The impact of Iranian Targeted Subsidy Plan on the Comparative Advantage of Dairy Farms

Abstract Production of animal protein has a major role in the human nutrition and health and a large share of economic value-added in agricultural sector. The Iran government implemented the Subsidy Reform Plan (SRP) on December 18, 2010 as the biggest surgery to the nation's economy in half a century in order to replace the subsidies on bread and energy (80% of total) with targeted social assistance. Given the importance of dairy industry, it is essential to determine the positive and negative impact of SRP. The aim of this study is to analysis the temporal effect of SRP on the comparative advantage of dairy farms in 2009 and 2011.Data was collected from a survey of 65 members of Isfahan Industrial Dairy Farms Cooperation through face-to-face interviews based on a structured questionnaire. The comparative advantage of dairy farms has been analyzed in the Policy Analysis Matrix (PAM) framework by calculation the ratios of domestic resource cost (DRC), social cost benefit (SCB), nominal protection coefficient of the product (NPCO, NPCI) and effective protection coefficient (EPC).The results indicate that after SRP, the government introduced the new milk price distortion in order to support the consumers, the nominal protection coefficient on tradable inputs (NPCI) has been decreased and farmers pays indirect tax. Moreover, the dairy farms still have the comparative advantage of production, but the DRC ratio has been increased. In order to improve the dairy farm profitability and the farmer’s motivation, it is important to removal of the output price distortions and enhancing farmers' access to input markets.