Economy, Domestic Economy

Dairy Industry Saddled With Gov’t Controls, High Costs

Dairy Industry Saddled With Gov’t Controls, High CostsDairy Industry Saddled With Gov’t Controls, High Costs

The domestic market for milk and dairy products is experiencing difficult times as many of the key suppliers are forced to acquire milk from dairy farmers at much higher prices than in previous years, while milk processing and packaging industries are unable to increase unit prices to reflect the higher costs due to the imposition of strict government price controls.

While the government has set a minimum price of 14,400 rials (40 cents at free market exchange rates) per kilogram of raw milk purchased from farmers, the processing industries say the selling prices need to increase at least 16% to maintain feasibility. The government has so far not allowed the price hike, resulting in low profit margins for manufacturers, the Persian newspaper Ta’adol reported.

Another hurdle the dairy companies need to overcome is the low level of milk consumption among Iranians which is about half the international average. Iran’s per capita milk consumption is only about 80-90 kilograms annually compared with annual global per capita consumption of 165 kg. Per capita consumption in western Europe is in excess of 300 kg.

> Unattractive in Int’l Markets

In 2010, Iran was declared by UN’s Food and Agricultural Organization as self-sufficient in milk production and capable of exporting milk to other countries. But Iran’s milk and dairy products are not well-received internationally due mainly to high prices and failure to meet global quality standards.

Head of Iran dairy Industries Society, Reza Bakeri believes the sanctions (imposed by the West over Iran’s nuclear energy program) have indirectly affected the quality of Iranian milk.

“Due to sanctions, it is difficult to make payments for purchase of livestock feed. Therefore the feed is piled up in warehouses and ships for months before finally being fed to the cattle, resulting in lower milk quality,” he explained.

Another expert, who did not wish to be named, told the newspaper that Iran’s milk has higher bacteria content and aflatoxins than permitted by international standards. “The poor quality combined with unhygienic transportation makes Iranian milk unattractive in international markets,” he added.

  High Prices

High prices is another barrier to exports. Iran exports skimmed milk powder at about $4 per kg, whereas the average global price is slightly above $2 per kg. Meanwhile, global prices are expected to drop further in the coming years as the European Union milk production quotas were lifted on March 31, after more than 30 years.

Quotas on cow milk production by EU countries were introduced in 1984 to prevent over-production, which led to farmers dumping surplus products. Market analysts are predicting global milk prices to drop more than 2% by year 2017 as a result of the milk quota removal.

Iran exported 406,000 tons of dairy products, valued at $642 million during the past Iranian year (ended March 20), according to Bakeri. “The volume is about 7% of the 5.7 million tons of raw milk produced in the country during the period,” he noted.

Iraq is the major buyer of Iranian dairy products, accounting for 90% of exports. “Iranian dairy companies have a good market penetration in Iraq. They have even taken charge of distribution in the Arab country,” said Bakeri.

But even Iraq is set to impose 15% import tariffs on dairy imports from Iran in the coming weeks, threating to reduce the market’s allure for manufacturers.

According to a report by FAO on global status and trends in the dairy sector; while in the past, increase in demand were driven mainly by population growth, they are now fuelled by rising per capita milk consumption in developing countries.

Despite having succeeded to develop a wide range of products and having attained vast market penetration inside Iran, Iranian milk processing and dairy companies are set to lose regional markets to stronger rivals from Europe and other countries if they fail to improve their competitiveness.