Document Type : Research Article
Authors
Department of Agricultural Economics, Agricultural College, Shiraz University, Shiraz, Iran
Abstract
Introduction: Iran imported 9 million tons of corn, from Switzerland, Emirate, England and, Netherlands in 2017 so these regions are now the major sources of corn import for Iran. Among the multiple risks, Iran's corn imports encountered systematics and unsystematic risk. Systematic risks are the risks carried by entire assets within a system and cannot be diversified. They are also called non-diversifiable risks, beta risks, and market risks. Specific risks are risks that are unique to an individual asset. In a portfolio, specific risks can be mitigated by using a diversification strategy. Terms or phrases which can be used conterminously with specific risks are diversifiable, unique, unsystematic, or idiosyncratic risks. International price fluctuation and internal policy comprise the risk of Iran's corn imports. Risk specification and management of Iran's corn imports are important since corn, as an input of livestock production, makes the risk of these industries and hence the price of red meat and poultry. The corn imports systematic risks refer to the risks caused by global corn price fluctuations. The systematic risks usually result from the unpredictable fluctuation of global corn demand or a concerted action taken by major corn exporters. All corn importing countries are liable to these risks. Global corn prices fluctuate when the global consumption of corn grows quickly and an imbalance of supply and demand ensues. Worldwide fluctuation is the risk brought about which cannot be avoided by diversification; all the corn importing countries will be affected by this risk. The specific risks to corn imports refer to the risks resulting from corn exporting countries. When a corn exporting country stops its exports due to the policies, climate, production decrease as a result of disease and the other production risk, or other factors, it will bring losses to the corn importing countries. These failures result in a specific risk to corn imports. Since such failures cannot take place in all countries at the same time, and most of them have delayed effects on global corn prices, diversification can be adopted in order to reduce the specific risks to corn importing countries.
This paper tries to answer the following questions: What risks will Iran face in terms of corn import systematic or unsystematic risk? What is the relationship between global corn prices and the import prices of Iran's corn imports? Can diversification really minimize Iran's corn import risks?
Materials and Methods: This paper applies an improved portfolio model and diversification theory to quantify the risks for Iran's corn import risk during 2000-2019. Diversification theory often applied to the analysis of Iran's corn risks, is considered as a powerful instrument in this field of study. Firstly, for considering the systematic risk like the relationship between Iran's corn import prices and global corn prices is estimated. The Ease of Doing Business Index grading system is employed to represent the risk weight relative to each of source country, which should be able to better reflect the extent of each country's influence on Iran's corn risk. Secondly, the diversification index will be calculated and then the systematic and unsystematic risk is estimated. Finally risk index as an import ratio from source countries in order to replace the volume of imports from a country is used to solve the rapidly increasing risk as well as increasing import volume.
Results and Discussion: Empirical results show that ever-increasing global corn prices, price fluctuations, and the increasing volume of imports are the root causes of the growth of Iran's corn import risks. The systematic risks are the primary risks to Iran's corn import risk, which the highest systematic risk accrued in 2011. The diversification indexes remain between 0.4 and 0.5, with no evidence that a linear relationship exists between the diversification index and the specific risk index. Therefore, it is not enough to just reduce the specific risks by increasing the number of source countries. It is of equal importance to import corn from countries with low-risk weights and to strike a balance among countries and regions with similar risks. From 2006 to 2011, Iran's corn import risk index remained steady, between 2.8 and 11. As the Ease of Doing Business Index grading system indicates, Iran should import less from countries with low Ease of Doing Business Index grades such as Singapore and import more from those with higher Ease of Doing Business Index grades, maintain balanced imports from countries with similar risks.
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Main Subjects
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