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Growth on Iran feed industry’s horizonGrowth on Iran feed industry’s horizon
This Pegah plant is one of 645 feed mills in Iran. Photos courtesy of the Iran Feed Association.
By Vladislav Vorotnikov
Despite the economic turmoil caused by U.S.-led economic sanctions, Iran’s animal feed production is set to more than double in the next five years, gradually improving the capacity utilization factor and developing export supplies, according to industry sources.
Iran has a well-established feed industry with a 70-year history, said Dr. Majid Movafegh Ghadirly, chairman of the Iran Feed Industry Association. As of today, there are 645 production units in the country with a combined production capacity of nearly 21 million tonnes of feed per year.
“The actual production is around 10 million tonnes per year, which means that the industry operates at only 50% of its designed production capacity, while overall feed consumption in Iran is estimated at 20 million tonnes per year,” Ghadirly said.
The remaining 10,000 tonnes of demand is met with products manufactured by livestock companies, which in Iran commonly are not reflected in the feed industry statistics. This picture is about to change as the government recently ruled that the country’s livestock companies must stop manufacturing feed and close their production units until 2023.
For Iran’s feed mills, this would provide access to an untapped market, Ghadirly said.
“In general, Iran’s animal feed industry is developing and over the next 10 years, if the operational plans that we have foreseen for the industry (materialize), the animal feed production in the country would reach 26 million tonnes per year,” he estimated.
The industry largely depends on government policy and is affected with the price of protein products on the market and subsidies to animal feed manufacturers, both set by the authorities. In addition, there is an issue of feedstuff distribution among the animal feed producers, which also is managed by the government and sometimes appears to be “inappropriate,” said Ghadirly.
U.S.-led economic sanctions against Iran reinstated in November 2018 have become a burden for the local feed mills. The country is heavily dependent on imported raw materials, primarily corn, barley, soybean meal and feed additives, and soaring devaluation is bad news for all import-dependent business.
“Without sanctions our annual growth should be at least 4%, while our actual annual growth is now at 2%,” Ghadirly admitted. “Certainly, the sanctions have not been ineffective, because the production and the pace of technology upgrades in Iran’s animal feed industry have been lowered while the price of finished products has been increased.”
Iran’s national currency — the Rial — in early August was trading at around 120,000 to 1 U.S. dollar, as compared to 40,000 to 1 U.S. dollar prior to the introduction of sanctions. The downward trend is likely to continue since the tensions between Teheran and Washington over the so-called nuclear deal have only gotten worse in recent months.
The exchange rate of the national currency is very important to Iran’s food and feed industries. From Feb. 19, 2019, to March 20, 2019, the official price inflation index on the food market amounted to 72%, Iran’s Central Bank said in a statement on its website. By comparison, during that period the previous year inflation was only at 7%.
It is believed that one of the reasons inflation is so high is because of the feedstuffs. Iran imports 80% of all raw materials used in feed production, even though the government took certain steps to cut import-dependence in this area over the past few years.
“Although inflation has reduced the purchasing power of the population, the subsidies allocated by the government have, to some extent, reimbursed the low value of the national currency so that (the falling exchange rate) does not have much impact on the industry,” Ghadirly said.
Free market on the horizon
In the next decade, Iran’s feed industry is set to shift to operating in free market conditions. Many believe this will bring great opportunities “to some leading feed companies and main players of the industry” and be a real threat to “the old and traditional units,” according to Iran’s Feed Industry Association.
“We forecast that in the next 10 years, the number of feed production units in Iran would halve, while the production capacity would increase,” Ghadirly said. “The reason for this claim is the (upcoming) liberalization of the economy, the complete elimination of subsidies and ultimately the formation of a free economy.”
Because of this, most Iranian feed manufacturers are optimistic about the future of their industry, Ghadirly said.
In terms of feed production, Iran is doing far better now than a few years ago. Some huge feed production capacities have been established in several provinces of the country over the past three years, resulting in overall feed production jumping from 6.92 million tonnes in March 2016 to 9.8 million tonnes in March 2018, Iran’s Feed Industry Association estimated.
