Iranian rice production forecast to grow 14.8% to 1.8 million tonnes by 2016-2017 period, according to new report; milk consumption predicted to grow 18.3% to 3.5 million tonnes; sugar production should rise 40.5% to 1.3 million tonnes

Nevin Barich

DUBLIN , January 3, 2013 (press release) – Research and Markets (http://www.researchandmarkets.com/research/vhh3pj/iran_agribusiness) has announced the addition of the "Iran Agribusiness Report Q1 2013" report to their offering.

Financial sanctions imposed to pressure Tehran over its nuclear programme are playing havoc with Iran's ability to import goods. Food price inflation is picking up, leading to a serious decrease in meat consumption. The replacement of regular trade for barter can be seen as a feasible, albeit temporary, way of circumventing sanctions to meet demand. Over the longer term, we believe that the continued investment by the government to improve infrastructure - such as the improvement of irrigation systems - will help the country to turn away from its backward agrarian system and will yield results in terms of better-quality grains.

Key Forecasts

- Rice production growth to 2016/17: 14.8% to 1.8mn tonnes. This reflects expectations for demand growth and efforts to increase self-sufficiency in light of sanctions.

- Milk consumption growth to 2016/17: 18.3% to 3.5mn tonnes. Milk demand will be supported by government initiatives to boost consumption, as well as by population growth.

- Sugar production growth to 2016/17: 40.5% to 1.3mn tonnes. This high growth is due to base effects. Production will be boosted by domestic consumption. However, although Iran is instituting plans to increase production out to 2020, we have not yet seen significant progress.

- 2013 real GDP growth: -0.8% (compared with -3.1% in 2012; predicted to average 1.0% from 2012-2017).

- 2013 consumer price inflation: 45.0% year-on-year (y-o-y) (up from 21.6% y-o-y in 2012;

predicted to average 28.6% from 2012-2017).

Key Developments

Financial sanctions imposed by the US and EU to pressure Tehran over its nuclear programme are playing havoc with Iran's ability to import goods, including food. Food and consumer items are not targeted by sanctions, but the sanctions make deals and payments between traders difficult. Iran defaulted on payments for rice from India, its top supplier, in 2012. As a result, some exporters to Iran have stopped selling rice to the country with the customary 90 days credit for payment. Even payments considered more secure, via agents in the UAE, are being affected due to currency fluctuations. That said, we believe Iran's imports will be relatively unaffected in 2013, as the country is diversifying its providers, with Argentina exporting to Iran again after a 20-year break.

Iranian wheat imports are usually handled by the private sector, but the state has decided to step in to aid purchasing. The government's goal is to secure stocks and limit food price inflation in order to avoid public unrest. The Government Trading Corporation of Iran (GTC), which procures, stores and distributes basic stables including grains, flour and sugar, is stepping up activity and is able to import food despite financial sanctions, as shown by the purchase of 1.1mn tonnes of wheat in September 2012.

The GTC is contacting traders directly for offers, bypassing the usual method of official tenders. The government has managed to partially get around payment constraints by using currencies other than dollars and euros as alternative trade finance and by using barter deals involving gold or oil.

The Iranian dairy sector is struggling to expand due to structural and infrastructure issues. The milk collection network has been neglected despite government funds that were allocated to support prices and subsidise inputs. Smallholders lack the facilities to store and transport milk to major markets, which leave them at the mercy of traders who offer far less than the government's minimum price for milk. Despite buoyant demand, there is little investment in the sector. Until infrastructure improves, we expect Iran's modern dairy sector to remain clustered around large population centres.

For more information visit http://www.researchandmarkets.com/research/vhh3pj/iran_agribusiness

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