The Effect of Cut Subsidies on Imported Products in the Iranian Market

Maize (Corn)

Rice

Soybean Meal

Iran

Published Aug 22, 2022

Iranian rice, corn, and soybean meal prices are anticipated to stay high in the second half of 2022 due to the high inflation. Iranian annual inflation jumped to 52.5% in June 2022, up by 34% MoM, and increased to 54% in July 2022. In May 2022, the Iranian government also eliminated import subsidies for food and animal feed, which immediately increased the wholesale prices of those commodities. To help local farmers and domestic production, every year the government bans rice imports during the domestic rice harvest season (August - November). However, due to increased prices in the domestic market, the Iranian seasonal import ban on rice was lifted in 2022. Increased prices for animal feed are predicted to have an effect on Iranian livestock wholesale prices as well.

Prices of rice, corn, and soybean meal in Iran are expected to remain high in H2 of 2022 due to ongoing high inflation. Iranian annual inflation surged to 52.5% in June 2022, up 34% MoM, and increased to 54.5% in July 2022. Additionally, the Iranian government stopped providing import subsidies for food and animal feed in May 2022, which immediately resulted in an increase in the wholesale prices of those commodities.

Source: Statistical Center of Iran, Tridge

Tridge’s wholesale price data of corn in Iran was valued at USD 1.57/kg in May 2022, an increase of 249% MoM and steady at a high level in July 2022. The same price trend that occurred in the wholesale price of rice in Iran stood at USD 1.85/kg in May 2022, a rise of 16.4% MoM and slightly increased to USD 1.88/kg in July 2022. While soybean meal wholesale price in Iran skyrocketed by 322% MoM to USD 4.01/kg in June 2022 and had a mild rise to USD 4.02/kg in July 2022.

In 2021, Iran imported rice, corn, and soybean meal totaling USD 731 million, USD 3.4 billion, and USD 1.3 billion, respectively. Iranian imports of corn and soybean meal in 2021 showed an increasing trend, whilst Iranian imports of rice showed a downward trend as a result of the good performance of domestic production in 2021.

Source: Trademap

Iran domestically produced rice, corn, and soybean meal in sizeable amounts. Due to the drought in H1 of 2022 experienced in Iran, the production of rice, corn, and soybean meals are predicted to decline to 2.2 million mt (-13% YoY), 1.3 million mt (-7.14% YoY), and 1.64 million mt (-1.21% YoY), respectively in 2022. Consequently, Iran may have to increase imports in 2022 to fill the gap in supply in the domestic market. Imports for Indian rice and UAE corn and soybean meal may increase.

In order to support local farmers and domestic production, the government prohibits rice imports during the Iranian rice harvest season, which normally begins from August to November. However, due to the rising domestic prices, the seasonal import ban on rice will not be in effect in 2022. The lifting of Iran's seasonal rice import restriction will benefit India to increase its exports to Iran; 53% of Iran’s rice imports, equivalent to USD 389.41 million, were from India in 2021. For corn and soybean meals, Iran imported from UAE worth USD 2 billion (58.6% market share) and USD 383 million (30% market share), respectively in 2021.

The price gap between the Iranian rial and the US dollar widened worsening the situation after the government withdrew import subsidies. Iranian traders will have to buy commodities with higher import value. As a result, the prices of rice, corn, and soybean meal in Iran are on the rise in the domestic market. If soybean meal prices have been rising significantly, Iran may be switching to alternative animal feeds as well, such as barley or sorghum. In the near future, it is anticipated that increasing animal feed prices will have an impact on Iranian livestock wholesale prices as well.