Economy, Business And Markets

Agribusiness to Prosper Post-Sanctions

Agribusiness to Prosper Post-Sanctions
Agribusiness to Prosper Post-Sanctions

The latest report by Business Monitor International on Iran’s agribusiness sector predicts an increase in agricultural production in the coming years as a result of the landmark nuclear agreement reached between Iran and six major world powers in Vienna last month. It will pave the way for a return to economic growth and strong uptick in foreign investment.

The industry analysis group forecasts wheat production to increase at an average rate of 6.1% to 15 million tons by the Iranian year 2018/19, owing to modernization of technology, including hardier grains variants, greater access to relevant inputs and a larger area of the country benefiting from new irrigation facilities. Corn output will record similar growth, while barley production is predicted to rise at a faster pace.

Rice harvest output during the current Iranian year (March 21, 2015- March 19, 2016) is estimated to reach 1.7 million tons. Rice production is expected to grow by 9.5% on the 2013/14 level to reach 1.8 million tons in 2018/19.

The livestock and dairy sectors are also likely to benefit, driven by domestic demand and the effects of increased investment. Poultry production is forecast to expand by 15.9% to 927,000 tons by 2018/19. Meanwhile, beef and veal production is expected to expand by 7.7% to 257,600 tons. BMI forecasts dairy production to accelerate in the coming years to reach 8.8 million tons in 2018/19.

However, such an improvement depends on the country doing some key modernization investment, particularly in irrigation, as Iran relies heavily on the vagaries of the weather, according to the report.

Despite the improvements in infrastructure, large areas of the country, particularly in the north and west, are still reliant on rainfed agriculture. These areas also suffer from a lack of mechanization, with a very low density for harvesters compared with the irrigated areas in the south and east of Iran. With the government now in the process of abolishing its subsidies on food, money could become available for funding infrastructure improvements which will, in time, help bring down the cost of food.

  Consumption Projected to Grow

The lifting of sanctions will also have a direct impact on agricultural consumption. BMI predicts that the effect of lifting of sanctions on consumption will be more rapid than its effect on production as food price inflation is likely to ease significantly from the current elevated levels. As such, BMI predicts that Iran’s dependence on imported grain and sugar will grow over the medium term.

BMI predicts sugar consumption to grow 27.6% to 3 million tons to 2019, mainly driven by population growth and the improved macroeconomic conditions following the lifting of sanctions from 2016.

The report also forecast wheat consumption growing by 10.5% to 2018/19, while corn consumption will rise by 19.5% and barley by 18.9%, boosted by growing animal feed demand. Rice consumption is forecast to grow by 10.2% on the 2014 level to 3.7 million tons in 2019.

Dairy consumption is expected to grow by 15.1 to 3.1 million tons in 2019, while poultry and meat consumption are expected to expand by 17.9% and 28.1% to 1 million tons and 550,500 tons in 2019 respectively in line with population and disposable income growth.

  Re-Diversifying Import Sources

With the lifting of the sanctions, Iran is likely to re-diversify its import sources. Although food products were not targeted by sanctions, the restrictions made deals and payments between traders difficult. Therefore, Iran has been increasingly relying on Indian food exports–and all products in general–as the country did not back the sanctions and was one of the few countries to have a barter trade system and other payment mechanisms with Iran, which helped India to import oil from Iran and export rice and other items to the country in return. India became Iran’s largest provider of basmati rice and soymeal according to local sources.

The lifting of the sanction poses a clear risk for Indian exports, as Iran will most likely look to import from a larger set of suppliers again and will turn to Thailand and Pakistan for rice, two traditional exporters to Iran. For sugar, Iran will increase imports from Brazil.