Rationality of Bread Pricing

EghtesadOnline: The government has let go of economic rationality in the face of public pressure at least twice in just 100 days since President Hassan Rouhani was reelected.

News ID: ۷۸۰۶۹۸

09 December 2017

Stating the above, the Persian weekly Seda noted that Industries, Mining and Trade Minister Mohammad Shariatmadari postponed the market-friendly scheme to reform the sales of a select number of non-staple goods by allowing producers to avoid printing prices on their products.

It was announced that if the scheme had been successfully carried out, other items would have been gradually added to this list.

The scheme was initially meant to be implemented as of September 23, but due to the poor dissemination of information regarding the issue and the high probability of sellers and intermediaries taking advantage of the new regulation and causing turmoil in the market, public concerns increased and the government decided to postpone the scheme for a month to conduct further studies and consult more experts, according to Financial Tribune.

The government also had to backtrack on increasing bread prices. Facing complaints by consumers and producers, Shariatmadari put on hold the 15% increase in the bread prices scheduled to be introduced as of Nov. 22.

Friction between government and Iran’s Traditional Bakers’ Union isn’t new. The union believes that price hike is inevitable, given the operating costs, whereas the government is against deregulating bread prices and grants fuel and flour subsidies to bakeries.

The pricing approach adopted by the previous government didn’t sit well with both consumers and bakers. In the first decade of the 21st century, the complications of bread pricing led to the arrest of the then head of bakers’ union.

More of a Political Issue

Bread pricing in Iran is more of a political issue than an economic one.

Bread is the main staple of Iranian diet and the population of Iranians of modest means stands around 18 million. Hence, several governments preceding the incumbent administration followed the same rationale with regard to bread pricing.

The rise in bread prices has led to popular uprisings in the past. The last such riot was in the 1940s when people staged a sit-in before the parliament and beat up a number of lawmakers; even the then prime minister, Ahmad Qavam, narrowly managed to escape getting trampled in the riotous stampede.

Qavam was quick to order the shutdown of newspapers and Lieutenant General Ahmad Amir Ahmadi was ordered to crack down on the protesters.

The events of those years has convinced the preceding administrations to steer clear of initiating any reform over bread pricing and provide this staple for people at the cheapest price.

Waste Is Rife

And due to the cheap prices of bread in Iran, waste is rife.

According to Ali Qanbari, former managing director of Government Trading Corporation of Iran, about 20,000 billion rials ($570 million) worth of bread are wasted annually in Iran.

Economic and cultural institutions have made vain attempts to change the pattern of bread consumption in Iran.

Iranians are the second biggest consumer of bread in the world with a per capita of 160 kilograms per person, which is six times higher than the global average.

Turks consume the most bread with a per capita of 199 kg annually. In France and Germany, per capita bread consumption is 56 kg and 70 kg respectively. The annual bread production in Iran stands at 15 million tons.

Industrial bakeries have a 20% share in Iranian bread production while the rest belongs to traditional bakers. When it comes to the consumer market, industrial breads account for as little as 20%.

Only 2% of the total share of flour allocated for all bakeries belong to industrial bakeries while the remaining 98% pertain to traditional bakers.

Currently, 80% of the flour distributed across the country are subsidized and the rest is supplied at market rates.

The Industries Ministry of the government of late president, Hashemi Rafsanjani, invested considerable efforts in vain to set up industrial bread bakeries in all provinces. However, with the escalation of economic crises, bread-making methods fell back to old routines.

Qasem Zera’atkar, the head of Traditional Bakers’ Union, said there are 20,000 bakeries more than the country needs and they waste considerable resources by using substandard bread-making methods.

“The problem can be solved by training bakers, increasing mechanization and improving the quality of raw materials such as wheat and flour,” Qanbari said.

Emmanuel Tertrais, the visiting head of France’s Baguette Academy, announced recently that 10 Iranian bakers will visit France to receive on-site professional training at his academy.

Governments are usually unwilling to use tools that might give rise to public dissatisfaction. So the government of Rouhani is highly unlikely to push through economic reforms in foreign currency rates, cash subsidies plan, or even the pricing systems.

The US dollar exchange rate and bread prices are two main criteria for people to assess the performance of Iranian governments.

Despite its market-oriented economic team, the government won’t introduce policies to displease people. Nonetheless, the bakery’s union took its chances once again and, as in the past decades, engaged the minds of Iranian people and statesmen for a week.