More than 17.89 million tons of essential goods were unloaded at Iranian ports during the current Iranian year’s first eight months (March 21-Nov. 21), registering a 32% rise compared with the corresponding period of last year, according to the Ports and Maritime Organization of Iran.
Essential goods, also known as necessity or basic goods, are products consumers will buy, regardless of changes in income levels.
With 3.87 million tons, wheat had the biggest share of essential goods import, which was 41% more than in last year’s corresponding period, the news portal of the Ministry of Roads and Urban Development reported.
Rise in Wheat Imports Amid Production Decline
Wheat imports began in April and so far around eight million tons of the staple grain have been purchased from foreign sources, CEO of the Government Trade Corporation, affiliated with the Agriculture Ministry said earlier this month.
“More than 3 million tons of the purchased wheat have been imported so far and found its way to the local market. The remaining 5 million tons will gradually reach the country’s southern and northern ports to undergo customs clearance,” Yazdan Seif was also quoted as saying by ILNA.
The official noted that this year, the government has purchased only 4.53 million tons of wheat from local farmers as part of its guaranteed purchase plan, noting that this was due to an overall decline in production as a result of low precipitation, water scarcity and bad weather conditions.
“This left us with more than 8 million tons of deficit, since our annual domestic demand stands at 13 million tons. So the government set out to import the crop as soon as possible to be able to meet the local demand and fill the country’s strategic reserves,” he added.
Seif said this year’s need for wheat has been supplied and businesses, industries, bakeries and other consumers will have no problem in procuring the grain.
According to Mohammad Reza Mortazavi, the head of the Federation of Iranian Food Associations, this year’s wheat production stood close to 5 million tons.
“Drought and water shortage hit after a few years of self-sufficiency. What made matters worse is that the grain, due to its relative low price compared with other animal feed, has been used in livestock and poultry farms,” he said.
The official noted that the country needs to store at least 3 million tons of wheat in its strategic reserves every year when production is normal, but the figure has to increase to 5 million tons at times when the harvest is hit by drought or other factors.
“Global wheat prices have reached their highest in the past five years. Grains in general have experienced a price rise of up to 80% at times. Russia, the US, Canada, Australia, Argentina, Germany and France are the world’s top wheat producers and Egypt, Iraq and China are the biggest importers,” he said.
Mortazavi said that Russia is Iran’s main wheat supplier, followed by Germany and some Eastern European countries.
Other imported essential goods unloaded at Iranian ports during the period included 2.44 million tons of barley, 1.33 million tons of unrefined edible oil and close to 3.56 million tons of soybeans, registering a respective year-on-year growth rates of 143%, 93% and 85%.
Imports of sugar, rice and corn decreased by 20%, 7% and 4% YOY to stand at 853,446 tons, 164,503 tons and 5.67 million tons respectively.
Saga of Import Subsidies
Essential goods are imported at subsidized forex rates.
Wheat, corn, barley, unrefined and edible vegetable oils and oilseeds are subsidized at the rate of 42,000 rials per dollar.
Rice and sugar are entitled to lower subsidy closer to market rates (around 290,000 rials per dollar as of Wednesday).
“The government may decide to remove certain commodities from the list of imports entitled to subsidized dollar at the rate of 42,000 rials, but it is certain that wheat and medicines will remain in the list until the end of the current fiscal year in March 2022,” the head of the parliament’s Budget Reform Committee, Mohsen Zanganeh, said recently.
His comment came after the Iranian Parliament recently opposed the double-urgency motion bill on the elimination of subsidized dollar for importing essential goods, adding it to the parliament’s future schedule.
Lawmakers opposed to the cessation of payments of cheap subsidies to importers of essential goods believe that with the inflation rate of over 45% and prices of some medicines going through the roof, the move would inflict yet another shock to the nation.
According to the Statistical Center of Iran, the inflation rate increased from 8.2% in the year ending March 2018 to 45.4% in the month ending Oct. 22, 2021. The annualized inflation rate of food and beverages jumped from 12.3% to 61.4% during the period under review. The inflation rate of health and treatment services increased from 7.2% in the fiscal 2017-18 to 40.4% in the current year.
