CBI, Ministry of Industries Must End Currency Chaos

EghtesadOnline: Behshahr Industrial Group, the largest producer of edible oils and fats in Iran said it has suspended production for nine days starting Oct. 22 over the Central Bank of Iran’s failure to provide foreign currency to import unprocessed oils.

News ID: ۷۵۱۳۳۷

27 October 2020

“The Ministry of Industries, Mining and Trade has sent us to the CBI. But the problem is that the allocated forex cannot be transferred,” Amir-Houshang Birashk, secretary of Iranian Vegetable Oil Industry Association told Mehr News Agency.

“As we speak, 60,000 tons of raw, unprocessed oils is held up in customs warehouses. We are negotiating to solve the problem. All edible oil companies have been afflicted. Imports of unprocessed oil have declined by 50%. Those in charge need to find a solution to avoid new challenges to the vegetable oil industry,” he stressed.

Broader View

The problem in clearing goods from the customs largely due to currency problems is not restricted to the cooking oil industry.

According to Abdulvahab Sahlabadi, head of Iran’s House of Industry, Mining and Trade, many manufactures have to import raw materials but time and again the goods are caught up in the bloated bureaucracy in the customs as well as the wrangling between the CBI and Industries Ministry.

“One company is now paying $5,200 per day only in demurrage charges. This is when companies are already under immense pressure in trying to evade the [US] sanctions and buy unprocessed goods and spare parts only to come across new hurdles in the customs,” he said.

Goods have piled up in the customs over the past six months, he said, arguing that “[without production], manufactures cannot export and there will be no earnings from foreign sales to repatriate. It is critical that the CBI and the Industry Ministry find a solution” out of this chaos.

“The multiple exchange rate system is another irritant for producers. Some have gone so far as too float the idea of clearing their goods from customs by meeting their currency commitments at open market rates but the proposal was rejected,” he was quoted as saying by Fars News Agency.

After the tanking of the rial in early 2017, the government introduced stringent rules including bans on import of non-essential goods, especially those produced inside the country (known as Group IV goods).

It subsidized currency ($1=42,000 rials) 25 categories of goods (Group I or necessity goods) to help protect consumers against galloping inflation, rampant price gauging and hoarding, not to mention the high and rising cost of living. Over the years it turned out that the forex subsidy policy was an utter failure because people are buying almost all consumer goods at the free market currency rates.

Two other categories are also defined: Group II, which mostly include raw materials, intermediate and capital goods, and Group III essential consumer goods.

Importers of Group II items were obliged to meet their forex requirements from the secondary forex market while companies dealing in Group III goods could buy currency from exporters not required to offer their forex earnings on Nima.

As per law, revenue from foreign sales must be returned via one of the following ways: selling it on the secondary foreign exchange market known as Nima (Persian acronym for Integrated Forex Deal System), cash transfers through hawalah, offering it to exchange bureaus, and finally using the money to import goods and machinery or allow a third party to do so.

Nima is a platform where exporters sell their overseas earnings to companies wanting to import raw material and machinery. It logs data about repatriated and purchased currency.

Another problem, companies regularly complain about, is that the CBI does not allow companies to use their own foreign currency, in or outside the country, to import goods, apparently due to transparency issues, which some say is closely related to  money-laundering concerns.

Goal of Self-Reliance

An estimated 550,000 hectares of farmlands are to go under oilseed cultivation in the current crop year (Sept. 2020-21) and produce 900,000 tons of crucial crop, up 50%, according to the director of the Agriculture Ministry’s ‘National Oilseed Project’.

“Based on the ministry’s plan and provided that farmers are encouraged to come along, it is estimated that 600,000 tons of colza will be harvested from 350,000 hectares, 200,000 tons of soybeans from 100,000 hectares and 100,000 tons of other types of oilseeds [sunflower seeds, safflower, sesame seeds] from 100,000 hectares across the country,” Alireza Mohajer has been quoted by IRNA as saying.

He said this year 10 oil extraction factories have signed agreements with the Agriculture Ministry based on which they can buy directly from farmers as per “contract-based cultivation”.

Factories have contract-based deals with farmers for colza, soybean and sunflower seeds to be cultivated over 200,000 hectares. The companies will provide seeds, fertilizers and pesticides to the farmers, buy insurance for them and train them in modern farming.

“The government has announced a guaranteed purchase price for oilseeds. Farmers can sell their products in the market to the highest bidder but if for any reason prices plunge the Government Trading Corporation will purchase the harvest at guaranteed prices.”

The official said the guaranteed price for a kilogram of colza this year’s crop (to be harvested in the next fiscal year) is set at 78,000 rials ($0.26). The provinces of Golestan in the north, Ardabil in the northwest and Khuzestan in the south are the main colza producing regions in Iran.

It is known that the government is working for 70% self-reliance in the production of oilseeds over ten years to keep imports of oilseeds and vegetable oil in check.

“The plan kicked off in late 2015. Oilseed production was 46,000 tons in fiscal 2014-15,” Mohajer told the Young Journalists Club. He added that the new US economic sanctions have compelled the Agriculture Ministry to accelerate the task of reaching the 70% target.

Per capita vegetable oil consumption in Iran is 18-19 kilograms a year while the global average is 12 kilograms. Iran’s annual demand for unrefined vegetable oil is around 1.6 million tons.

A total of 810,000 tons of vegetable oil were produced by domestic refiners in the first half of the current fiscal year (March 20-Sept. 21) -- down 15% compared with the similar period last year, according to the secretary of Iran’s Vegetable Oil Industries Guild Union.

“Over the same period and due to the economic sanctions that have created obstacles in the way of money transfer plus the forex allocation problems, oilseed imports plunged by more than half year-on-year,” Amirhoushang Birashk was quoted as saying by IRIB News Agency.

Almost 85% of the raw material for producing cooking oil is imported.  "Bulk of imports are palm oil from Malaysia and Indonesia, soybean oil from Argentina and sunflower seed oil from Ukraine and Russia,” he said last year.