Vegetable Oil Industry Stabilizes

EghtesadOnline: A total of 600,000 tons of vegetable oil were produced in Iran during the first three months of the current Iranian year (March 21-June 21). According to the secretary of Iranian Vegetable Oil Industry Association, output outweighed domestic demand during the period under review.

News ID: ۷۸۶۶۶۵

13 July 2021

“On the orders of the Ministry of Industries, Mining and Trade, the association has to ensure the production of at least 180,000 tons of vegetable oils per month. Yet, due to the shortage of the commodity in the local market during the past few months, we managed to increase production to regulate the market demand and prices,” Amir Houshang Birashk was also quoted as saying by IRNA.

The official added that Iran’s vegetable oil industry has the capacity to meet all the country’s household, business and industry demand.

The capacity of Iran’s oilseed processing factories stands at 5.4 million tons per year.

Per capita vegetable oil consumption in Iran, according to Agriculture Ministry, is about 21 kilograms a year while the global average is 12 kilograms.

Iran’s annual demand for unrefined vegetable oil is around 1.6 million tons.

Industry Driven by Imports

The vegetable oil market in Iran has been in turmoil as the country relies mostly on the import of raw materials. Nonetheless, the government has focused in recent months to meet the domestic need for the staple foodstuff in the basket of Iranian households.

The bulk of imports are palm oil from Malaysia and Indonesia, soybean oil from Argentina and sunflower oil from Ukraine and Russia.

Last month, the Market Regulation Headquarters agreed with the import of 300,000 tons of oilseeds by the Government Trading Corporation of Iran to support domestic production and local oilseed processing factories.

Mohammad Jafari, the head of Iran Vegetable Oil Extraction Industry Association, said the imported oilseeds would be distributed among oil oilseed processing factories across the country. The first shipment is expected to arrive in summer.

A total of 2.2 million tons of oilseeds were imported over the last year (March 2020-21), Mehr News Agency reported.

Noting that Iran’s 93% dependency on raw material imports and oilseeds is the main challenge in the way of vegetable oil supply, Yazdan Seif, the managing director of Government Trading Corporation of Iran, says, “The first half of the last Iranian year [March 20-Sept. 21, 2020] was the toughest time in the history of sanctions against Iran; it coincided with the outbreak of Covid-19 and problems regarding the provision of foreign currency. However, we managed to resolve those problems by tapping into our strategic reserves.”

Government Trading Corporation of Iran provided vegetable oil factories with a total of 2.07 million tons of unprocessed oil, including 1.97 million tons from strategic reserves, subsidized imports at the rate of 42,000 rials per US dollar by the private sector, extraction from imported and domestically-produced oilseeds plus more than 100,000 tons available before the start of the accounting period in the year ending March 2021.

Vegetable oil factories were supplied with 260,000 tons of raw vegetable oil since the start of the current Iranian year (March 21) to April 14, ILNA reported.

Rise in Prices

Outbound smuggling via eastern and western borders is to blame for the increase in cooking oil prices, Qasemali Hassani, secretary of Food Wholesalers Union, said earlier in 2021.

“Sadly, the government is in charge of the production of cooking oil from beginning to end, including the allocation of foreign currency to supply raw materials to pricing and distribution; the private sector has no role to play in this matter,” he was quoted as saying by IRIB News.

Prices are set by the government and cooking oil with those price tags are only being distributed at chain stores whereas as few as 25% of people have access to chain stores, he added.

He called on officials to dismiss mandatory pricing and instead pay cooking oil subsidy, which is at 10 million rials ($40) per head annually directly to the people.

Given the rise in global prices of unprocessed edible oils and other costs, 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 recent decision of Market Regulation Headquarters.

Referring to the monthly consumption of 100,000 tons of unprocessed oils in Iran, Abbas Qobadi, a senior official with the Ministry of Industries, Mining and Trade, has said, “To calm the turbulent market of edible oil, we’ve decided to increase both imports and production of solid fats and step up distribution of this essential product.”

Reliance of imports of raw materials, high costs of machinery and their maintenance, and corrupt practices stemming from the government’s allocation of cheap foreign currency are three main challenges of vegetable oil production industry, Abolhassan Khalili, the head of Vegetable Oil Industries Association, says.

“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 crop cultivation more vigorously under current conditions,” he said.

“Manufacturers of production line machinery are based in Europe. Under sanctions, it has become increasingly difficult and costly for producers to purchase and import spare parts,” he added.

Khalili referred to the allocation of subsidized foreign currency at the rate of 42,000 rials per US dollar to import raw vegetable oils by the government and 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.”

Self-Reliance Goal

The government is targeting 70% self-reliance in the production of oilseeds by 2025.

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 the 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 been quoted as saying by IRNA.

He noted that 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” scheme.

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.