February 28, 2020
The government is slowly reducing the number of food products whose import it has been subsidizing, which will further feed inflation in the coming months. On January 31, it removed sugar—one of the major subsidized items—so that the price of imported sugar will now likely double on the domestic market in another hit to housewives’ budgets.
In the past few months, the government has quietly removed six food items from its list of 25 products that it put on the list of subsidized imports when it was formally created a year ago.
Those deleted are: red meat; butter; pulses; tea; sugar; and fish eggs.
A year ago, the government created a four-tiered system for imports as part of its effort to counter US sanctions.
Group 1 contained 25 items considered so “essential” that they warranted an outright cash subsidy to hold down costs for consumers. Importers of those 25 items (now 19) could buy their foreign exchange at the rate of 42,000 rials to the US dollar or less than one-third the open market cost. Food and pharmaceuticals predominated on this list.
Group 2 items were rated as important but not essential. Importers of those items were authorized to buy their foreign exchange on the state-run market called NIMA, where exporters were required to sell most of the foreign exchange they earned. The dollar currently sells on NIMA at around 130,000 rials, or about 20,000 rials less than the open market. This category includes mostly raw materials and capital goods needed to produce products in Iran.
Group 3 items are all other permitted items, mostly consumer goods, that get no special treatment. Foreign exchange for these imports must be bought on the open market where the price of the dollar is now around 150,000 rials.
Group 4 items may not be imported at all. This group is supposed to include all products that are made in Iran and can be supplied, at least theoretically, from domestic producers. There are, of course, many questions about the quality of domestically produced items. There is also the question of quantity. It is one thing to cover lost imports if 95 percent of a product sold in Iran was being produced in Iran; it is another thing to cover demand if only 50 percent of the products consumed in Iran were made in Iran.
The subsidized imports remaining in Group 1 today include: rice; wheat; poultry; eggs; fertilizer; seeds; soybeans; heavy vehicle tires; newspaper paper; pharmaceuticals; medical equipment; and industrial machinery used for the production of essential goods in Group 1.
The six items that have been removed from Group 1 have all been moved into Group 2, meaning their foreign exchange costs are now tripling and the retail prices of those items will soar.