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EghtesadOnline: In a letter to the Agriculture Ministry, the Vegetable Oil Industries Association has warned against “serious crisis” facing the market as a result of a looming shortage.

Per capita vegetable oil consumption in Iran is about 18-19 kilograms a year while the global average is 12 kg.

The country imports part of its demand for unrefined vegetable oil and oilseeds and undertakes processing and packaging in domestic factories.

About 2 million tons of oilseeds and 1.5 million tons of unprocessed oil are supplied through imports annually, IRNA reported.

According to the Agriculture Ministry, Iran’s domestic demand for unrefined vegetable oil currently stands above 1.4 million tons per year, only 8% of which are met locally.

The Vegetable Oil Industries Association says the current shortage of unrefined oil could soon lead to higher prices, Mehr News Agency reported.

 

 

Smuggling to Pakistan

The warning comes as Pakistan’s media recently reported that thousands of tons of cooking oil and hydrogenated oil are being smuggled from Iran in cans of 5 to 20 kilograms, causing heavy losses to Pakistan’s national exchequer, which runs into billions of rupees.

Pakistan’s newspaper The News International quoted industry sources as saying that total consumption of cooking oil and hydrogenated oil is approximately 350,000 tons, including 125,000 tons of cooking oil and 225,000 tons of hydrogenated oil per month. They said 500-1,000 tons were being smuggled from Iran daily.

The official sources said both land and sea routes were being used to smuggle goods, especially cooking oil, from Iran these days, and there was an incentive for smuggling because the cooking oil and hydrogenated oil prices had hiked in the domestic market in the wake of higher palm oil prices in the international market. 

Palm oil prices have almost doubled in the international market, jacking up from $700 per ton to $1,400 per ton, and there was no possibility of a decline because in Malaysia, people working on palm groves were not available due to Covid-19 restrictions. 

Industry sources said the government did not bring down the General Sales Tax on palm oil imports from 17% to zero percent, or abolishing the 2% customs duty despite making commitments publicly. Now it seemed that rampant smuggling was allowed to bring down the domestic prices.

When contacted, Umar Rehan, an executive member of Pakistan Vanaspati Manufacturers Association, said the cooking oil and hydrogenated oil were being smuggled from Iran through Balochistan in thousands of tons and even some social media platforms were advertising different brands openly but the government has taken no action. 

“The Iranian cooking oil was being dumped at cheaper rates and it was even available online in Pakistan. The formal sector was facing huge losses because it was importing palm oil by paying taxes and making products, but this Iranian cooking oil has grabbed a 10-15% market share,” he said.

An FBR official, however, told The News that it has taken strict enforcement measures and there was no rampant smuggling of cooking oil coming from Iran in bulk quantity.

Import of vegetable oils are heavily subsidized in Iran, as it is considered an essential commodity in the country.

Iran’s Government Trade Corporation says unprocessed edible oil imports stood at 1.05 million tons from March 21 to Dec. 26 (Q1-3 of the current fiscal year).

GTC, affiliated with the Agriculture Ministry, is the lever for enforcing market controls and in charge of maintaining a supply of wheat, rice, cooking oil, sugar and meat for the country’s strategic reserve of essential goods.

Also known as necessity or basic goods, essential goods are products consumers will buy, regardless of changes in income levels. 

The Islamic Republic of Iran Customs Administration says about 1.9 million tons of different types of oilseeds worth $1.3 billion and 1.4 million tons of unrefined edible vegetable oils worth $1.9 billion were imported during the same period. Put together, 3.3 million tons worth $3.2 billion were imported, making up 17.27% and 30.47% of the weight and value of essential goods imports during the period.

Russia, Malaysia, Ukraine, Brazil and Argentina are the main unprocessed oil and oilseed exporters to Iran.

 

 

Agriculture Ministry Lags Behind Self-Sufficiency Plans

The Agriculture Ministry set plans in late 2015 to achieve 70% self-sufficiency in the production of oilseeds in 10 years to keep imports of oilseeds and vegetable oil in check. 

At the time, domestic production met 6% of the annual demand and now, around six years into the plan, the figure has reached 16%. 

According to data released by the ministry, oilseed production stood at 46,000 tons in the fiscal 2014-15 and last year (March 2020-21) the figure increased to 423,000 tons, Iran Newspaper reported.

As part of the 10-year plan, land under oilseed cultivation has to reach 700,000 hectares by the end of the plan (fiscal 2025-26). This is while the figure now stands at 300,000 hectares, meaning the government has less than four years to convince farmers to cultivate these products on 400,000 hectares of their lands.

The oilseed program was part of a plan the Iranian government came up with in 2015 to become self-sufficient in the production of eight essential goods, namely rice, barley, wheat, pulses, cotton, beetroot, corn and oilseeds. The main objective was to ensure food safety and reduce the amount of foreign currency used for imports of these products.

Experts believe the government plan failed due to the rise in production costs, decline in precipitation levels, low guaranteed purchase prices and the hike in global oilseed prices.

Qasem Pishehvar, the head of Agriculture and Natural Resources Guild Organization, says during the years the oilseed self-sufficiency program has been implemented, drought and water scarcity, as well as low prices set by the government for guaranteed purchases, let the plan down.

“Compared with other crops, oilseed guaranteed prices have always been low. This is the main reason farmers have shown little interest in cultivating such products. This year, the Iranian Parliament ratified the formation of a pricing committee to take over the responsibility of setting prices for different types of oilseeds instead of the government. This committee is made up of state and private sector officials and has agreed on higher prices for the next crop year,” he said.

Pishehvar added that the committee’s ratified guaranteed prices for two main oilseeds of colza and soybean are 150,000 rials ($0.52) and 153,000 ($0.54) rials respectively for next year’s purchases. These prices, he said, are closer to production costs and may encourage farmers to go forth with the plan.

Iran’s vegetable oil refineries’ production capacity stands at 4.5 million tons per year, indicating that most of them are working at very low capacities. A rise in production can make these factories work full shifts, create jobs and in the long run make Iran an exporter of edible oils.

Alireza Mohajer, director of the Agriculture Ministry’s “National Oilseed Project”, has been quoted as saying by IRNA that due to the reimposition of US sanctions on Iran, the ministry needs to expedite efforts to reach the 70% goal. 

Yet, in reality, the government seems to be reluctant to gain all the advantages of the 10-year self-sufficiency plan. 

In the next fiscal year’s budget bill (March 2022-23), the government has proposed the allocation of 1.62 trillion rials ($5.69 million) to oilseed expansion projects while the figure stood at 1.8 trillion rials (close to $6.33 million) this year.  

This becomes more of a concern as the subsidized foreign currency has been omitted for oilseed and vegetable oil imports in next year’s budget, which will definitely increase prices for importers and, in turn, for consumers.

“The government spends more than $4 billion per year to meet the local demand for vegetable oils,” said Mohajer.

In October 2021, he told Young Journalists Club that 10 oil extraction factories have signed memoranda of understanding with the Agriculture Ministry, based on which they can sign contracts with farmers directly to purchase their products via “contract-based cultivation”.

“As such, these factories have signedcontract-based cultivation deals with farmers for the production of colza, soybean and sunflower seeds. These firms will be providing the required seeds, fertilizers and pesticides needed for cultivation,” the official added.

Mohajer said as per the plan, these firms will also insure the farmers and provide training on modern cultivation methods.

The provinces of Golestan in the north, Ardabil in the northwest and Khuzestan in southern Iran are top producers of oilseeds in Iran.

 

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