Food Industries Fail to Whet Export Appetite

EghtesadOnline: Despite the fact that Iran’s food industry is mostly run by the private sector, all major decisions are made by the government, general-secretary of Iran Food Industries Associations said.

News ID: ۷۷۷۶۷۹

16 July 2017

Kaveh Zargaran, who also chairs Agriculture Commission of Tehran Chamber of Commerce, Industries, Mines and Agriculture, made the statement in a write-up for the Persian weekly Tejarat-e Farda. Excerpts follow:

With close to 11,200 businesses and a total value added of 143 trillion rials ($3.81 billion), Iran’s food industry accounts for 11% of all the value added created by the industrial sector.

About 400,000 jobs are directly created in food industries and the number gets bigger when people working in its vast distribution networks and supply of raw materials are taken into account, according to Financial Tribune.

Iran enjoys unique advantages when it comes to production of raw materials and their processing including, but not limited to, the availability of 51 million hectares of agricultural land and the fact that the country enjoys four-season climate.

Almost all raw materials for food processing industries are domestically produced in Iran.

Food processing industries are of significant importance in the development of food industries, as they link the agriculture sector to modern food production industries.

Emerging economies have managed to create an appropriate connection between the two sectors of agriculture and processing industries, and have managed to generate higher value added in food production.

But food processing industries in Iran have failed to make the best of their potential. Today we are witnessing idle production capacities in processing industries despite the crucial role they play in boosting value added and food exports, while decreasing agricultural waste.

Iran’s processing industries are capable of handling more than 150 million tons of raw materials and meeting all domestic needs and exports to foreign markets. However, weakened competitiveness of local agricultural products compared to counterparts from other countries, incompatibility with international standards and absence of export plans have undermined the export of food products in non-oil exports.

This is while Iran is situated on the five main transit corridors and international transportation routes. On top of that, some of Iran’s neighboring countries are food importers and so we have a great opportunity to capture their markets, provided we adopt export-oriented policies.

Positive steps taken for improving exports over the past years pale in comparison to the potential of the country’s food industries. Recent government policies to support food exports have proved to be effective and need to be pursued more seriously.

A notable example of how the government’s backing helped food exports is the allocation of export subsidies to dairy products, which led to a significant rise in their exports. In fact, dairy products had the biggest share in Iran’s total food exports in the last Iranian year (ended March 20, 2017).

Iran shipped $773 million worth of dairy products over the period, registering a 10% and 25% increase in volume and value respectively compared to the year before. Among the exported products, yogurt topped the list with $218 million, followed by cheese with $187 million, milk powder with $129 million, and cream and ice cream with $120 million.

About 56,000 tons of dairy products worth $251 million were imported during the same period, including 46,000 tons of butter worth $184 million and 7,000 tons of milk powder worth $50 million.

The above figures indicate that Iran’s dairy trade surplus reached $523 million last year.

The main reason behind Iran’s failure to enter other markets is the high price of its products. Food producers in Iran have to pay higher prices for raw materials and that is to blame on the Iranian government’s approach toward local farmers.

The government runs the guaranteed purchase system for many crops, including wheat and tea, whereby it pays farmers for their products prior to the harvest. In fact the government pays farmers both the real end-price of their products plus a subsidy, and this raises the guaranteed purchase price compared with the global prices of agricultural products.

All countries employ strategies to support their agriculture sector. European Union governments pay farmers subsidies for each hectare of land in order to control inflation.

As part of the government’s protective policies, tariffs are imposed on agricultural imports, which also increase prices.

By employing coherent, export-oriented policies, the government will be able to help both the agriculture sector and the food processing industries to claim a significant share of other markets. If not, the government would repeat the same old mistakes and its industries will lose the markets they have the potential to break into. The telling example of such markets is Russia.

Iran lost the opportunity to establish a foothold in the Russian market following the neighboring country’s political tensions with the EU and Turkey. Iran’s share of the huge Russian market is a meager $152 million.