Investigating Factors Affecting Import Demand of Meat and Livestock Inputs in Iran

Abstract

Introduction Despite the relative advantage of producing some agricultural products, Iran is one of the largest importers of agricultural sector, so the total agricultural imports in 2016 were about 8.78 billion dollars. One of the most imported products is red meat and livestock inputs. Animal corn is the first imported product of Iran and is one of the most important livestock feed. Due to the low level of domestic production of animal corn, large quantity of it is imported every year. Soybean meal is also the fourth-largest imported agricultural product and the seventh product of the country's import. High dependence on the import of red meat and livestock inputs and the lack of domestic production of these products in Iran have caused any change in import policy of these products will affect the welfare of many producers and consumers. Due to the close relationship between import of these products and food security and the welfare of the society, recognizing the factors affecting the import demand of these products is important to proper policy making in livestock sector. In fact, the import demand function in developing economies should be investigated because it has significant effects on the international trade policy in general and the exchange rate policy in particular. Materials and Methods In this study, contrary to previous studies which considered only a few factors, it was investigated the effects of tariff rate, GDP, real effective exchange rate, domestic production and relative price of imported products on the import demand of veal, lamb, chicken, animal corn and soybean meal. Due to correlation between the disturbance term in different equations, it was used the simultaneous equations method and also it was used imperfect substitution approach to derive import demand function. For this purpose, monthly data from April 2010 to March of 2016 has been used. To determine the appropriate estimator, Hegy test and diagonal disturbance covariance matrix test was used. In order to investigate co-integration, the Johansen-Juselius test was used for each import demand equation. Additionally, it was used Engle ARCH LM heteroscedasticity test and Harvey LM autocorrelation test for all equations. Results showed that there is no heteroscedasticity and autocorrelation in the system. Results and Discussion Based on results there was a long run relationship between variables in veal, lamb, chicken, animal corn and soybean meal equation. Results showed that all the variables in the import demand equations including veal, lamb, animal corn and soybean meal has been expected signs. Also results showed that in the equation of veal import demand, the coefficients of tariff rate and relative price was negative and significant. In the equation of lamb import demand, the coefficient of domestic production of veal was negative and significant. Moreover, in the equation of animal corn import demand, the coefficients of tariff rate and real effective exchange rate were negative and significant. Eventually in the equation of soybean meal import demand, the coefficients of tariff rate, real effective exchange rate and relative price were negative and significant. Therefore, it can be noted that due to high dependence on imports of livestock inputs, especially animal corn and soybean meal, it is decided every year to import these inputs only basis of factors such as tariff rate, real effective exchange rate and relative price. Suggestion Based on results which showed that tariff rate has significant effect on the import demand of veal, animal corn and soybean meal, it is helpful to use this tool to control the import quantity of veal, animal corn and soybean meal, whereas changing tariff rate to control the import quantity of lamb do not have much effect. Also, it was found that the import demand for livestock inputs was highly elastic to change in real effective exchange rate. So, it is necessary to prevent unreasonable increase in exchange rate and its fluctuations. Since, it was found that the lamb import demand was highly elastic to domestic production, it is recommended to adopt policies to increase production of lamb through the provision of livestock inputs required by producers. JEL Classification: F12, F31, F41