Food inflation in Iran

Iran has faced severe food inflation in the past decade, driven by multiple factors. These include agricultural and climatic challenges, significant issues in water management, and inefficiencies in the food supply chain. A major contributing factor is the involvement of the Iranian Revolutionary Guard Corps (IRGC) in the economy, particularly in the agriculture and food sectors. The IRGC’s influence has been linked to mismanagement and corruption, exacerbating problems in water resources, agricultural practices, and food production.

Poor usage of Iran's agricultural land

Approximately one-third of Iran's total surface area consists of arable farmland; however, less than one-fourth of this—equivalent to about one-tenth of the total land area—is actively cultivated. This limited cultivation is due to poor soil quality and inadequate water distribution across many regions. Of the cultivated land, less than one-third benefits from irrigation, while most rely on dry farming techniques. The most fertile soils are found in the western and northwestern regions of the country.

The increase in food prices

Since 2014, Iran has faced a persistent decline in food production, coupled with significant increases in food prices. For instance, the price of rice has surged by 2.11 times between 2012 and 2023, while bread costs have risen 3.4 times from 2011 to 2023. Potatoes have tripled in price over the same period, and chicken fillets have seen a 2.06-fold increase from 2010 to 2023. Despite these inflationary trends, the median net salary in Iran has only grown by 33% between 2020 and 2023. This discrepancy underscores the nation’s food crisis, with recent data revealing that in a period of several weeks in 2024, Bread prices rose by 66% and milk prices rose by 25%. These trends indicate ongoing food shortages and exacerbate food insecurity in Iran, where approximately one-quarter of the population resides in slums, facing moderate to severe food insecurity.

Food inflation Causes

International sanctions

In response to Iran's nuclear and ballistic missile advancements, as well as its backing of militant organizations that compromise regional peace, the United States, in conjunction with a network of international allies, has imposed a rigorous sanctions regime. This multifaceted approach extends beyond Iran’s military activities, with its record of human rights abuses further justifying the global punitive measures. The sanctions have specifically targeted Iran's crucial oil sector and banking systems, which are central to its economy. As a result, these measures have significantly undermined the nation's ability to earn foreign currency, dealing a critical blow to its economic infrastructure and foreign trade relationships. This limitation has considerably impeded Iran's capacity to import essential food products and agricultural inputs, including seeds, fertilizers, and machinery. Consequently, the sanctions have led to increased production costs and higher food prices. Furthermore, the disruption of critical supply chains has increased transportation expenses, intensifying inflationary pressures within the country.

Exchange Rate Volatility

Due to international sanctions and ineffective economic management, the Iranian rial depreciated significantly by approximately 37% between October 2014 and October 2024. This depreciation rendered imports more expensive, directly affecting the prices of food products, particularly those reliant on imported goods. Moreover, the government's efforts to manage multiple exchange rates have introduced market distortions and inefficiencies, further exacerbating price volatility.

Agricultural Challenges

Iran is grappling with severe water scarcity and desertification that adversely impact its agricultural output. Over the past century, Iran's population surged from ten to over eighty-five million, and its renewable water resources declined from 130 BCM (Billion Cubic Meters) to 80-85 BCM. Projections suggest that by 2041, water resources could be halved, posing significant challenges as the population is expected to exceed 100 million. Per capita water availability is anticipated to fall below 500 cubic meters, marking absolute scarcity. Extended periods of drought and inefficient water resources management, in addition to outdated infrastructure and agricultural practices continue to limit productivity, further contribute to rising prices.

Global Factors

Global factors, including climate change, armed conflicts (e.g., the war in Ukraine), and international market fluctuations, affect food prices worldwide. As Iran is a significant importer of food and agricultural inputs, these global trends directly affect its domestic pricing. In particular, increases in the prices of key commodities such as wheat, corn, and vegetable oils contribute to Iran's food inflation.

