The extra costs of demurrage, paid by merchants for each container used in the terminal beyond the permitted free time, are piling up on the livestock and poultry industry.
Over 90% of the animal feed needed by Iran’s livestock and poultry industry are met through imports and the costs of demurrage are bound to be reflected in the price of the end product due to the government’s inability to make the prompt foreign currency payment.
More than $600 million have been paid in demurrage fees on animal feed cargoes since March 2019, according to Mohsen Hafez, the head of the association of animal feed suppliers.
Currently, at least 16 chartered ships have not moved out of the southern ports of the country for unpacking within the free time offered by the shipping line. They have to pay demurrage charges for an average of 74 days, which amount to $1.5 million, the Persian-language daily Shargh reported on Monday.
“The rising demurrage charges could be blamed for increasing the prices of corn from 13,500 rials ($0.08) to 15,000 rials ($0.09) per kilograms,” Hamid Fazeli, a poultry expert said.
Lack of livestock and poultry feed has even forced the newly-appointed Agriculture Minister Kazem Khavazi to pay his first ministerial visit to the southern port of Imam Khomeini in Khuzestan.
The shortage of corn and soybean meal in the country due to the government’s failure to pay consigners has brought about significant losses for poultry producers, even leading them to take contentious actions such as culling hundreds of day-old chicken.
According to the report, three other ships are heading for Iran and they are likely to suffer the same fate as the aforementioned 16 vessels unless the problems associated with the payment to the consigners are resolved.
The 16 vessels docked at southern Iranian ports hold 750,000 tons of corns worth $230 per ton at global prices, 200,000 tons of oilseeds worth $370 per ton and 140,000 tons of wheat worth $291 per ton. The total value of goods waiting to be cleared by customs is $40 million.
What is of great significance is the extra fee levied on these imports due to the delay in unloading operations. The demurrage charge of these shipping vessels is $20,000 a day. Given the 74 days these 16 ships detained in Iranian ports, the country has to pay nearly $1.5 million in demurrage costs.
The poultry industry needs close to 600,000-700,000 tons of corns and 250,000-300,000 tons of soybeans every month. The pending animal feed imports are enough to meet the demand for only one month of the poultry industry.
Buck Stops With the Government
Nearly 2 million tons of goods have been piled up at Iran's ports and customs, says Hafez.
“The government had promised to pay subsidized currency to the importers of these goods but didn’t deliver. The goods are spoiling as we are grappling with the poultry feed crisis which led to the horrible disaster like the killing of day-old chickens,” he added.
The severe shortage of animal feed, including soybean and corn meal, poses a challenge for poultry farmers.
Following the release of a footage on social media showing the destruction of the poultry, the Day-Old Chicken Producers Association wrote a letter to its members banning the cull of day-old chickens, saying any violations will be prosecuted.
Hafez noted that despite the Iranian Constitution’s emphasis on privatization, the government decided to allocate subsidized currency for importing essential goods.
“The decline in oil revenues has stripped the government of providing the needed money. We have conducted correspondence with the president and the new agriculture minister in this regard. Government-run organizations can take out subsidized currency with no restrictions whereas private companies have to wait for ages to receive their needed currency,” he said.
Hafez believes that the persistence of the current situation would upset the country’s food security in the next three to four months.
“The government needs to discontinue the allocation of subsidized currency to imports and instead pay cash subsidies to low-income deciles,” he added.
Making the same argument, Hassan Mehrabani-Yeganeh, a Tehran University professor, said, there are nearly 25,000 small enterprises engaged in the production of chicken and eggs, suggesting that no single producer or supplier is able to exert monopoly or duopoly in the market for setting prices.
“Under the pretext of granting subsidized currency at the rate of 42,000 rials per dollar, the government tries to interfere in this industry in different shapes and forms. For example, it has literally banned exports by this industry by levying an export duty of 50,000 rials [$0.3] on each kilogram of chicken," he said.
Noting that Iran’s poultry industry has been successful in having a per capita production of 30 kilogram of chicken and 12 kilograms of eggs, Mehrabani-Yeganeh said, “The best the government can do now is to remove poultry feed imports from the list of essential goods and let traders provide the foreign currency they need at free market rates. Prices will definitely go up, no question about that. However, subsidies can be directly paid to 30-50% of the low-income population of the country, identified by the Imam Khomeini Relief Foundation and Social Welfare Organization. The ban on exports needs to be lifted as well. That would allow the 30% empty capacity of industry to return to production.”
The average Producer Price Index for industrial chicken farms in the third quarter of the last Iranian year (Sept. 23-Dec. 21, 2019) increased by 42.23% compared with the corresponding quarter of the year before.
The overall PPI for the sector in autumn (ending Dec. 21, 2019), using 2011 as the base year, stood at 537.09. The index indicates a 10.44% increase compared with the preceding quarter and a 14.14% rise compared with the preceding year's same quarter.
The highest quarter-on-quarter increase of the index among Iranian provinces during the period under review was registered for Gilan with 40.22% and the sharpest decline was recorded in Lorestan with 10.62%.
On a year-on-year basis, Sistan-Baluchestan registered the highest increase with 67.57% and Qom posted the biggest decline with 5.08%, the Statistical Center of Iran reported.
