Gov’t Wheat Purchases Surpass 11m Tons

EghtesadOnline: A record high of 14 million tons of wheat were domestically produced this year, more than 11.76 million tons of which (worth over $4 billion) have been purchased by the government from local farmers at guaranteed prices, Managing Director of Government Trading Corporation of Iran Ali Qanbari said.

News ID: ۷۶۹۸۵۸

28 September 2016

Every year, the government buys wheat from local farmers at guaranteed prices to build up its strategic reserves and control prices in the domestic market.

Khuzestan in the south with close to 1.4 million tons, Golestan in the north with over 1.36 million tons, Fars in central Iran with 1 million tons, Kurdestan and Kermanshah in the west with 900,000 tons and 743,000 tons respectively top the list of provinces from where the purchases have been made, Khabar Online reported.

Agriculture Minister Mahmoud Hojjati says amid the increase in wheat production and sufficient reserves–enough to meet domestic demand for two years–the government is planning to export wheat flour to the neighboring countries of Iraq and Afghanistan.

According to Deputy Agriculture Minister Abdolmehdi Bakhshandeh, the new growing season for wheat has begun in the Iran’s cold and semi-tropical provinces and local farmers have been provided with the required seeds, fertilizers and pesticides, Mehr News Agency reported.

Earlier this month, GTC offered Salaf contracts for wheat for the first time on Iran Mercantile Exchange to finance its wheat purchase from farmers this year. It offered 32 million wheat Salaf contracts at a fixed price of 827,300 rials ($23.26 at market exchange rate).

The company raised 26.5 trillion rials ($745.2 million) from the sale, which it used to buy wheat from farmers under its guaranteed purchase scheme. Each contract was for 100 kilograms of wheat.

“This is the largest sale of agriculture-based financial securities in Iran’s history,” Hossein Khezri, the chief executive of Agricultural Bank Brokerage, told Boursepress.

Salaf is an Islamic contract with similarities to futures contracts used to forward sell an underlying commodity with a predetermined interest for the period.

The wheat Salaf contracts, which have a six-month maturity, will appreciate by 20% per annum and are being sold at a discount to their face value. The government has guaranteed the principal and interest on the contracts.

Comparatively, six-month bank deposits, which are far more liquid, earn 13% interest per year, though banks offer higher rates for deposits over $30,000.

Salaf contracts are treated as bonds by Iranian investors, according to Financial Tribune.

GTC has promised to sell all the non-subsidized wheat it buys every year on the IME using Salaf. That would mean 3 million tons of wheat each year. With Salaf contracts, the company no longer needs to put up tenders for selling the wheat, as it can sell them on the IME instead.

The main objective of GTC, affiliated to the Ministry of Industries, Mining and Trade, is to ensure food security in the country by procuring basic commodities, such as wheat, rice, sugar, vegetable oil, milk and fertilizer from domestic and foreign sources.