Water saving role and environmental impacts of price liberalization in agriculture: An experience in Iran

Government intervention in the agricultural market, including guaranteed purchases and subsidy payments, has raised many environmental concerns due to the resulting pressure on and pollution of natural resources. In this study, the economic and environmental effects of price liberalization and reduction of government interventions in the agricultural products and inputs market were investigated in Shiraz City, Iran. For this purpose, five scenarios were designed, and a positive mathematical programming model with a cost function approach was used to assess their impacts. The results showed that the increased prices of agricultural products after eliminating dictated prices along with global prices enhanced the incentive to produce high-yield crops. There has been a ۹.۹۴% drop in farmers' net income due to the decrease in the total cultivated area of crops in the region. However, if this policy is accompanied by the elimination of agricultural input subsidies, the change in cropping patterns and elimination of cost-intensive crops from the pattern may result in ۱.۵۳% growth in profitability. The most important environmental impact of this policy was associated with water savings in agricultural use, which was estimated to equal ۱۴.۶۱%. Overall, it appears that changing in the cropping pattern after implementing the combined scenario increases profitability and reduces water consumption. However, this policy also results in a ۳.۹۵% increase in chemical fertilizer consumption in the region, which is a factor in environmental pollution.

Keywords:

Liberalization , Environment , Positive mathematical programming model , Input subsidy