TEHRAN (Iran News) – Providing the domestic agricultural sector with sufficient and in-time financial resources should be the motivating power at a time of sanctions. Iran’s agricultural sector has traditionally been used to raising funds through the country’s banking system, especially the Agriculture Bank of Iran (74 percent). However, during the recent years, some other Iranian banks and credit institutions have tended to provide financial facilities to the agricultural sector, including the Post Bank of Iran, Omid Entrepreneurship Fund, Iranian Rural Cooperation Fund, Support Fund for Agricultural Investment (SFAI), and Gharz-ol-hasaneh.
Nevertheless, the capital market has achieved to be the second source for allocating funds at the macro-economic level through facilitating rules and regulations and issuing binding bonds and percentage stocks over the past decade. Unfortunately, the agricultural sector has not been able to grasp the concept of “from bean to the shelf” due to a lack of supportive infrastructural facilities, efficient capital raising corporations and financial know-how.
Out of the 326 Iranian corporations that are active in the stock exchange market, only a few are upstream and downstream agricultural companies.
Currently, the agricultural sector has access to the Islamic financial tools, including partnership, bailment of capital, contract for the agricultural purpose and percentage, debt and renting. These tools could provide a great opportunity for the public and private sector, including the mangers of the agricultural supply chain, investors and the Ministry of Agricultural Jihad. Regrettably, from among the contracts, only Mozarebeh (bailment of capital) and renting have been extensively used by Iranian banks. The interesting point is that the extensive use of the abovementioned Islamic financial tools will lead to the fair distribution of the risks involved in the agricultural sector among different stakeholders, including farmers and shareholders. Therefore, the income will be fairly balanced between different deciles of the agricultural chain. The policymakers of the financial sectors should shift their focus from the banking system toward the stock exchange market. In such a system, the shareholders can enjoy the interest of their share, while being able to reap benefits from rises in the value of the products and crops. However, this system should be supported by policymakers, credit institutions, and public and private organizations. Allocating an insufficient budget for the agricultural sector within an efficient banking system should raise the alarm for the managers. Crises such as agricultural overproduction – in Iran pertaining to crops including tomato, cucumber, garlic, and saffron – can be resolved solely by activating supporting mechanisms, like the in-time guaranteed purchase of the products at supportive prices. Nowadays, the crisis of agricultural overproduction has hit other crops in Iran as well. Thus the banking system alone cannot play an effective role. The financial indicators, like yield and risk indices, should be pre-calculated and used by these systems to control the agricultural overproduction. Gaining acceptable marginal benefits from business in the agricultural sector requires the adoption of appropriate policies that support the agricultural value chain, along with stock issuance and applying domesticated patterns of contract farming.
What experienced by the Central Organization for Rural Cooperatives of Iran (CORC) in 2018 and 2019 is proof that the banking system alone fails to be sufficient for resolving the financial problems besetting the agricultural sector. Mobilizing different financial resources and using available tools to issue stock and bonds in the stock exchange market will surely pave the way for sustainable fundraising in the agricultural sector.
* H. Shirzad is the deputy agricultural Jihad minister and the CEO of the Central Organization for Rural Cooperatives of Iran (CORC).
- source : Iran Daily, Irannews