Impact of Targeted Subsidies Reform on Household Nutrition: Lessons Learned from Iran

In 2010, Iran became the first major oil-exporting country to reduce substantially implicit energy subsidies by increasing domestic energy and agricultural prices by up to 20 times. The current research aims to evaluate the profound impact of the countywide implementation of this targeted subsidy reform (TSR) on the consumption patterns of households in Iran, specifically in relation to the consumption of healthy food commodities.

This study employed a robust approach to examine the impact of the TSR on household food consumption, as a natural experiment, using pooled cross-section data from the Household Income and Expenditure Survey (HIES) spanning the years 1992 to 2019. The analysis was based on a comprehensive interpretation of survey data, which served as the primary source for analysis. The estimation procedure utilized an interrupted time series (ITS) model to capture the parameters associated with food consumption.

The findings revealed a substantial increase in household expenditures on food immediately following the policy intervention, with an impressive rise of 823 thousand Rials (equivalent to approximately $6.36 based on the floating exchange rate in 2019). Furthermore, the results strongly indicate a significant annual upward trend in total monthly food expenditures per adult person, surpassing the pre-intervention trend by 441 thousand Rials (approximately $3.40) (P=0.044, CI=[12.86, 1016.81]). Moreover, the implementation of the policy led to an annual per capita increase in fruit consumption by 1.02 grams per day (P=0.225, CI=[-0.68; 2.72]).

This study shows that the initial positive effects of the TSR have gradually been eroded by inflation in subsequent years. This experience can serve as a lesson for all countries that TSR should be accompanied by other measures, such as poverty alleviation interventions, in order to achieve desired long-term results.