Subsidy Reforms and Economic Policies

The Iranian government has, at times, cut subsidies on essential goods or tried to reform the subsidy system to address budget deficits. These changes often lead to sudden price hikes in food items. The subsidies have been replaced with in-kind transfers. The government has controlled the price of over 20 goods for decades. Administered prices are set by the Consumer and Producer Protection Organization (CPPO) in collaboration with the Parliament. The CPPO sets consumer prices below border prices and producer prices, and the budget bears the difference. In 2007, food subsidies represented 2.8 percent of the GDP. Subsidized goods include cereals (50 percent of all subsidies), other basic food commodities such as sugar, cooking oils, baby formulas (25 percent), and other goods such as paper, agricultural machinery, fertilizers, and pharmaceuticals (25 percent). As part of the Targeted Subsidies Reform, the government raised the price of bread by as much as 25 percent in December 2010. The CPPO prohibited any other extra price increase and conducted frequent market inspections due to fears that such a measure could trigger public unrest.

The subsidy cuts continue, despite the public unrest they cause to Iranian citizens who are grappling with rising poverty and rampant inflation, to reduce budget deficits.

Inefficiency and corruption

Inefficiencies and corruption in distribution systems can lead to artificial shortages and price manipulation, contributing to inflation. This situation is rooted in several systemic issues:

Corruption and Monopolies

Corruption within Iran's food supply chain represents a significant structural challenge, where politically connected businesses and individuals exploit their influence to monopolize distribution channels. These actors secure preferential access to subsidized food commodities, a privilege often derived from their ties to political elites. By hoarding these essential products, they deliberately engineer artificial shortages, only to later release the goods into the black market at significantly higher prices. This form of market manipulation not only distorts supply dynamics but also exacerbates inflationary pressures, undermining both economic stability and equitable access to essential goods.

IRGC and corruption in water management

Rapid urbanization and agricultural demands have exacerbated the country's already scarce water supply. With approximately 90% of Iran's water resources allocated to agriculture, the inefficiency of irrigation practices and the overreliance on groundwater are leading to severe depletion of these vital reserves. The text also underscores the role of climate change, which is intensifying droughts and reducing available surface water, further stressing the system. Iran's water management strategies, including the construction of dams and water transfer projects, have been politically driven and often disregard environmental and social impacts. These policies contribute to ecological damage, such as the drying up of rivers and wetlands. These policies fail to address the root causes of scarcity and disproportionately affect rural and peripheral communities, leading to civil disorder.

Corruption in Iran's water supply sector has deep roots and manifests through misallocation of resources, illegal water extraction, lack of transparency, and neglect of marginalized communities. Iran's water management system has been plagued by political favoritism. The IRGC and other politically connected entities control water resources, prioritizing projects for political and economic gain rather than public need. They divert supplies to favored regions, causing shortages in vulnerable provinces like Khuzestan and Sistan-Baluchestan. For example, water diversion projects in Isfahan and Yazd provinces received priority despite critical shortages in Khuzestan and Sistan-Baluchestan. Reports also indicate that certain agricultural and industrial enterprises with ties to the Iranian Revolutionary Guard Corps (IRGC) have received significant amounts of water, while small farmers and rural communities struggle with severe shortages (Greenbaum, 2024; ICG, 2023).

The IRGC, through its construction arm Khatam al-Anbiya, monopolizes Iran's water management. This "water mafia" controls major infrastructure projects like dam construction, prioritizing financial and political gains over environmental and social considerations. The IRGC's influence leads to inefficient water distribution, ecological damage, and widespread public unrest, particularly in marginalized areas. Their dominance undermines sustainable water policies, contributing to Iran's ongoing water crisis and highlighting the complex interplay between power, corruption, and resource management.

Iran's central government prioritizes water allocation for industrial and urban centers, often at the expense of rural and minority populations. These groups face severe water shortages, ecological degradation, and a loss of livelihoods. This pattern of unequal development not only exacerbates regional disparities but also fuels social unrest and environmental crises. Iran's water policy is also characterized by an overreliance on dam construction and large-scale diversion projects, primarily benefiting politically connected enterprises and urban elites. This has led to the drying of rivers, wetlands, and other vital ecosystems, intensifying dust storms and land subsidence in regions like Khuzestan and Sistan-Baluchestan. Such environmental degradation, combined with insufficient governmental oversight and transparency, worsens living conditions for marginalized communities, reinforcing cycles of poverty and socio-political marginalization.

The consequences of corruption in Iran's water sector extend beyond misallocation and mismanagement. The environmental damage includes the drying of critical water bodies, such as Lake Urmia, which has shrunk by over 80% due to diversion projects and the construction of dams without proper environmental assessments. Such ecological damage affects biodiversity and threatens agricultural productivity, as salinization renders once-fertile land unusable .