The government has increased its guaranteed purchase price for wheat this year by 100%.
The price for the current Iranian year (started March 20) was set at 50,000 rials ($0.21) per kilogram in a joint meeting between representatives of the government and the Strategic Commodities Pricing Council on April 20.
Iranian governments buy staple crops from farmers at set prices to fill its strategic reserves and control prices in the market.
First Vice Chairman of Majlis Agriculture, Water and Natural Resources Commission Jalal Mahmoudzadeh said the rise in prices will ultimately benefit the government and rid the country of the need to import the staple grain.
“The measure will eliminate middlemen from wheat trade, therefore smuggling of the product overseas will decrease significantly,” Mahmoudzadeh was also quoted as saying by IRNA.
According to the official, the country is facing a drastic reduction in precipitation levels this year, which will reduce production.
This, he added, makes it all the more imperative that farmers are encouraged to deliver their yields to state-owned purchasing centers instead of selling them to intermediaries.
“Iran’s annual domestic demand for wheat stands at 11 million tons at present,” he said.
Director General of the Agriculture Ministry’s Grains and Necessity Goods Bureau Faramak Aziz Karimi said this year a total of 12 million tons of wheat are expected to be harvested across the country’s 31 provinces, the lion’s share of which is estimated to be bought by the government.
“The main wheat cultivating provinces of Iran are Khuzestan, Golestan, Kurdestan, Fars, North Khorasan, Khorasan Razavi and South Khorasan,” he added.
The private sector and representatives of farmers are divided over the fairness of the new price.
Ataollah Hashemi, the head of National Wheat Farmers Foundation, says the new price will sufficiently compensate the losses incurred by farmers in the previous year.
“The measure will not only reduce smuggling of the commodity, but also prevent wheat from being used as livestock and poultry feed due to its lower price compared with the conventional animal feed grains like barley,” he added.
Hashemi said farmers had no say in setting the guaranteed purchase price, but with the government initiative of forming the Strategic Commodities Pricing Council, farmers could now make their voices and concerns heard.
‘Against the Law’
Arsalan Qasemi, the head of the Agricultural Commission with Iran Chamber of Cooperatives, has called the government’s price increase “against the law”.
“The measure is an insult to farmers. Members of the pricing council are mostly representatives of the government, rather than that of farmers, therefore, the set price benefits the former instead of the latter. We had warned the officials about this outcome at the time of the council’s formation and said that these members do not represent the real private sector,” Qasemi was quoted as saying by Mehr News Agency.
“The government subsidizes bread and flour, but it is the farmer who pays the cost of this heavy subsidization.”
Qasemi expects four outcomes to follow the setting of prices.
“Firstly, part of the harvest will be used as animal feed since barley prices have surged, which makes wheat a cheaper substitute. Second, due to the grain’s higher price in the neighboring countries, the commodity will be smuggled out of the country. Third, farmers will sell their yields to pasta producing factories at higher prices. This, in turn, will increase pasta prices, shrinking the household food basket even more. And lastly, the government will have to spend the little forex it has on importing wheat at much higher prices,” he said.
Jafar Hosseini, chief advisor to the Agricultural and Natural Resources Council with the Central Organization for Rural Cooperatives of Iran, has echoed similar sentiments, saying that the set price does not cover the cost of wheat production.
“We expect the price to be at least 60,000 rials [$0.25 per kilogram]. This year, wheat production is going to experience a decline due to water shortage. So the government is expected to do its best to reduce the need for imports,” he said.
With this price in place, said Hosseini, the government can only buy a maximum of 4 million tons of the grain, which is nowhere near the volume of Iran’s annual domestic demand.
The government bought 8.25 million tons of wheat from local farmers in 31 Iranian provinces in the last fiscal year (March 2020-21), which indicated a 7% increase compared with the similar period of the year before.
This volume cost the Government Trading Corporation more than 207 trillion rials ($880 million), Mizan Online reported.
Khuzestan with 1.2 million tons, Fars with 911,000 tons and Golestan with over 820,000 tons topped the list of provinces from where the purchases were made.
GTC enforces market controls and is in charge of maintaining a supply of wheat, rice, cooking oil and meat for the country’s strategic reserve of essential goods.
Considered a staple in Iran, wheat is purchased every crop year by the government to build up its reserves and supply the market over time.
Plan to Import 2.3m Tons
Earlier, the government had announced plans to import 2.3 million tons of wheat during the course of the current crop year to replenish its strategic reserves, according to the head of the National Wheat Farmers Foundation.
“Local farmers and our foundation are bitterly opposed to this decision. We believe that if the guaranteed prices are set reasonably and the government adopts proper policies for the annual purchase of the grain, domestic production can sufficiently meet the country’s demand,” Hashemi was quoted as saying by Young Journalists Club.
The official noted that due to faulty policies and low guaranteed purchase prices set by the government, farmers refrain from selling part of their harvest and high-quality wheat that is suitable for human consumption is used as livestock and poultry feed because it pays better.
