EghtesadOnline: Agricultural production is a time-intensive endeavor and without government intervention, price and output fluctuations are natural in a market economy.
“Unlike industrial products, whose manufacturing time can be manipulated, agricultural products need to go through a particular period of time before they are reaped,” Ashraf Mortezaei, an advisor to Domestic Trade Commission of Iran Chamber of Commerce, Industries, Mines and Agriculture, said in a write-up published by the Persian-language daily Donya-e-Eqtesad. The article’s translation is as follows:
You can improve agricultural output by using advanced technologies, but you cannot fully control the time involved in the production process. As a result, the supply of agricultural products cannot be flexible in the face of demand fluctuations within a short period of time, say one year. Such fluctuations affect production planning, markets and the welfare of consumers and producers, because of which most governments step in adopt different approaches to resolve market instability.
What is important here is that government policies should be designed to prevent dramatic price fluctuations through timely intervention in the trade of agricultural products and livestock feed.
Types of Gov’t Interventions
The timeline of government interventions in chicken market following the Islamic Revolution of 1978 can be split into the following four periods.
The leading approach during the first phase was stabilization policy, the main features of which were stabilization of the prices of animal feed and final product, rationing, subsidizing animal feed and consumer product as well as stabilization of foreign currency exchange rate.
The main achievements of the period under review included the rise in chicken consumption, controlled distribution, shortage of supply and emergence of parallel markets of raw materials and final products. Nevertheless, these measures resulted in many challenges such as lack of planning to improve production, recession in business management, lower competition in production and the government’s negligence in advancing fundamental infrastructural works.
Market liberalization was the second chapter of government policies in the chicken market; it was in place between March 1991 and 1999.
Deregulation of poultry industry started with the end of rationing, extension of subsidies, emergence of obstacles to the development of poultry industry and market exchange rate volatility.
Among the main accomplishments of this period are improvement in investment, elimination of chicken coupon and determination of price based on supply and demand. These policies were not free from shortcomings such as the rise in the prices of poultry feed, the government’s monopolistic control over the import of raw material and a chicken price hike.
Total liberalization was the signature policy of the Iranian government during the third phase that continued until March 2003.
Policies of the second phase were also fully pursued in this phase, as the country’s currency price was set by the forex open market, the government’s monopoly on imports was revoked and poultry feed and chicken markets were deregulated.
Production and consumption of chicken improved, although fluctuations in the market were also reported. These fluctuations had an unfavorable impact on the chicken market, such that the market was thrown into turmoil during certain months of the year, which made planning for the market and poultry industry challenging.
The fourth set of government interventions included policies dictated by the Market Regulation Commission. The trademark policy during this time was regular storage of chicken and the setting of price floor and ceiling when the market loses its equilibrium. This approach reduces supply and demand fluctuations but creates new challenges, such as the imposition of a substantial financial burden on the government.
Notably, fresh chicken cannot be fully replaced by frozen chicken, either.
Research shows that chicken market is influenced by government interventions, particularly by those related to poultry raw material.
To offset chicken price fluctuations, it is vital to prevent price fluctuations in the raw materials of poultry feeds.
Prices of day-old chicken: Chicken production includes a chain of elements, such that changes in each of them cause a ripple effect through the whole system.
Fluctuations in day-old chicken prices hugely disturb the chicken market via two ways: on the one hand, the decline in day-old chicken reduces the supply of chicken and increases prices, and on the other, a decline in day-old chicken makes chicken prices go up directly. Therefore, it’s of utmost importance to plan for broiler incubation period in line with seasonal needs.
The establishment of a thorough database containing nationwide information about day-old chicken is recommended. Day-old chickens come from various types of broilers, so it is important to make plans for breeding healthy products.
Another cause of instability in chicken prices is fluctuations in the prices of animal feed (corn and soybean meal). As imports meet a large part of chicken feed demand, any import disruption impacts the prices of chicken, especially since broider chicken production is less flexible compared with egg-laying chicken.
Tariff rates influence poultry feed prices and constant changes in tariffs, particularly soybean tariffs, result in confusion in the chicken production sector.
In addition, the government needs to reduce the country’s high dependency on imports of poultry feed by supporting and financing local production. The country’s macro strategy over food should be specified regarding the limits of agricultural resources as well.
The determination of poultry feed prices in the production chain makes it even more important for devising plans that are in the interest of producers of raw materials. A better coordination between the links of production chain would lead to a decline in costs and consumer price.
The drawback of Iran’s market is lack of cooperation and collaboration between these essential links. Each of the entities and people involved in supplying a product is focused on increasing their own profits and this line of thinking has created numerous problems for the country’s poultry industry.