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Commodity Intelligence Report
May 31, 2012

IRAN:  Disappointing 2012 Wheat Harvest Likely to Fuel Higher Import Requirements

Iran’s economy has been under significant pressure for the past two years owing to coordinated international sanctions against its oil and banking industries, a major devaluation of its currency (>50%), and the removal of substantial domestic subsidies for fuel, bread, rice, vegetable oil, and sugar due to government economic reforms. The net result of both domestic and international actions has been to dramatically increase domestic inflation and create bottlenecks to trade. Though current sanctions do not officially target food or agricultural commodities, restrictions imposed on Iranian banks and trading firms have impeded the country’s ability to finance needed imports. The Central Bank of Iran (CBI) reported earlier this month that the nation’s core inflation rate stood at 21.5 percent while food price inflation was escalating. The CBI noted that average food prices increased 40-156 percent in the past 12 months (red meat +56%, leafy vegetables +156%, vegetable oil +42%, legumes +50%, dairy products +51%). Against this backdrop, the outlook for the country’s 2012 wheat harvest takes on added importance. Wheat is the staple foodgrain and bread the most important daily food product. Based on Iranian government estimates the average person consumed roughly 8.7 kilograms (kg) of bread per month and 104 kg per year.

As the country’s main winter cereal crop heads toward harvest in 2012 it appears Iran may face continued food price pressure owing to somewhat disappointing wheat production prospects. In general, the country has experienced a moderately favorable wheat growing season this year, though regional moisture availability and growing conditions have been quite varied. Overall wheat production is estimated only a little higher than last year, while imports are forecast to double to meet domestic demand and to modestly rebuild depleted buffer stocks. USDA’s estimate released May 10, 2012 for marketing year 2012/13 wheat production is 14.0 million tons, up 0.5 million or 4 percent from last year. Harvested wheat area is forecast at 7.0 million hectares, up 0.2 million or 3 percent. Wheat crop yields in 2012 are forecast at 2.0 tons per hectare, which is slightly above the 5-year average and only 1 percent higher than last year.

Seasonal rainfall in the major wheat growing regions of the north, northeast, and portions of the southwest was near-to-above average. However, much of the northwest received 50 percent of normal rainfall or less. The important northwestern and southwestern wheat growing regions experienced a distinct dry period following planting that lasted from November to January. Winter grain crops in most of these areas would have already been planted and emerged prior to the onset of this dry phase, so only a modest impact was assumed during this early season dry spell. The main exception was in the province of Khuzestan in southwestern Iran where well-below normal crop development was observed throughout the growing season. Khuzestan is the country’s second largest wheat producer, owing to the fact that roughly 62 percent of its planted area is normally irrigated. Given the poor crop outlook in the province this year, it may be presumed that irrigation supplies were largely inadequate to meet normal crop needs or that higher fuel and fertilizer costs may have negatively affected planted area. By comparison, the north and northeastern provinces bordering the Caspian Sea received well-above normal rainfall this year and are currently poised to produce higher volumes of wheat than last year. As a result of the prevalence of highly variable moisture, wheat crop development and yield potential throughout the country is very mixed (see the Normalized Difference Vegetation Index -- NDVI map below). Major irrigated crop areas in southwestern Iran (Fars and Khuzestan provinces) are showing diminished crop potential compared to last year, whereas significant areas of rainfed and irrigated crop lands in the northwest, north, and northeast are showing strong improvement. Overall crop conditions in early May 2012 are highly variable – even in localized watershed areas – with nationwide production potential little changed from last year.

Vegetation index (NDVI) graphs are useful for gauging the growth, development, and production potential of agricultural crops. They are especially useful in illustrating the timing of key growth phases and the crops potential yield. The two graphs below illustrate winter grain conditions in widely separated portions of the country, Razavi Khorasan and Khuzestan (representing 18 percent of total Iranian wheat production). In Razavi Khorasan (52 percent irrigated) crops are reaching peak growth stages a little earlier than normal and crop development is superior to last year. In the case of Khuzestan (62 percent irrigated), crop development is well-below normal and last year, while peak growth occurred a little later than normal. It can be surmised from such data that wheat yield prospects will be improved over last year in Razavi Khorasan, while they will decline in Khuzestan.

Wheat is grown throughout the country in a wide variety of microclimatic environments. These range from the arid lowlands of Khuzestan province to the temperate high altitude mountain valleys in provinces like Hamedan and Azarbayejan. The crop is typically planted in the autumn (September-December) and harvested in early summer (May-August). Approximately 62 percent of the national wheat crop is totally reliant on rainfall, while approximately 38 percent of total area has access to irrigation. Irrigated wheat is cultivated in virtually every province; however total acreage is insufficient to ensure national wheat self-sufficiency. Irrigated croplands normally contribute about 70 percent of total annual wheat production, while rainfed lands account for the remaining 30 percent. Iran, like many of its immediate neighbors, is an exceptionally arid country which experiences wide fluctuations in seasonal rainfall and is prone to periodic drought. Its relatively large non-irrigated wheat regions located in the northwestern third of the country are particularly vulnerable to autumn or spring drought.

The 2012 wheat harvest in Iran has begun in the lowlands of the southwestern provinces and will be completed at the highest elevations in the Zagros Mountains sometime in mid-to-late August. The bulk of the harvest usually occurs from late May through early July, as the majority of crops are cultivated in earlier-maturing lowland and upland valley locations. Crops in all locations except the highest elevations are beginning their final maturation growth phases, having just passed through peak reproductive or flowering growth stage in early May. The most significant increases in wheat production this year are expected in the northernmost wheat regions stretching in an arc from the Turkish border of West Azarbayejan through to Razavi Khorasan along the Afghanistan border in the east. These regions typically account for about 40 percent of national wheat production. The most significant declines in wheat production will occur in the southwestern provinces of Khuzestan and Fars which usually account for up to 25 percent of total production.

Current USDA area and production estimates for grains and other agricultural commodities are available on IPAD's Agricultural Production page or at PSD Online.

For more information contact Michael Shean | | (202) 720-7366
USDA-FAS, Office of Global Analysis

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