The Cabinet has approved a plan to provide financial support to farmers.
According to the decision, the Central Bank of Iran is required to allocate 40 trillion rials ($82 million) in loans through commercial banks to the Agricultural Support Services Company for the procurement of agricultural inputs and supply of fertilizers based on the approved exchange rate set by the Money and Credit Council, Fars News Agency reported.
The resolution stipulates that the Planning and Budget Organization must ensure the repayment of both the principal and interest of the loans granted to the Agricultural Support Services Company from the approved budgetary funds.
Furthermore, the Ministry of Agriculture, in collaboration with the Ministry of Industry, Mining, and Trade, is obliged to present a development plan for the production of chemical fertilizers (phosphates, nitrogen, and potassium) to the PBO by the end of the calendar year (March 20, 2024).
Currently, rising prices of chemical fertilizers remains one of the major challenges in the key agro sector. The government has made efforts to eliminate corruption and rent-seeking resulting from multiple exchange rates for fertilizers in the 2023 budget.
However, there is still a long way to go to achieve the desired results. Nevertheless, reports indicate that the government's support for farmers is on the rise despite its limit in resource allocation.
Loans provided by the Agricultural Bank to the farm sector have jumped 80%. The total amount of loans disbursed to the sector by the end of November 2021 reached 87 trillion rials ($167.3 million), which climbed to 157 trillion rials ($301.9 million) by the end of Nov 2022.
Additionally, in the past two years there was a 22% growth in cereal production compared to two years ago. Production of cereals, including wheat, barley, white rice, and maize, reached 15.7 million tons in the agricultural year 2020-2021 and increased to 21 million tons in 2022-2023.
Rise in Guaranteed Wheat Purchases
Last year, the country witnessed a 60% increase in guaranteed wheat purchases compared to the year before. The volume of guaranteed wheat production and purchases at the end of the previous administration amounted to 8.5 million tons and 4.5 million tons, respectively, which increased to 11.5 million tons and 7.2 million tons, respectively, in current year.
In the upcoming year, the deputy for Crop Affairs at the Ministry of Agriculture has forecast that 8.5 million tons of wheat will be purchased through guaranteed purchases.
Last year, the Central Bank of Iran unveiled a supply chain finance (SCF) scheme based on contract farming to improve funding for farmers.
SCF involves automating transactions and tracking invoice approval and settlement processes, from initiation to completion. Under the framework, buyers agree to approve supplier invoices for financing by a bank or other outside financier.
In coordination with the Agriculture Ministry and other relevant bodies, CBI now wants to extend the SCF scheme to contract farming.
As per the definition of the Food and Agriculture Organization of the United Nations, contract farming “is agricultural production carried out according to an agreement between farmers and a buyer, which places conditions on the production and marketing of the commodity”.
Farmers and processing/marketing firms are the parties to the contract, coming to terms for the production and supply of agro products under forward agreements mostly at predetermined prices.
As per FAO guidelines, a contract farming arrangement also involves the purchaser in providing a degree of production support through the supply of inputs and technical advice. The basis of such an arrangement is a commitment on the part of the farmer to provide a specific commodity in quantities and at quality standards demanded by the purchaser and a commitment on the part of the purchaser to support the farmer's production needs and purchase the commodity.
The CBI has said it is determined to promote contract farming in line with the government’s decision to support agriculture and improve rural employment.
It says that lending under this method is “non-inflationary” and will not overburden banks – as has been in the past. The program should help improve “targeted finance” in farming and improve funding.
