The unexpected announcement of a fivefold increase in the price of flour used by food factories has led to their procrastination in purchasing raw materials.
They are expected to suspend production for 15 days, as no factory has bought the flour at the new price, the Persian daily Jahan-e Sanat reported on Tuesday.
“Officials in charge of this matter should be held accountable for their poorly planned decision,” said the head of the Association of Flour Producers, Mohammad Reza Mortazavi.
The prices of pasta and other products such as cakes and cookies will double due to the government’s hasty decision to change the guaranteed purchase price of wheat; the selling price of wheat to the industry has increased by up to 120,000 rials (about $0.4) per kilogram.
“Factories buy their flour from the Government Trading Corporation of Iran. It supplies three kinds of flour. The first type is given to traditional bakeries, the price of which has remained unchanged at 6,500 rials [$0.02] per kilogram. The second type of flour goes to industrial bakeries, the price of which has also remained unchanged at 9,000 rials [$0.03] per kilogram. The third type of flour is supplied to pasta, cake, cookie, starch and noodle producers and the price of this flour has increased from 25,000 rials [about $0.09] to 120,000 rials per kilogram. The decision on the fivefold rise in the prices of flour was communicated to producers just 10 days ago,” Mortazavi said.
“The price of each kilogram of pasta, which is now being sold at 130,000-150,000 rials [$0.46-0.53], is likely to increase to 280,000-320,000 rials [$1-1.14]. Given the fivefold increase in flour prices, prices of pasta will double.”
Referring to the rise in the purchase price of wheat to 115,000 rials [$0.41] per kilogram, Mortazavi said, “The global prices of grains have increased, therefore the government’s decision to increase its purchase price seems logical. The price of wheat also affects the prices of fodder and other livestock feed, including alfalfa and barley.”
Bijan Norouzi-Moqaddam, the head of traditional bakeries association, said, the current prices of bread are not compatible with the production costs.
“We have asked the Ministry of Industries, Mining and Trade to increase bread prices but have yet to receive a response,” he said.
“The raw materials of bakeries are wheat and flour but they are not the only factors affecting bread prices. Over 90% of the costs of bakeries pertain to salary, water, electricity, insurance and yeast, while flour constitutes the remaining 10%. Bread prices rose slightly in the fiscal 2019-20 and 2021-22, but new prices related to the new Iranian year [started March 21] have not been announced yet.”
Need to Import 3.5m Tons of Wheat by May 21
Iran needs to import 3.5 million tons of wheat by May 21 and a letter of credit has been issued for this purpose, Mortazavi said earlier this month.
“Russia and Ukraine have been traditional suppliers of the staple grain as well as corn and oilseeds to Iran for years. Other countries will also buy part of their demand for wheat from the two countries now engaged in war. We also import wheat from Germany, Australia, Canada and Argentina,” he was quoted as saying by ILNA.
Noting that every year, prices of agricultural products rise until May, the official said this year the conflict between Ukraine and Russia has also impacted global prices, adding that over the past six months, wheat has seen the highest price rise in the past five years.
“The war has also made other nations think about purchasing agricultural products and foodstuff, and store the commodities to ensure supply to their local markets. Whenever Egypt and China in particular start to fill up their reserves, the international market goes through another price hike. We hope that with the beginning of harvest season, prices will come down,” he added.
Mortazavi said even if precipitation levels are high in the first month of the new Iranian year (March 21-April 20), which is when crops start to grow, the country will still need to import 15-16 million tons of essential goods.
Also known as necessity or basic goods, essential goods are products consumers will buy, regardless of changes in income levels.
“We, like other states, need to import goods to fill up our strategic reserves, but I believe the best time to make purchases for this purpose are the four months after May, that is June, July, August and September when harvest takes place and prices are moderate. Right now, global prices are at their highest level and if, hopefully, the war in Ukraine comes to an end and no other wars are waged, we can be optimistic that prices will decline in the international market,” he said.
