Twelve industrial groups have called for a temporary suspension of the initiative requiring the total production costs to be printed on goods and products in a letter to President Ebrahim Raisi.
Minister of Industries, Mining and Trade Reza Fatemi-Amin recently launched the initiative based on which “consumers realize how much more than the cost price they are paying; the measure will help increase transparency”.
The Chamber of Guilds has enumerated the list of goods included in the initiative and said, “On the order of Industries Ministry, producers of “mineral water”, “juices”, “fizzy beverages”, “malt beer and beverages” from the group of consumer goods and “food processor”, “beverage maker”, “meat grinder” and “microwave” from the group of capital goods will enter the first phase of this project for six months; other goods are likely be added to these items.”
As per the initiative, manufacturers are required to print the production price, i.e. invoice price, on the products and stores are required to display the selling price, i.e. the price that a consumer pays on the product or on the shelves.
“We have 80,000 items in the market, the production prices of which have been calculated. Sometimes, the gap between the production and selling prices of an item is as much as 100-120%,” according to the chamber.
In its recent survey of businesses, the Statistics and Economic Analysis Center of Iran Chamber of Commerce, Industries, Mines and Agriculture says the new measure that has made it mandatory for manufacturers to print the costs of production on packaging of some consumer goods has negatively affected demand, confusing the market.
Iranian Meat Products Association, Iranian Mineral and Drinking Water Association, Iranian Association for Hygienic Cellulose Industry, Corn Chip Manufacturers and Exporters Association, Association of Iranian Distribution Industry, Iranian Food and Agriculture Federation, Association of Iranian Confectionary Manufacturing Companies, Iranian Syndicate of Canning Industries, Iran Beverage Manufacturers Association, Association of Home Appliance Manufacturers of Iran, Iranian tea Producers, Traders and Packaging Industries Association and Iranian Concentrate and Fruit Juice Producers and Exporters Association are signatories of the letter, Mehr News Agency reported.
Excerpts of the letter follow:
The designers of this initiative believe that the gap between cost price and consumer price of goods is large and unusual. Therefore, this plan seeks to make the profit margin of the distribution network transparent to safeguard the interests of consumers and producers.
Pros and Cons
The advantages of the plan include:
- Making products available to consumers at reasonable and lower prices.
- Lower prices will prompt more purchases and consumption.
- When the pricing regulations of domestically produced goods become the criteria for the next course of action, the projected 17% profit margin would motivate investment in manufacturing.
The disadvantages of the hasty implementation of this plan are:
- Failure to consult with the relevant private sector as one of the main stakeholders, despite the legal requirements in this regard.
- Ignoring the rational profit of all components of the distribution chain is the Achilles’ heel of this plan.
- One month into the implementation of this plan, a significant decline in the production of goods subject to this plan have been reported.
- The decline in production would lead to unemployment.
- Disruptions in production would result in the shortage of consumer goods in the final months of the Iranian year and in the approaching holy month of Ramadan later.
- A decline in production due to empty capacity of industries and increase in overhead costs has increased the cost price of products
- The confusion caused by the hasty implementation of this plan will severely tarnish the brand of prominent manufacturers that are more closely monitored, risking their sustainable employment, at least in the medium term
- Such restrictive regulations will help the growth of contraband durable goods like home appliances.
The sales process and mechanisms have been assumed to be simple and linear in this plan, whereas different factors such as competition, market share and speed in sales as well as time and other parameters complicate the sale dimensions.
Lack of attention to structural differences between goods subject to this initiative, including durability, maintenance, speed of circulation of goods in the market, waste and after-sale services indicate that the plan had been drawn up recklessly.
Back to back changes in the prices of production inputs will lead to instability of production prices and constant changes in prices printed on the goods will add to manufacturers’ problems.
Given the low demand due to the current recession and the bargaining power of distribution network, any unconventional pressure on them will impact the producers and lead to a successive circumvention of regulations.
Overnight decisions will ruin the motivation for investment in the manufacturing sector. It must be noted that, for the first time, capital depreciation has outweighed investment in the current year.
Iran's poor ranking in the global ease of doing business report is to blame on the government’s same sudden decisions.
The two-month implementation period set for the plan is the worst, given that producers’ commitments to suppliers, banking network and their personnel are at its peak during this time.
Insufficient information dissemination has resulted in widespread dissatisfaction of retailers and confusion of consumers; it has created tensions in the market.
Apparently, everyone must carry a calculator and the profit tables when shopping. Such tensions at the retail level were predictable. Given the current situation and the level of public dissatisfaction with the economic situation, the government needs to avoid taking any stressful measure.
We call for the temporary suspension of the plan and the formation of a specialized taskforce, including experts from related ministries and executive bodies as well as representatives of private sector, including manufacturers, and agents of distribution system and guilds. After making the amendments, the plan can be reintroduced and implemented with the support of all economic players.
