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Agribusiness Outlook Promising
Domestic Economy

Agribusiness Outlook Promising

In the past 3 years, food price inflation has been soaring in Iran, partly because of the US-led sanctions. As a report by the Business Monitor International suggests, over the longer term, continued investment by the government to improve infrastructure - such as the improvement of irrigation systems - will yield results in terms of better-quality grains.
The report also draws a bright outlook for grains and sugar production, predicting wheat production to grow more than 9 percent in the next 3-4 years to reach 15.1 million tons. The rise in wheat production is expected due to the modernization of technology, including hardier grains variants, greater access to relevant inputs and a larger area of the country benefiting from new irrigation facilities.  
Meanwhile, sugar consumption is expected to grow 20.5% by 2018 to 2.4mn tons. Sugar demand will be mainly driven by population growth.
The BMI report has predicted poultry production to increase 14.1% in the next 3-4 year to over 900,000 tons.

  Key Developments
The report then says that the outlook for Iran’s livestock and dairy sectors in the short and medium term is improving. A recovery in farms’ profitability will help production to grow this year after two seasons of stagnation on the back of skyrocketing cattle feed prices. In the medium term, the easing of sanctions is likely to boost Iran’s economy, paving the way for substantial foreign investment that has been on hold.
Recently, progress has been made in talks between Iran and the P5+1 group of world powers to reach a final nuclear agreement. The two sides on November 24, 2013 reached an interim deal under which it was agreed that sanctions on some of Iran’s trade in goods and services be suspended.
The oil and gas industry, along with infrastructure, would be obvious beneficiaries; however, agribusiness projects, especially in the livestock and dairy sectors, are also likely to benefit from the easing of sanctions.
Large agribusiness companies are already present in Iran and most of them, such as Danone, entered the market before international sanctions were imposed in 2012.
Since last November, Iran has made a number of deals related to grain and fertilizers imports, which demonstrates that hurdles to imports are easing. In September 2013, Iran’s Agricultural Support Services Company issued a tender to buy 60,000 tons of potassium sulfate, its first tender in two years. Belgian chemical firm Tessenderlo won this tender. In February, Iran bought at least 400,000 tons of wheat from Russia and the European Union in the first big state-sponsored purchase since December 2013.
According to the BMI report, private Iranian buyers are likely to make more active purchases this year as trade becomes easier in line with the easing of restrictions on Iran’s banking system. The government stepped up state purchases in recent years in order to deal with rising hurdles to trade.

  Rice Outlook
Rice is the third largest grain produced in Iran, behind wheat and barley. It is estimated that rice production in Iran will grow for the fifth consecutive year in the 2013-14 season, rising 4.4% year-on-year to 1.68 million tons. This trend is likely to continue next year, with production reaching 1.71 million tons. Area harvested has been slowly growing in the past two years, along with yields, which is supporting output.
Iran usually records a 1.5-1.7 million-ton deficit in its rice output. BMI’s assessment shows that, although imports are monitored, they continue to grow and have discouraged local producers from making the necessary investment to bolster domestic output growth. The report forecasts that demand will grow in 2014 by 1.8% to 3.26 million tons and will continue expanding steadily each year to the end of our forecast period in 2018.
The combination of sanctions and financial restrictions has also affected the rice industry, and Iran has been increasingly relying on imported Indian rice since 2011. India was one of the few countries to have a barter trade system and other payment mechanisms with Iran, which helped it to import oil and export rice and other items to Iran. However, the recent progress in nuclear talks between Iran and P5+1 to reach an agreement may weaken the Indian advantage by eventually allowing free trading in US dollars. This is likely to favor Thai and mostly Pakistani exports, as these countries are traditionally the largest suppliers to Iran.

 Beef Self-Sufficiency
Last year, the government announced plans to increase meat production capacity with large-scale investment over three years. The association of animal breeders has submitted a program to parliament in which Iran will reach self-sufficiency in beef production by 2016. According to this association, the government plans to allocate 900 billion rials ($735 million) for the implementation of the program, with investments in livestock farming facilities.
But the BMI report says the plan is overly ambitious, as livestock companies currently operate at only 20 to 30% of their production capacity. Animals delivered to slaughterhouses “are often underweight and do not meet” the accepted quality standards.
Iran’s beef imports are likely to reach 200,000 tons by the end of this year, compared with the 10-year average of 133,000 tons. Iran mainly imports beef from low-price markets such as India and Pakistan. Tehran is also close to signing a deal with New Zealand for the import of meat from that country, according to the Veterinary Organization of Iran.
Some poultry farmers believe that the government should exercise a more active role in buying from farmers so as to stabilize production - and prices - in order to prevent a glut of domestic poultry in the event of an external shock dampening export demand. As much of Iran’s livestock is grown on small-scale farms, the impact of rising grain and input costs such as fertilizer and diesel will no doubt drag on production growth in the long term.
Despite these difficulties, Iran is still able to import much-needed food supplies. However, the value of imports has skyrocketed. Total shipments in 2013-14 are likely to reach 1.65 million tons, down from 1.9 million tons in 2012-13. This is higher than the 10-year average of 1.4 million tons. In 2014-15, import growth is likely to ease given stocks, and should reach 1.7 million tons, up 3.0% year-on-year (compared with the annual growth of imports of 8.7% in the past 10 years).

 

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