welfare effects on households, each affected
person received 455,000 rials per month. The
government also planned to compensate for the
reform’s adverse effects on industrial and agricultural consumers (Majlis of Iran 2009). The
subsidy reform intended to increase the domestic
fuel prices to the FOB
7 fuel price level in the
Persian Gulf and to raise electricity tariffs to cost
recovery levels over the five year period. However, this plan was not explicit at all with respect
to the compensation scheme for consumers.
Additionally, a clear instrument for compensating the industrial or agricultural sectors was not
defined. Massive fiscal burdens generated by
subsidies encouraged the government to pursue
this large-scale reform. General aspects of the
reform have been largely debated in the media.
Moreover, the government recognized some
resistance to different aspects of the reform during special parliamentary discussions. Potential
welfare implications for different stakeholders
were at the center of the debates, and different
supporters and opponents paid special attention
to those aspects that could affect an average
household. We focus exclusively on the energy
subsidies for pumping groundwater in our further
discussion.
3.2 The Reform Arena
3.2.1 Government
The government of Iran is the major producer
and the only distributor of electric power in Iran.
With a large budgetary burden, it initiated the
phasing out of fossil-fuel and electric power
subsidies, resulting in over-consumption of
energy. The government finalized the master plan
of the reform and sent it to the parliament for
ratification in December of 2008.
8 It should be
noted that producing major cereals and food
items self-sufficiently was a major goal of the
Iranian government over the 30 year period prior
to the reform. The reform did not explicitly deal
with the self-sufficiency programs and their
interaction with it. Agricultural producers of the
major cereals and food items received another
type of subsidy under the framework of the selfsufficiency plan. Energy subsidies and the provision of cheap or free irrigation water represented major elements of the support package.
The reform did not clarify its approach towards
the pre-existing support programs, potentially
affecting millions of farmers and agriculture
affiliated industries and communities in rural and
urban areas. In particular, the reform intended to
completely eliminate indirect subsidies for the
agriculture sector, which must be compensated
by direct assistance (Article 8 of the Subsidy
Reform Law). The mechanism for this compensation was not clarified in the related legislation.
3.2.2 Farmers
Although the value of agricultural products is not
a crucial part of Iran’s GDP (10%),
9 there are
more than 4 million agricultural holdings in the
country (Statistical Center of Iran 2014, page
25). The agricultural sector mainly consists of
smallholders and family farms. The rural population of Iran stands at around 21% of the total
population, which is currently estimated to be 80
million.
10 Additionally, from the more than 16
million ha of agricultural land (fallow and cultivated areas), 54% is rainfed and 46% is irrigated
(Statistical Center of Iran 2014, page 26). Table 6
shows that Iran’s agricultural production is
mainly dependent on irrigation.
11 Climatic conditions, together with the self-sufficiency programs for food products and inefficient water
management, have made agriculture the primary
consumer of groundwater and surface water. The
cheapest energy is provided for pumping
groundwater for the agricultural sector. Consequently, phasing out energy subsidies in the
agricultural sector would dramatically increase
7
FOB price stands for Free on Board (or Freight on
Board) price level.
8
Source: Parliament Research Center: https://rc.majlis.ir/
fa/legal_draft/show/720654
9
Source: Tehran Chamber of Commerce (2017).
10
Source:
https://www.amar.org.ir/Portals/0/Files/
baravord/population75-95.xlsx, last accessed 05.12.2018.
11
There are some inconsistencies between statistics from
agricultural ministry and statistical center of Iran.
118
T. Jamali Jaghdani and V. Kvartiuk
person received 455,000 rials per month. The
government also planned to compensate for the
reform’s adverse effects on industrial and agricultural consumers (Majlis of Iran 2009). The
subsidy reform intended to increase the domestic
fuel prices to the FOB
7 fuel price level in the
Persian Gulf and to raise electricity tariffs to cost
recovery levels over the five year period. However, this plan was not explicit at all with respect
to the compensation scheme for consumers.
Additionally, a clear instrument for compensating the industrial or agricultural sectors was not
defined. Massive fiscal burdens generated by
subsidies encouraged the government to pursue
this large-scale reform. General aspects of the
reform have been largely debated in the media.
Moreover, the government recognized some
resistance to different aspects of the reform during special parliamentary discussions. Potential
welfare implications for different stakeholders
were at the center of the debates, and different
supporters and opponents paid special attention
to those aspects that could affect an average
household. We focus exclusively on the energy
subsidies for pumping groundwater in our further
discussion.
3.2 The Reform Arena
3.2.1 Government
The government of Iran is the major producer
and the only distributor of electric power in Iran.
With a large budgetary burden, it initiated the
phasing out of fossil-fuel and electric power
subsidies, resulting in over-consumption of
energy. The government finalized the master plan
of the reform and sent it to the parliament for
ratification in December of 2008.
8 It should be
noted that producing major cereals and food
items self-sufficiently was a major goal of the
Iranian government over the 30 year period prior
to the reform. The reform did not explicitly deal
with the self-sufficiency programs and their
interaction with it. Agricultural producers of the
major cereals and food items received another
type of subsidy under the framework of the selfsufficiency plan. Energy subsidies and the provision of cheap or free irrigation water represented major elements of the support package.
The reform did not clarify its approach towards
the pre-existing support programs, potentially
affecting millions of farmers and agriculture
affiliated industries and communities in rural and
urban areas. In particular, the reform intended to
completely eliminate indirect subsidies for the
agriculture sector, which must be compensated
by direct assistance (Article 8 of the Subsidy
Reform Law). The mechanism for this compensation was not clarified in the related legislation.
3.2.2 Farmers
Although the value of agricultural products is not
a crucial part of Iran’s GDP (10%),
9 there are
more than 4 million agricultural holdings in the
country (Statistical Center of Iran 2014, page
25). The agricultural sector mainly consists of
smallholders and family farms. The rural population of Iran stands at around 21% of the total
population, which is currently estimated to be 80
million.
10 Additionally, from the more than 16
million ha of agricultural land (fallow and cultivated areas), 54% is rainfed and 46% is irrigated
(Statistical Center of Iran 2014, page 26). Table 6
shows that Iran’s agricultural production is
mainly dependent on irrigation.
11 Climatic conditions, together with the self-sufficiency programs for food products and inefficient water
management, have made agriculture the primary
consumer of groundwater and surface water. The
cheapest energy is provided for pumping
groundwater for the agricultural sector. Consequently, phasing out energy subsidies in the
agricultural sector would dramatically increase
7
FOB price stands for Free on Board (or Freight on
Board) price level.
8
Source: Parliament Research Center: https://rc.majlis.ir/
fa/legal_draft/show/720654
9
Source: Tehran Chamber of Commerce (2017).
10
Source:
https://www.amar.org.ir/Portals/0/Files/
baravord/population75-95.xlsx, last accessed 05.12.2018.
11
There are some inconsistencies between statistics from
agricultural ministry and statistical center of Iran.
118
T. Jamali Jaghdani and V. Kvartiuk