A significant deviation from the objectives of the allocation of subsidized forex is observed when you compare these figures. The government’s cumbersome bureaucratic procedures and extensive rent-seeking activities are partly to blame. An example can be found in the 2018-19 annual monitoring report of the Supreme Audit Court of Iran, the supervisory arm of the Iranian Parliament, saying up to $4.8 billion worth of government subsidies on imports were unaccounted for.
Controversies around subsidized forex will persist when the parliament starts weighing the bill again.
When the parliament voiced its opposition to the double-urgency plan on terminating subsidized imports, controversies entered a new phase, the Persian daily Etemad reported.
Not long ago, nearly all experts close to the government and representatives supported the elimination of subsidized forex. There was even talk of the government opting for the gradual and cautious removal of these subsidies, but some lawmakers urged the government to go cold turkey.
In its latest move, the parliament suddenly decided to take time to probe further into the matter, suggesting that Majlis is still reluctant about the removal of import subsidies despite the government’s economic hardships.
Zanganeh said the government does not need the approval of the parliament for the elimination of subsidized import regime, but needs the legislative body’s go-ahead to increase the ceiling of the budget toward this end.
The Budget Law of 2021-22 has allocated $9-10 billion for the subsidized import of essential goods and pharmaceuticals. The Central Bank of Iran says it provided $9.5 billion for importers of essential goods by Sept. 22, of which $400 million have been spent on the import of vaccines.
The government set the fixed foreign exchange rate of 42,000 rials per US dollar in the month ending April 20, 2018. Imports of 27 groups of goods received government subsidies then. At present, four to five groups of goods are still eligible for subsidized forex.
Uncontrollable Inflation
The Statistical Center of Iran reported that from March 21, 2018, until now, the annualized inflation rate has fluctuated greatly: it began an upward trend from 8% in the month ending April 20, 2018, to 42% in the month ending Oct. 22, 2019. It then entered a downslide such that it dropped to 26% in the month ending August 21, 2020, but again rebounded in the current year to the unprecedented rate of 45.4% in the month ending Oct. 22.
Some experts don’t approve of the discontinuation of subsidized forex under the current circumstances, as; they believe that despite the costly expenditure of the allocation of subsidized forex particularly for low-income individuals, its removal is bound to result in a sudden increase in the prices of essential goods and pharmaceuticals and far more people will be hit.
Forty-two months into the introduction of subsidized forex, the deviation from the objective of the policy as a tranquilizer to cushion the first blows shooting out from the depreciating rial to low-income individuals is starkly clear, thanks to inflation statistics about subcategories like health and treatment, and food items.
The distribution of rent among favored groups and the rise in corruption and sales of goods at market rates were the main outcomes of the subsidized forex policy.
As per the report by the Ministry of Cooperatives, Labor and Social Welfare titled “Poverty Monitor in Fiscal 2020-21”, the inflation rate of food and beverages neared 90% in the month ending April 20, 2019, shortly before the end of US waiver for Iran’s oil customers.
By Feb. 19, 2020, the inflationary effects of sanctions almost disappeared and the inflation rate of these items reduced to 20-30%, but the outbreak of Covid-19 hurt Iran’s economy even harder.
The ministry believes that the main causes of increases in the prices of essential goods and pharmaceuticals before the outbreak of the pandemic were the decline in oil exports and the depreciation of local currency.
Price rises after the outbreak of the disease were to blame on other conditions, including the fall in the prices of oil and foreign resources and the recession that emerged from low demand due to Covid-19 restrictions on economic activities in the fiscal 2020-21.
The whole thing accelerated the growth of year-on-year inflation rate, such that year-on-year inflation rate stood at 47% in the fiscal 2020-21 and the YOY inflation of food and nonfood groups also stood at 67% and 40.5%, respectively.
High inflation rate of “food and beverages” forces people in low-income deciles to spend the lion’s share of their income on the items included in this group, which widens the wealth gap.
Before the reimposition of sanctions, the ministry’s report says, 22% of people were living in absolute poverty in the year ending March 2018.
In the following two years, the ratio of people living in poverty increased to 26% and 32%. In other words, 24 months since the introduction of subsidized forex policy, the percentage of people living below poverty line has increased by 10%.
