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Iran’s food and beverage market
Date Published：5/11/2016 09:05:32 AM
IRAN has long been subjected to tightening economic sanctions which have dampened a local, thriving market, but the recent ease of the decade-long restrictions have offered some 80 million consumers global access to international food brands and manufacturers. A particularly attractive sector for international food companies is the young local population – about 65 percent is under 35 years old.
The removal of sanctions this year would lead to import of modern agricultural machinery, technology, fertilizers and other quality materials as well as foster consumption with food prices to ease considerably.
Nuts and dried fruits © Natasha Mamysheva | Dreamstime.com
The recent lifting of economic sanctions will of course have short- and long-term impact on the Iranian market for food and beverage, explains Senior Research Analyst at Euromonitor International, Fatemah Sherif. Some short term impacts include:
- Healthy transfer of money to and from Iran, meaning payments can be made in a normal way using the SWIFT banking system.
- Availability of products on the shelves will improve especially for imports as multinationals can continuously supply as per market demands without any gap due to sanctions as well as creating a better business environment as more marketing activities will benefit size performance for the majority of the food and beverage sector.
- Consumer awareness will improve due to campaigns.
- New product development will grow leading to a boost in per capita consumption especially for sectors with a lower base. This means more stable brand performance and reasonable competition between domestic and multinational brands. New entrants and further expansion of the activities of existing suppliers will be a possible threat to local leading brands in big food and beverage sectors like dairy and juices, but this will also encourage key domestic brands to improve quality and packaging of their products to remain competitive.
Ms Sherif adds that some long term impacts include further investment of multinationals in the country in the form of potential joint ventures which will eventually result in establishing factories and production plants in the country, should Iran and the West maintain a normal relationship in the imminent future. Domestic production of well-known multinational brands in the country can seriously change the competitive environment and strongly challenge the current control of domestic brands.
Fatemah Sherif, Senior Research Analyst at Euromonitor International
The Italian Trade Agency in its analysis says that Iran’s agricultural sector is valued at US$ 47.7 billion in 2015 with grain being the largest contributor. The sector is segmented into grains, dairy, meat, pasta and others and saw a decline in revenues from $50.2 billion in 2013 to $47.7 billion in 2015. However, this sector remains import-driven as the demand is greater than its production. Sanctions have lifted but the government has introduced numerous regulations to encourage local production and consumption.
Iran’s population spike has led to its grain demand to outpace its production so the production-consumption deficits in 2014 stood at 1.7 million tonnes, 1.6 million tonnes, 0.9 million tonnes and 3.5 million tonnes for rice, wheat, barley and corn, respectively.
Key import partners for wheat include India, China and Turkey while Russia, the European Union and Ukraine remain key barley importers. Rice import partners include India, UAE, Pakistan and Austria.
Iran has a high demand for pasta and also exports the product to neighbouring countries including Afghanistan, Iraq and Turkmenistan. In 2013, it produced around 560,000 tonnes of which 360,000 tonnes were consumed.
Reports suggest that the country has allotted $10 billion to the development of its agricultural sector and plans to shelf food subsidies to increase local productivity and reduce food cost.
Forecasts suggest that the agricultural food sector is set to grow to $56.8 billion by 2019 as consumption of packaged foods is expected to increase as a result of urbanization, lifestyle changes and as well as demand for products from the West.
Iran’s agricultural sector is set to grow to $56.8 billion by 2019 Photo © Valery Shanin | Dreamstime.com
Local retail environment
Ms Sherif also says that Iran has a very traditional retail environment with strong dominance of traditional grocery outlets which account for almost 90 percent of sales in F&B. However, the process of conversion to modern channels started since 2008 with the launch of Carrefour. This process has been very slow and one reason has been sanctions. With the removal of sanctions, rapid growth of Carrefour and entry of other modern retailing giants have very high possibility and this means more popularity of hypermarkets at the expense of the loss of independent small groceries. This has much more benefit for multinational brands as modern channels give them better opportunity to increase visibility and brand awareness. Usually, domestic brands are not very strong in using space and opportunity in modern channels and multinationals use this chance more efficiently due to their better experience.
In Iran, obesity is also a serious health issue. While 26.3 percent of the population was rendered obese in 2008, the numbers exceeded a whopping 50 percent by the end of 2015, according to the Ministry of Health. This spike is owed to a rapid change in lifestyles which generally means more ready-to-go or fast food consumption, and reduced physical activity levels and healthy food intake.
A recent article, Relationship between Body Weight and Self-Esteem: A Study of Young Men and Women in Iran prepared by Seyed Reza Alvani, Seyed Mehrshad Parvin Hosseini, Laurel Wynne Kimura suggests that obesity and its side effects among females were higher than males with a general tendency of extra weight among adolescents.
Based on data obtained from 450 pre-university students, aged 16 to 19 years in Kashan city, the paper mentions that gender differences and self-esteem were significantly associated with body-weight status as males were at a healthier weight level and had fewer tendencies to be overweight than females.
However, Ms Sherif at Euromonitor commented the Iranian government has kept a very close supervision on health standards in food and beverage for both domestic products and imports and this is not expected to change after loosening/removal of sanctions.
Food security initiatives
In early 2016, the Food and Agriculture Organization of the United Nations conducted a workshop in collaboration with Iran’s Land Affairs Organization to educate and promote governance of tenure of land, fisheries, forestry and cross-cutting issues to foster national food security. Japan also donated $3.7 million to Food and Agricultural Organization to preserve the Urmia Lake in Iran.
The FAO Representative to the Islamic Republic of Iran, Serge Nakouzi said in a statement, “Through its generous contribution, Japan will enable FAO to lend its technical expertise, as a multidisciplinary specialized international technical agency, to partner with the Lake Urmia Restoration Program and national stakeholders.”
The activities that which were scheduled to begin in April this year will offer a platform for greater agricultural productivity, sustainable water resource management, drought monitoring and capacity building.
Not without challenges
Ms Sherif mentions that in sectors where multinational brands do not have domestic production they cannot be much of a threat as the price gap between domestic and multinational brands is so huge that it prevents multinationals to achieve considerable volume (examples, soup and pasta).
However, if the business environment improves greatly after the removal of sanctions, that can encourage multinational suppliers to open up factories which may then be a major threat to domestic brands threatening their market share.
However, the Iranian government sets regulations and policies especially for importation taxes and consumer unit prices which sometimes prevent companies to increase their unit price to maintain profitability and it could be a challenge for the local food and beverage industry, Sherif said.
Also, the general decline of purchasing power which has been a continuous trend due to stagnation/inflation in the Iranian economy and an unpredictable business environment making investment tricky are both hovering challenges. –ZAINAB MASOOR