat. Income elasticityof demand for wheat can obtain from this model and it is -0.77. It means that each 1 percentincrease in consumer income contributes to the annual decrease in demand for wheatapproximately 0.77 per cent. This indicated that wheat is an Inferior good in Iran either. Thecoefficient of trend variable and its significance and sign showed that consumer taste andpreferences to wheat is going to increase year by year. The import demand function of wheat thatestimated in this study showed that import doesn’t influence from domestic price ratio and grossdomestic product and the unique parameter that can decrease the amount of import is domesticproduction.