A Model for the Wheat Market in Iran

A model of the Iranian wheat market is specified and fitted to data from 1981-2008. Several diagnostic tests were employed in the analysis to determine the specification of the model. Despite the simplicity of the model and data problems, an examination of the econometric model leads to several 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) to examine the supply response. The estimated short run price elasticity is not fairly low and is -0.2 because wheat is a strategic good that government has the responsibility of its supply, so with increasing its price, government follow some strategies to decrease the amount of wheat that had been supplied, on the other hand, price elasticity of supply is not low and is significant at five percent level that it denotes that the amount of supply affected largely from producer price in last period. The results obtained from production function is that all the factors have positive effect on production except fertilizer that have negative effect on wheat production and with decreasing the amount of fertilizer in wheat production, yield will increase. The demand function showed that wheat is a Giffen good and barley is an appropriate substantial good for wheat. Income elasticity of demand for wheat can obtain from this model and it is -0.77. It means that each 1 percent increase in consumer income contributes to the annual decrease in demand for wheat approximately 0.77 per cent. This indicated that wheat is an Inferior good in Iran either. The coefficient of trend variable and its significance and sign showed that consumer taste and preferences to wheat is going to increase year by year. The import demand function of wheat that estimated in this study showed that import doesn’t influence from domestic price ratio and gross domestic product and the unique parameter that can decrease the amount of import is domestic production.