A total of 9.06 million tons of wheat and unprocessed edible oil worth $5.23 billion were imported in the fiscal 2021-22 (ended March 20), the Government Trading Corporation has announced.
Wheat imports stood at 7.08 million tons worth $2.49 billion and unprocessed edible oil imports hit 1.98 million tons worth $2.74 billion.
Among agricultural products, unprocessed oil and wheat used up the highest share of foreign currency reserves for imports after corn, ILNA reported.
The government has been subsidizing imports of essential goods by supplying cheap dollars at the rate of 42,000 rials per dollar for years until recently.
The market rate of the dollar is currently above 300,000 rials.
Also known as necessity or basic goods, essential goods are products consumers will buy, regardless of changes in income levels.
Subsidy System Overhaul
The incumbent administration recently abolished the controversial practice, which many believe has given rise to corruption. Instead, it is depositing cash directly to the account of income deciles 1 to 9.
A total of 23 million Iranian households constituting 72 million Iranians were entitled to the new payments, IRNA reported, citing the Subsidy Targeting Organization.
The Central Bank of Iran announced on Monday that more than 400 trillion rials ($1.3 billion) were deposited to the account of those entitled to the subsidies.
“Until now, we have been paying to producers [read importers] but now the subsidies go to consumers. In fact, the preferential foreign currency has not been ceased, rather the allocation method has changed,” President Ebrahim Raisi said in a televised speech on the eve of the introduction of the move earlier this month.
Flaws in the apparently ill-advised policy emerged in the first few months after its inception and the government under pressure was compelled to slash the list of goods eligible for subsidized currency.
Prominent economists, academicians and socioeconomic experts strongly believe that the forex subsidy policy never achieved its intended goal of supporting the downtrodden, as greedy middlemen and cronies in the distribution chain benefited the most.
On many occasions, consumers of imported essential goods must buy their needs at prices that equal open market forex rates, thanks to the gross mismanagement, inefficient distribution system and absence of viable government oversight.
In short, a significant portion of the cheap forex is pocketed by big importers and the distribution chain instead of end customers, which ostensibly means the millions of Iranians at the lower-end of the economic ladder.
It is often heard in Tehran’s politico-economic circles that in the past three years, billions in subsidized currency were given to selected companies to import food and medicine yet some of these companies simply did not bring anything into the country.
It later turned out that some of the firms that took the scarce forex resources were shell companies. Few, if any, have paid for the thefts or faced the full force of the law.
Notably, a survey conducted by the Statistics and Economic Analysis Center of Iran Chamber of Commerce, Industries, Mines and Agriculture indicated that mismanagement in subsidy allocations is one of the main problems facing local businesses.
“There is no supervision over the government’s method of paying subsidies to some goods such as food and pharmaceuticals. The subsidy is either exported via customs or smuggled out,” found the survey, which was part of the Purchasing Managers’ Index report in the final months of the last fiscal year (ended March 20, 2022).
Smuggling of Essential Goods
One reason the system was scrapped was the fact that subsidized goods found their way to the markets of neighboring countries.
Smuggling of wheat and products made from the crop has also topped headlines lately.
Subsidies granted to flour have paved the way for smuggling to neighboring countries, the Government Trading Corporation said in a statement.
Global prices have drastically increased over the past few months, tempting intermediaries to purchase Iranian subsidized flour from the local market and smuggle it to neighboring countries, Mehr News Agency reported.
According to GTC, smuggled flour is sold at twice the domestic price at the country’s border with Pakistan in the east and at prices three times as much at the western border with Turkey.
Apart from flour smuggling, products such as pasta in which flour is used as the main ingredient are exported at global prices. This means that profits gained from the exports of a heavily subsidized commodity went to a few people only instead of benefiting the whole Iranian population, GTC says.
Demand for wheat used in food industries in Iran (except for that used in bakeries) stands at around 2 million tons per year, for which the government grants more than 200 trillion rials ($666 million) in subsidies. GTC estimates that around half of this sum exits the country through smuggling and exports of wheat products.
A total of 2.27 million tons of wheat products worth $470.72 million were exported from Iran in the last fiscal year (ended March 20), i.e. 1% of the country’s $48.6 billion total exports.
According to a report by the Islamic Republic of Iran Customs Administration, pasta dough accounted for 236,000 tons worth $84 million, wheat flour 12,800 tons worth $3.4 million, bread 94,773 tons worth $86.55 million, chocolate-free sweets 119,011 tons worth $118.01 million, cookies 130,590 tons worth $88 million and wafers 39,000 tons worth $41 million.
Other exports made using wheat flour were 24,000 tons of yeast worth $32 million, 2,800 tons of baby food products worth $8.3 million, 2,400 tons of grain products worth $4 million, and 2,130 tons of gaz and sohan (two popular Iranian sweets) worth $3.3 million, ISNA reported.
Iran also exported 10,200 tons of wheat starch worth $2.6 million in the fiscal 2021-22.
Meanwhile, Pakistani newspaper The News International earlier this year reported that thousands of tons of cooking oil/hydrogenated oil were being smuggled from Iran in cans of 5-20 kilograms.
The industry sources said 500 tons to 1,000 tons were being smuggled from Iran on a daily basis, causing losses worth billions of rupees to the national exchequer.
The official sources said both the land and sea were being used to smuggle goods, especially cooking oil from Iran, and there was an incentive for smuggling because the cooking oil and hydrogenated oil prices had escalated in the domestic market in the wake of higher palm oil prices in the international market.
Palm oil prices almost doubled in the international market, jacking up from $700 per ton to $1,400 per ton and there was no possibility that its prices would come down in the international market because in Malaysia, employees working on palm oil fields were not available owing to Covid-19 restrictions.
Executive Member of Pakistan Vanaspati Manufacturers Association Umar Rehan said thousands of tons of cooking oil/ hydrogenated oil were being smuggled from Iran through Balochistan and even some social media platforms were advertising different brands openly but there was no action on the part of the government.
Rehan said the Iranian cooking oil was being dumped at cheaper rates and it was even available online in Pakistan. He added that the formal sector was facing huge losses because it was importing palm oil by paying taxes and making products, but the Iranian cooking oil had obtained 10-15% of market share.
