Evaluation of the adverse effects of rice planting restrictions on welfare in Iran

Next to wheat, rice is considered as the second strategic crop in the world (FAO, 2016). It plays a very important role in the food security; its share in providing daily calories for the people of the world is more than 20% (Cruz et al., 2009). Considering the water shortage in Iran and rice being a water-consuming products in the agricultural sector, it is necessary to provide appropriate solutions and policies to reduce water consumption in the agricultural sector and deal with the recent droughts and water shortages in most regions of Iran. In this regard, the restriction on rice cultivation in non-northern provinces was proposed by the Ministry of Agricultural in order to manage water consumption. According to the literature in the field, this study makes an attempt to investigate the quantitative and welfare aspects of implementing the cultivation restriction policy on the prices of the domestic and imported rice. Then, it calculates the welfare changes in the society. Therefore, in the following, first the research method is stated, and then the obtained results are used to do the necessary analyses and make practical suggestions. Agricultural policy analysis models provide a context in which it is possible to describe the structure of the market and trade of agricultural products, the behavior of economic agents and market actors as well as the effect of agricultural policies (or the effect of economic changes in general) on the structure of the market and trade. The other advantages of this model include its compatibility with different market conditions, its flexibility in modeling different commercial and market policies (quotas, restrictions, tariffs, guaranteed prices, taxes, etc.), and the possibility of carefully examining the effects of imposing restrictions. In this research, the spatial equilibrium model has been used to investigate the effect of rice cultivation restrictions on the market index as well as the producer and consumer welfare. Therefore, the plan proposed by the government was defined as a scenario in the model in such a way that the amount of rice production in all the provinces of the country (except Gilan and Mazandaran) is considered zero. The data of this study were collected from various statistical sources, such as Iran Statistics Center, Central Bank, Ministry of Agricultural, Iran Customs website, Consumer and Producer Protection Organization and FAO official website. Based on the cultivation limitation scenario in the model, the amount of rice production in the country's provinces, except the provinces of Gilan and Mazandaran, was considered to be zero. As a result of applying this scenario, the amount of domestic production will decrease by 641 thousand tons, i.e., a 32.6% decrease. This decrease in supply increases the price of domestic rice and, thus, increases the production in the remaining two provinces. That is, the amount of production in Gilan and Mazandaran Provinces increases by 2.2% and 2.6%, respectively. Also, applying this policy will increase the supply price by 59.3% and 78.5%, respectively.Based on the estimated model and as a result of the decrease in the market demand, the welfare of the society will decrease by 23.7%. The greater percentage of this reduction belongs to the welfare of rice producers in the provinces where rice planting restrictions have been imposed. This is because the area under rice cultivation is reduced by 31.4%. If the amount of water consumption per hectare of rice is considered to be at least 15 thousand cubic meters, the implementation of the restrictions policy can save three billion cubic meters in the whole country. Also, the lost prosperity per cubic meter will have a value of 1590 Tomans per hectare. Therefore, for the economic justification of this restriction, the saved water should create at least this amount of welfare. If the plan to restrict rice cultivation is implemented, domestic rice production will decrease by 32.6% and demand by 7.5%. On the other hand, the import of this product will increase by 47.5%, which, according to the average price in the year 2022, will require 347 million dollars to allocate. The implementation of this policy will lead to an increase in the supply price in Gilan and Mazandaran Provinces by 69%, while the supply increase in these two provinces will be only 2.5%. Since there is a limit of arable land in these two provinces, increasing the supply will face a serious challenge. Due to the decrease in the demand and domestic supply, the welfare of the society will also decrease by 23.7 percent, which will have a much greater effect on the producer’s side. Also, estimates show that the amount of welfare that is saved per cubic meter of water as a result of not cultivating rice will be 1590 Tomans. Therefore, the substitute use of water should create at least this amount of welfare for the society.