Subsidies Not Benefiting Wheat Farmers

EghtesadOnline: The government pays 60 trillion rials ($1.58 billion) in wheat subsidies annually.

News ID: ۷۷۴۲۲۵

27 February 2017

It paid 12,705 rials (around 34 cents) to local farmers for each kilogram of common wheat and 13,068 rials (around 35 cents) for durum wheat this year and sold each kilogram of flour for 6,650 rials (17 cents) to traditional and 9,000 rials (24 cents) to industrial bakeries.

In other words, the government grants around 6,000 rials (16 cents) for each kilogram of wheat to keep the prices of bread low whereas, according to experts, it can spend the money on agricultural infrastructure and modernization that would ultimately decrease the end-price of wheat production.

“Wheat production in Iran costs about 11,000 rials (29 cents) per kilogram compared to most countries where it costs between 7,800 and 8,000 rials (20-21 cents) per kilogram,” Ali Khanmohammadi, the executive secretary of the National Foundation of Wheat Farmers Empowerment, was quoted as saying by the Persian daily Shahrvand.

“Countries with cheaper wheat prices have achieved higher productivity and offer more financial services to boost their agriculture sector.”

Referring to the negative correlation between productivity and wheat prices, Khanmohammadi said expensive agricultural loans as well as high farm and water costs inflate the prices of wheat production in Iran. “Iran’s low rate of precipitation is also to blame for the high end-price of wheat production. An increase in wheat prices results in a hike in the prices of all items. In the meantime, farmers are not making this money, rather they’re getting weaker by the year,” Financial Tribune quoted him as saying.

The official warned that consumers will not get access to good quality bread.

According to official figures, some 20 trillion rials ($530 million) worth of bread are wasted annually in Iran, which problem can be solved by training bakers, increasing mechanization and improving the quality of raw materials such as wheat and flour.

Khanmohammadi questioned the economic viability of the government’s subsidy plans to wheat consumers and called for stabilizing wheat production and making investment in training of farmers.

“Despite the remarkable diversity of agricultural equipment, only a few farming tools are used in Iran,” said the Chairman of Agriculture Commission of Iran Chamber of Commerce, Industries, Mines and Agriculture, Shamsali Hadizadeh Moallem.

“Sixty percent of Iranian farmers indulge in non-irrigated practices. On several farms, pre-harvest, harvest and post-harvest are carried by hand with high labor costs, which make it only natural for producers to ask for higher prices. With advanced irrigation and farming systems, many countries are now able to produce wheat on the cheap.”

Moallem believes the purchase of wheat at guaranteed prices does not put the government at a disadvantage because it has to pay 15,000 rials (40 cents) for each kilogram of imported wheat.

A record high of 14 million tons of wheat were produced in the current Iranian year (March 2016-17), more than 11.52 million tons of which—worth 145 trillion rials or close to $3.8 billion—were purchased from 31 provinces by the government through the Government Trading Corporation of Iran.

“The strategic storage of wheat currently stands at 9 million tons,” says Hassan Abbasi Maroufan, an official with GTC.

“Iran’s per capita consumption of wheat ranges between 120 and 150 kilograms.”

Last week, Mohammad Baqer Nobakht, the head of Planning and Budget Organization of Iran, announced the government’s guaranteed purchase prices of agricultural products for the coming crop year to the Ministry of Agriculture.

“The government will pay 13,000 rials (34 cents) for each kilogram of common wheat and 13,300 rials (35 cents) for durum wheat next year, registering a 2.3% rise compared to the current year,” he said.

According to the Statistical Center of Iran’s latest report, the lowest inflation rate posted this year was 6.8% for the 12-month period ending February 18, which marks the end of the Iranian month of Bahman. Therefore, wheat guaranteed purchase prices must at least stand at around 13,600 rials (36 cents). It is worth noting that the Agriculture Ministry’s proposed wheat prices were 13,848 rials (36.6 cents) for each kilogram of common wheat and 14,244 rials (37.6 cents) for durum wheat.

In its latest report on Iran’s agricultural sector, the Business Monitor International estimates that Iran’s wheat production will reach 16 million tons by 2019-20 and wheat yields are expected to improve, because of the use of modern technology, greater access to inputs and a larger area of the country benefiting from new irrigation facilities.