Over 6m Tons Imported in 11 Months
A total of 27.61 million tons of essential goods worth $17.53 billion were imported by Iran during the first 11 months of the last Iranian year (March 21, 2021-Feb. 19), registering a 28% and 60% rise in weight and value respectively compared with the similar period of last year, according to the spokesperson of the Islamic Republic of Iran Customs Administration.
The import of essential goods accounted for 75% of the tonnage and 38% of the value of total imports during the period under review, Rouhollah Latifi was also quoted as saying by Mehr News Agency.
According to the official, 24.03 million tons worth $13.67 billion were imported using subsidized foreign currency at the rate of 42,000 rials per dollar, registering a 30% and 77% YOY rise in weight and value respectively.
The imports undertaken at the so-called “preferential” rate (42,000 rials) included 6.04 million tons of wheat worth $2.08 billion (up 108% in weight and 157% in value).
Consumption Surges
In the current fiscal year, the government bought around 4.5 million tons of wheat from local farmers as part of its guaranteed purchase plan. Since we estimate domestic consumption of wheat to rise to more than 11 million tons this year, the deficit has to be imported,” Hojjat Barat-Ali, director general of Sales and Distribution Coordination Department of the Government Trading Corporation, was quoted as saying by IRNA late last year (ended March 20).
In the fiscal 2020-21, said the official, 10.5 million tons of wheat were consumed in Iran.
According to Mortazavi, last year’s wheat production was near 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 added.
The official said 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 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.
Food Security Concerns Over Russia-Ukraine Conflict
The ongoing conflict between Ukraine and Russia has caused concerns among Iranian importers of oilseeds, vegetable oils, grains and livestock feed.
According to the head of the National Association for Agricultural Products, Reza Nourani, Ukraine and Russia supply 25-30% of Iran’s demand for different kinds of grains, especially wheat and barley.
He expressed concern about Iran’s agricultural outsourcing in Ukraine.
"Iranian farmers have invested in Ukraine, growing grains, mostly wheat and barley, there. The future of these farmers is now in danger,” he was quoted as saying by ILNA.
Iran became Russia's largest grain importer, importing 3.7 million tons of grain in the agricultural year from July 1, 2021, to June 30, 2022, according to analytical company Prozerno.
"For the first three months of the new season 2021-22, exports to Iran from Russia amounted to 3.697 million tons of grain, including 3.091 million tons of wheat, 392,600 tons of barley and 215,300 tons of corn. Thus, Iran reached first place not only among the importers of Russian wheat and corn but also in the overall standings for all grain types," the statement said.
Experts estimate that Turkey purchased 3.523 million tons of Russian grain, including 2.87 million tons of wheat, 569,200 tons of barley and 73,100 tons of corn. Egypt came in third place with 1.69 million tons of wheat, TASS reported.
The Russian Ministry of Agriculture reported earlier that grain exports in the 2021-22 agricultural year decreased by 21.3% and amounted to 13 million tons as of Oct. 14. At the same time, the volume of wheat exports for the season decreased by 18% and amounted to 11.1 million tons, barley by 34.9% to 1.5 million tons and corn by 56.5% to 0.2 million tons. According to the forecast of Agriculture Ministry, for the current agricultural year, grain exports may amount to 45-48 million tons. Agricultural exports from Russia amounted to 48 million tons in 2020-21, including 38.4 million tons of wheat.
German Wheat Exports Boosted by Iran
A rise in the euro capped Euronext, underscoring concerns about short-term European exports, although a run of shipments to Iran was boosting export sentiment in Germany, Reuters reported recently.
The USDA pegged US wheat stocks this season above the average trade expectations although its world wheat stocks forecast was slightly below the mean trade estimates.
In Germany, traders highlighted more loadings for Iran, an active importer this season.
"One ship is currently loading 65,000 tons of wheat in Germany for Iran," a German trader said. "Two more vessels are scheduled to start loading wheat for Iran in Germany in the coming days, one 65,000 tons and one 67,000 tons."
Shipments to Iran could give fresh impetus to Germany's export campaign after strong sales to Algeria earlier in the seasons.
"Iran is shaping up to be a large buyer of German wheat this year, despite heavy competition for sales from Russia, and may overtake Algeria as Germany's largest export customer in the coming months," the trader added.
