Prices of liquid vegetable oil in the fifth month of the current Iranian year (July 23-Aug. 22) registered an 89.7% rise compared with the corresponding period of last year, despite an increase in imports and the growing stockpile at customs warehouses.
The price of hydrogenated vegetable oil increased by 110% during the same period, ISNA reported.
Unprocessed vegetable oil imports stood at 679,000 tons worth $875.4 million in the first four months of the current fiscal year (March 21-July 22), registering a 205% and 407% growth in weight and value respectively year-on-year.
According to the Islamic Republic of Iran Custom Administration, until Sept. 6, about 670,000 tons of unprocessed vegetable oil were stored in customs warehouses and ports of entry.
Oilseed imports hit 793,600 tons worth $537.5 million in the four-month period, registering a 63% and 122% rise in weight and value respectively year-on-year.
The vegetable oil market in Iran has been in turmoil, as the country relies mostly on imports of its raw materials. As a result, the government made efforts in recent months to meet the domestic demand for the staple foodstuff.
The bulk of imports are palm oil from Malaysia and Indonesia, soybean oil from Argentina and sunflower oil from Ukraine and Russia.
A total of 2.2 million tons of oilseeds were imported to the country over the last fiscal year (March 2020-21), Mehr News Agency reported.
Reliance on Import of Raw Materials
Noting that Iran’s 93% dependency on imports of raw materials and oilseeds is the main impediment to vegetable oil supply, Yazdan Seif, managing director of Government Trading Corporation of Iran, said the first half of last Iranian year (March 20-Sept. 21, 2020) was the toughest time in the history of sanctions against Iran, as it coincided with the outbreak of Covid-19 and problems regarding the provision of foreign currency.
“However, we managed to resolve those problems by tapping into our strategic reserves,” he added.
Government Trading Corporation of Iran provided vegetable oil factories with a total of 2.07 million tons of unprocessed oil, including 1.97 million tons from strategic reserves, subsidized imports at the rate of 42,000 rials per US dollar by private sector, extraction from imported and domestically-produced oilseeds plus more than 100,000 tons available before the start of the accounting period in the year ending March 2021.
Vegetable oil factories were supplied with 260,000 tons of raw vegetable oil since the start of the current Iranian year (March 21) to April 14, ILNA reported.
According to Amir Houshang Birashk, secretary of the Iranian Vegetable Oil Industry Association, Iran’s vegetable oil industry has the capacity to meet all the country’s household, business and industrial demand.
The capacity of Iran’s oilseed processing factories stands at 5.4 million tons per year.
Per capita vegetable oil consumption in Iran, according to the Agriculture Ministry, is about 21 kilograms a year while the global average is 12 kilograms.
Iran’s annual demand for unrefined vegetable oil is around 1.6 million tons.
“Outbound smuggling via eastern and western borders is to blame for the increase in prices of cooking oil,” Qasemali Hassani, the secretary of Food Wholesalers’ Union, said.
“Unfortunately, the government is in charge of cooking oil production from the beginning to the end, including the allocation of foreign currency to supply raw materials to pricing and distribution; the private sector has no role to play in this matter,” he was quoted as saying by IRIB News.
Prices are set by the government and the cooking oil with those price tags are only being distributed at chain stores whereas only 25% of the people go to chain stores, he added.
He called on officials to eliminate mandatory pricing and instead pay the cooking oil subsidy, which is 10 million rials ($40) per head annually, directly to the people.
Given the rise in global prices of unprocessed edible oils and other costs, consumer prices of products packaged in PET containers will increase by 10% and those packaged in other types of containers by 13% as per the recent decision of Market Regulation Headquarters.
Referring to the monthly consumption of 100,000 tons of unprocessed oils in Iran, Abbas Qobadi, an official with the Ministry of Industries, Mining and Trade, said, “To calm the turbulent market of edible oil, we’ve decided to increase both imports and production of hydrogenated fats and step up the distribution of this essential product.”
Abolhassan Khalili, the head of Vegetable Oil Industries Association, says reliance on import of raw materials, high costs of machinery and their maintenance, and corrupt practices stemming from the government’s allocation of cheap foreign currency are three main challenges of the vegetable oil production industry.
“Imports meet 90% of demand for unprocessed oil and oilseeds that makes it all the more important to pursue development plans regarding expansion of oilseed cultivation more vigorously,” he said.
“Manufacturers of production line machinery are based in Europe. Under sanctions, it has become increasingly difficult and costly for producers to purchase and import spare parts.”
Khalili referred to the allocation of subsidized foreign currency at the rate of 42,000 rials per US dollar to import raw vegetable oils by the government and said, “The policy gives rise to higher risk of corruption in imports and production; the government needs to work out an alternative way to support low-income households.”
Policy Failure
The Iranian government has been allocating foreign currency at the subsidized rate of 42,000 rials per dollar to import essential goods for a long time now to ensure food security in the country.
However, the policy has turned out to be a failure since prices of these basic goods have risen, regardless of hefty subsidies allocated to them.
Also known as necessity goods, essential goods are products consumers will buy, regardless of changes in income levels.
Soymeal is another telltale example that subsidies have failed to curb the prices of essential goods.
“Its prices in the domestic market have soared by 200% compared to last year,” Hassani said recently, noting that soybean imports are entitled to subsidized foreign currency (at the rate of 42,000 rials per US dollar), Fars News Agency reported.
The oilseeds of soybeans are imported as essential goods. After the oil is extracted, the meal is sent to the market for human consumption or as animal feed, the official explained.
“Soymeal is sold at much higher prices than they should be. Commodities imported at subsidized foreign currency rates cost importers a sixth of their real price and should reach consumers at lower prices. Yet, what unfortunately happens in reality is that traders take advantage of the subsidized forex they receive and sell their products at prices many times higher than their end prices,” Hassani said.
“The subsidized foreign currency allocation policy, which was ratified and implemented during the second term of former president, Hassan Rouhani, didn’t do the economy any good and the only outcome was a waste of the country’s forex reserves. It seems that the new administration headed by President Ebrahim Raeisi is well aware of this, which gives us hope for change,” says the head of Exports Confederation, affiliated with Iran Chamber of Commerce, Industries, Mines and Agriculture.
“Raeisi’s administration has admitted that the policy gives rise to corruption, as some importers and consumers have been entirely left out of the benefits resulting from these allocated subsidies,” Mohammad Lahouti was also quoted as saying by Fars News Agency.
That’s why the subsidized foreign currency allocation policy is expected to be gradually rescinded, he added.
