According to a report by the state-run Donyay-e-Eghtesad website, which also reviews and publishes economic and livelihood statistics, 52% of the minimum wage of a four-person Iranian household in May 2024 was spent on food. A year ago, this share was higher, around 58%.
In both cases, Iranian households spend more than half of their income on food, which, compared to global and even regional averages, indicates the poor state of Iranian wage earners and the overall economy of Iran.
Ernst Engel, a 19th-century German statistician and economist, proposed a theory that has consistently been confirmed in practice: household income and food expenditure have an inverse relationship. As household income increases, the share spent on food decreases, even if more food is consumed. Conversely, the poorer a household, the larger the share of its income spent on food.
John Maynard Keynes referred to Engel’s Law in his theory of the “Marginal Propensity to Consume and Save,” stating that the wealthy always consume a smaller portion of their income and therefore do not significantly increase demand in the macroeconomy (“The General Theory of Employment, Interest, and Money,” 1936).
Milton Friedman, the 1976 Nobel Prize-winning economist, expanded Engel’s Law with the hypothesis that households consume based on their expected long-term income, rather than their current income (“A Theory of the Consumption Function”). The works of Keynes and Friedman, with two different economic perspectives, along with those of many other economists, show that Engel’s Law regarding the relationship between income and food expenditure is fundamental and insightful for understanding citizens’ consumption behavior and government economic policies.
The cost of food for Iranian households compared to developed and developing countries
In countries with advanced market-based economies, households spend a smaller percentage of their income on food compared to households in developing countries, and as a result, they have more purchasing power for other goods.
Iranian households spend a larger share of their income on food compared to households in other developing countries such as Nigeria and Kenya.
In Middle Eastern countries, the share of household income spent on food ranges from 13% to 20%, whereas in Iran it is over 50%.
Sanctions are not the reason for this backwardness; it is the government’s command economy that has hindered Iran’s growth and development even before the sanctions and from its very inception.
In the past 50 years, the economic growth of most Middle Eastern countries has surpassed that of Iran: Qatar by more than 20 times, Oman by 17 times, Saudi Arabia by 5 times, and even Iraq by nearly 4 times.
Consequences of the high share of food in Iranian household expenses
With more than 50% of their income spent on food, Iranian households are forced to buy and consume less or cheaper, lower-quality food; for instance, the share of many foods such as meat and dairy products on Iranian tables has decreased.
The Statistical Center of Iran provided a report on food expenses, estimating that the “food basket” of Iranian households provides 1,930 kilocalories, whereas the necessary amount is 2,500 kilocalories. The increasing share of food expenses prevents Iranian households from optimally meeting other living needs such as housing, healthcare, and education.
Malnutrition particularly impacts the physical and cognitive development of children severely. School dropout rates among children also add to their malnutrition issues. According to the Majlis Research Center, one-third of students have been forced to drop out of school.
The outlook is also bleak. Food prices continue to rise, further burdening Iranian household expenses. During Ebrahim Raisi’s two and a half years in office, the inflation rate has consistently been above 30% and often over 40%.
In May 2024, the Statistical Center of Iran estimated the monthly, not annual, growth rate of onion prices at around 30%, and Tejarat News newspaper reported that the price of onions increased by 1,233% during Ebrahim Raisi’s presidency.
Iranians have repeatedly taken to the streets in protest against rising food prices since the Qajar era, a hundred years ago.
During the Islamic Republic era, people have also frequently taken to the streets to protest high prices; for example, in January 2018, during Hassan Rouhani’s presidency, there were protests in various cities in Iran against rising prices, which were suppressed.
The November 2019 protests were also rooted in rising gasoline prices and were severely suppressed. In May 2022, during Ebrahim Raisi’s presidency, people took to the streets and stores in protest against the Market Regulation Headquarters’ announcement about the price increases of chicken, eggs, and dairy products for “price adjustment and alignment.”
In any case, since there is no prospect of reducing inflation and the share of food expenses, it is not unlikely that high prices will once again drive people to the streets.
