Investigating the Effects of Removing the Preferred Exchange Rate of Agricultural Inputs on Agriculture Sector of Iran: RDCGE Approach

The policy of allocating preferential exchange rate to basic goods have always been a point of debate between the supporters and opponents of its continuation due to either concern about the negative effects of its removal on the vulnerable groups in the society or  uncertainty about fulfillment of its intended goals. In addition, at least until early 2022, no suitable alternative policy has been adopted for the allocation of preferential exchange rate to basic goods and undoubtedly, the prerequisite for adopting any alternative policy is to estimate the effects of removing the preferential exchange rate on economic sectors. Therefore, this study aimed at estimating the effects of the shock caused by eliminating the preferential exchange rate of agricultural inputs within three scenarios (25%, 50% and 100%) on the economic variables of the agricultural sector. For this purpose, the data was collected from the Social Accounting Matrix (SAM) of 2011 and the input-output table of 2016 and their analysis was done with the Recursive Dynamic Computable General Equilibrium (RDCGE) model. The results showed that the removal of preferential exchange rate, respectively, had the most negative effects on imports, added value, fixed capital formation and exports of livestock products, plant products, fishing and forestry sub-sectors, so that the effects were estimated -3.05, -2.50, -3.89, and -1.48 percent on added value, fixed capital formation, import and export of the entire agricultural sector, respectively. Finally, since the negative effects of the preferred exchange rate removal for agricultural inputs on the agricultural sector were found less than the increase in the inflation caused by not removing the preferred exchange rate of basic goods and even less than the inflation caused by removing the entire preferred exchange rate of basic goods, removing the preferred exchange rate of agricultural inputs followed by adopting an alternative support policy (combined policy with effective support for producers and consumers, especially vulnerable groups, such as a credit card or combining a basket of goods with a credit card) was suggested.