By Arash Hasan-Nia
May 18, 2021
Masih Keshavarz, secretary of the Iranian Rice Importers Association, has issued a stark warning about a reduction in imported rice stocks in Iran. The country, he said, currently had “between 100,000 and 150,000 tons, which only meets the country’s needs for the next three months.”
The Association has called for a shortening of the usual seasonal ban on rice imports, which runs throughout the domestic harvest season between late summer and mid-autumn, given that domestic production is also likely to falter this year due to reduced rainfall.
With the cost of imported rice spiralling, Keshavarz told Hamshahri newspaper in early May that according to the Association’s calculations, in the coming months “only 15 million people in Iran will be able to get their hands on rice and easily buy it.”
The Culprits of Food Inflation in Iran
Since last year the cost of red meat, dairy products, cooking oil and even chicken has spiralled in Iran. Rice, apparently, will now also be out of reach for most consumers, once again due to inflation.
The rise in inflation rates to an unprecedented high in 2020-2021 ripped the purchasing power of many Iranian households apart, especially those in low income deciles. The result has been a straightforward reduction in the amount of food people can put on their tables.
According to a report by the Statistical Center of Iran, last year inflation in the all-important food, beverages and tobacco category stood at 58.5 percent from April 2020 to March 2021, while food inflation alone was recorded at 58.4 percent.
But certain sub-categories of food saw even worse price increases, with the average cost of “bread and cereals” soaring by 60.5 percent in the same period.
Notably, this and the other food groups that saw the worst inflation were exactly the same ones whose prices the government had tried to control through subsidized foreign currency allocations. The cost of oils and fats more than doubled with 104.4 percent inflation recorded in 12 months. During the same period, and since April 2018, farmers had been given subsidized foreign currency to buy oilseeds, but this appears to have made little difference.
In fact, according to national statistics, changes to the cost of domestic rice in Iran have risen as well as imported rice ever since subsidies were first introduced in April 2018. Back then, a kilogram of first-class Iranian rice cost 13,569 tomans ($0.61), while a kilogram of top-grade foreign rice cost an average of 7,420 tomans ($0.33).
In the fall of 2019, rumors about rice being removed from Iran’s list of basic commodities began to spread. The premonitions came true in the spring of 2020, with rice definitively taken off the list and the currency exchange rate for imported rice shifted from 4,200 tomans per dollar to the higher rates of 13,000 to 15,000 tomans per dollar.
Between April 2018 and April 2020, the cost of top-grade Iranian rice had nonetheless already soared by 76.5 percent while inflation in first-grade foreign rice was 39.3 percent. Then, when rice was removed from the list of basic goods using subsidized currency rates – and in line with general inflation – the price of each kilogram of first-class Iranian rice increased by 48 percent from April 2020 to April 2021, while the cost of foreign rice shot up by 137.4 percent.
What Went Wrong?
In spring 2018, the government set up a website, Nima, offering dollars at a preferential rate of 4,200 tomans for the importation of “basic goods” compared to the open market rate of 22,000 dollars. But the long-term impact of the policy has made the situation worse, not better.
Foreign rice imports to Iran shrivelled between 2018 and 2020, partly due to a perfect storm of sanctions, a reduction in foreign trade, and then the coronavirus pandemic and ensuing border closures.
But at the same time, since the preferential exchange rate was introduced, different agencies and the Central Bank of Iran have established multi-layered controls and supervisory measures to ensure the cheaper currency is properly spent on importing goods – and in turn, that these goods also reach consumers at a set rate of 4,200 tomans per dollar.
These measures have made it more difficult to profitably import goods and raw materials, compounding the crisis. From liquid oil to chicken feed, producers and sellers have found it harder, not easier, to turn a profit from basic goods.
And in any event, the measures do not seem to have worked. Last week Mohammad Shariatmadari, Rouhani’s Minister of Cooperatives, Labor and Social Welfare, said that some goods imported using preferential currency had ended up reaching the people at more than 10 times the set rate. The cheaper currency fell into the hands of a few, he said, who ended up selling commodities at an effective price of 40,000 to 50,000 tomans to the dollar.
Eshagh Jahangiri, Hassan Rouhani’s first deputy, has previously said the 4,200-toman dollar policy was the result of a decision by the heads of Iran’s three branches of power, on the suggestion of government economists. But according to Sedigh Beikzadeh, director-general of the Ministry of Industry’s commercial affairs office, per capita rice consumption in Iran has shrunk by 15 to 20 percent due to rising prices since the policy was introduced.
Beikzadeh went further, saying Nima rates were the main factor in the changing exchange rate for imported rice and its overall reduction. His office estimated that compared to April 2019, rice imports this year were down about by 90 percent.
Inflation on a Piece of Bread
Rising rice costs typically lead households to look for substitutes, replacing rice with bread or pasta, for instance. But this, too, is out of reach for many– since 2019, Iranian bakers have been protesting about going out of business.
The governors of each province are responsible for determining the local price of bread. Discussions are currently ongoing with the National Working Group on Wheat, Flour and Bread about hiking up the price nationwide – by up to 50 percent, according to rumors in Iranian media in the last few days. In the meantime, bakeries across Iran have informally raised their prices or reduced the volume of dough they buy.
Given that year-on-year inflation stood at 49.5 percent in April, it is irrational to expect prices of goods and services to remain stable. But instead of addressing the root causes, the state has pushed on with its main policy of clamping down on those selling at the highest prices, and trying to set them artificially.