Vegetable Oil Prices to Increase by 13%

EghtesadOnline: Given the rise in global prices of unprocessed edible oils and other costs, the consumer prices of products packaged in PET containers will increase by 10% and those packaged in other types of containers by 13% as per the decision of Market Regulation Headquarters this week.

News ID: ۷۸۵۶۷۹

25 November 2020

“A total of 400,000 tons of unprocessed oils have been made available by Government Trading Corporation of Iran, an affiliate of the Ministry of Industries, Mining and Trade, in charge of importing four essential items, namely sugar, rice, vegetable oil and wheat. The import of an additional 300,000 tons is in progress,” Abbas Qobadi, a senior official with the ministry, said on Sunday.

Referring to the monthly consumption of 100,000 tons of unprocessed oils in Iran, Qobadi said, “To calm the turbulent market of edible oil, we’ve decided to increase imports, production of hydrogenated oil and the distribution of this essential product,” he was quoted as saying by IRIB News.

Abolhassan Khalili, the head of Vegetable Oil Industries Association, says reliance on the import of unprocessed oil, high costs of machinery and their maintenance, and corrupt practices that stem from the government’s allocation of cheap foreign currency are three main challenges facing vegetable oil production.

“Imports meet 90% of demand for unprocessed oil and oilseeds. That makes it all the more important to pursue development plans regarding expansion of oilseed cultivation areas more vigorously under the current conditions,” he told Tehran Chamber of Commerce, Industries, Mines and Agriculture’s website.

“For the first time this year, vegetable oil factories have signed agreements with farmers without an intermediary, regarding the production of oilseeds.”

Khalili noted that manufacturers of production machinery are based in Europe and it has become increasingly difficult and costly for producers to purchase and import spare parts under sanctions.

Referring to the allocation of subsidized foreign currency at the rate of 42,000 rials per US dollar to import unprocessed oil by the government, he said, “The policy gives rise to higher risk of corruption in imports and production; the government needs to work out an alternative way to support low-income households.”

A total of 1.9 million tons of unprocessed oil were set to be supplied to factories in the current year. Up until last week, 1.12 million tons of unprocessed oils have been put at factories’ disposal, suggesting that 60% of the annual projection have been achieved in eight months.

On the other hand, of the total import of 3 million tons of oilseeds planned for the current year, 1.85 million tons have been supplied thus far, i.e., 61% of the whole year’s projection.

Over the seven months ending Oct. 21, $933 million and $773 million have been allocated for the import of unprocessed oils and oilseeds, respectively. The actual provision of foreign resources for the seven-month import of unprocessed oils and oilseeds stood at $741 million and $664 million, respectively. It takes about one month from the forex allocation to the time products are discharged from customs.

Self-Reliance Goal

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

“Based on the ministry’s plan and provided 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, safflower and sesame seeds] from 100,000 hectares across the country,” Alireza Mohajer has also been quoted as saying by IRNA.

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 sign 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 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,” Mohajer said.

The provinces of Golestan in the north, Ardabil in the northwest and Khuzestan in the south are the main colza producing regions of Iran.

The government is targeting 70% self-reliance in the production of oilseeds over the next 10 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 the fiscal 2014-15,” Mohajer told Young Journalists Club.

He added that 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 of last year, according to the secretary of Iran’s Vegetable Oil Industries Guild Union.

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

Almost 85% of the raw materials for producing vegetable oil are imported.  "The bulk of imports are palm oil from Malaysia and Indonesia, soybean oil from Argentina and sunflower oil from Ukraine and Russia,” he said last year.