Investigating the Effect of Gap between Free and Official Exchange Rates on Import Volume of Livestock Inputs: A Case Study of Soybean Meal, Corn and Barley

One of the important concerns of policymakers in Iran is the management of changes and crises created in the foreign exchange market. This issue is more felt in countries dependent on the import of intermediate goods and production inputs. Considering the effect of the exchange rate on the trade of agricultural inputs on the one hand, and the close relationship between the import of agricultural inputs and food security on the other hand, knowing the effects and relationship of the exchange rate with the trade of agricultural inputs is of particular importance for proper policy making in this sector. Iran's foreign exchange policies for the import of different groups of goods were varied and the type of allocated exchange rate for the import of each group of goods was different in different years. Over recent years, the import of basic goods, including livestock and poultry inputs, has been carried out at the official exchange rate. Considering that the exchange rate of the free market has experienced a much higher level than the official exchange rate, it has caused the import of livestock inputs more than usual during the past years. In this regard, this study aimed at investigating the effect of the gap of free and official exchange rates on the import volume of livestock inputs using the Markov Switching approach during the years 1993-2021.

In this study, the relationship between the "free and official exchange rate gap" index and the import volume variable of each of the livestock inputs of soybean meal, corn and barley was modeled as follows:In the above equation, LIM is the logarithm of input import volume, LPW is the logarithm of global input price, LRG is the logarithm of the gap between the free exchange rate and the official exchange rate, LTA is the input import tariff rate, and LYE is the amount of domestic production. According to the import demand function, it was expected that the effect of world price, import tariff rate and domestic production of each input on the imports volume would be negative and the variable effect of the gap between the free and official exchange rates on the volume of imports would be positive. In this study, the Markov Switching model was used to achieve the research goal. The studied time period included the annual data of 1993-2021.

The estimation results of the Markov Switching model for each of the equations of corn, barley and soybean meal showed that the effect of the world price of corn, barley and soybean meal on their import volume was negative and significant. In addition, the effect of the corn import tariff variable on its import volume was negative and significant, while the import tariff of barley and soybean meal did not have a significant effect on their import volume. An increasing in the domestic production of barley and soybean meal would result in decreasing their import volume, while changes in the domestic production of corn would not have a significant effect on its import volume. As expected, the effect of the gap between the free and official exchange rates on the import volume of corn, barley, and soybean meal was also positive and significant, so that as the gap between the free and official exchange rates increased, the demand for importing these products would also increase.

Based on the study results, an increase in the gap between the free and official exchange rates cause an increased demand for corn, barley, and soybean meal imports as well. Therefore, to reduce the free and official exchange rates, applying appropriate policies, timely purchase of inputs from global markets and a revision in the business process of livestock and poultry institutions are suggested.