Social welfare effects of removing multiple exchange rates: evidence from the rice trade in Iran

In order to encourage the involvement of the private sector in importing rice, the Iranian government plans to relax the system of multiple foreign exchange rates applied to importers wishing to supply the domestic market. In this article, the welfare effects of removing the current controls on the rice trade, and a domestic rice coupon program, are evaluated by applying a partial equilibrium analysis to 1961-1999 data. The results show that, as far as foreign exchange is concerned, liberalization of the rice market causes an increase in rice imports, mainly due to a decrease in domestic supply. In welfare terms, the loss in producer surplus from rice market liberalization is relatively high, but most rice consumers, and the Iranian taxpayer, would gain. Overall, gains to consumers and taxpayers are estimated to be higher than the losses incurred by domestic suppliers, and therefore net social welfare at national level can be improved by rice market liberalization in Iran. Issues for further discussion include residual food security roles for the state, and supply-side adjustments in terms of resource use and higher-quality production. Copyright 2006 International Association of Agricultural Economics.