“Over the past five years, annual production of 1 million tonnes has been added to Iran’s livestock feed segment,” Ghadirly said.
Livestock, poultry and aquatic feed production accounted for 5.6 million tonnes, 3.9 million tonnes and 291,000 tonnes, respectively, in the marketing year ended March 2018.
Compared to the animal feed market, Iran’s poultry concentrate market is not as sophisticated, according to the Iran Feed Industry Association. The industry requires around 300,000 tonnes of feed additives while the domestic production stands at around 30,000 tonnes per year. The livestock industry alone requires 60,000 tonnes of premixes and the domestic production can barely meet 10% of this figure.
Iran has been importing some feed concentrate during the past several years, but these supplies have never been large or important to the industry. For example, Iran imported only 43 tonnes of livestock and poultry feed in the year ended March 20, 2018, as compared with 19,300 tonnes in the previous year and 309 tonnes a year prior, according to estimates from Iran’s customs service Irica. Some market participants, however, believe that Irica’s data is inaccurate.
The Sepahan Daneh feed mill located in the Isfahan Province of Iran.
Feedstuffs are an issue
Iran needs 72 million tonnes of feed ingredients for feed production per year, including 7.5 million tonnes of feed corn, 3 million tonnes of feed barley, 1.2 million tonnes of soybean meal and so on.
Although import-dependence could be reduced to a certain extent, there’s little chance it could be eliminated completely, at least in the coming decades.
“Due to the fact that Iran is located in the dry region and has dehydration and drought problems, self-sufficiency in feedstuffs is not expected,” Ghardirly said. “Since more than 80% of raw material and feed ingredients are imported, overcoming the dependence on imported feedstuffs in the near future is impossible.”
Nevertheless, Iran’s government intends to reduce its dependence on imported feedstuffs. Ghadirly said this is possible through renting the agricultural lands in other countries, such as Brazil, Kazakhstan, Ukraine, and Russia, for cultivation, using alternative feedstuffs, and growing canola instead of soybeans.
“One of the main programs of the government is to produce feedstuffs in Iran and reduce dependence on imports,” Ghadirly said. “But because of the anticipated population growth and the increase in demand for protein products in Iran, I believe that import dependence would remain at the current level but would not grow.”
Earlier this year, Iran signed a memorandum of understanding with Russia and Kazakhstan on cooperation in wheat trade. According to the memorandum, Iran will facilitate the freedom of transit of Kazakh and Russian wheat through its territory and will support the import of wheat under swap contracts, including on issues of exempting from bans and other restrictions of Kazakh and Russian wheat temporarily imported into Iran for further processing and export.
Russian officials earlier said they were considering signing new trade contracts with Iran with the possibility of making payments in national currencies. This would help both countries to avoid risks of exchange currency fluctuations, since the Russian ruble has been also strongly hit by the international sanctions.
Exports are a new target
The fall of the exchange rate of the national currency has another impact — it makes all export suppliers much more attractive. In 2017, Iran exported 186,000 tonnes of animal feed worth $74 million.
“In 2018, 208,000 tonnes of compound feed worth $87 million was exported from Iran to 17 countries in the region,” Ghadirly said.
This is the highest figure ever, and all forecasts now say that the export supplies will keep growing in the future.
There are 51 feed producers in Iran engaged in export operations. The target markets for Iran feed includes UAE, Iraq, Turkmenistan, Afghanistan, Azerbaijan, Turkey, Armenia, Tajikistan, Georgia, Kyrgyzstan, Kuwait, Oman, South Korea, Indonesia, Malaysia and Uzbekistan, according to the Iran Feed Industry Association.
In addition, there is a list of promising markets for feed exports that includes Algeria, Bangladesh, Oman, Afghanistan, Kuwait, Tajikistan, Armenia and other neighboring countries.
Iran may expand export supplies to 900,000 tonnes in 2020, said Andisheh Haghighat nezhad, a local feed industry analyst. This would make Iran the biggest animal feed exporter in the Middle East and provide strong additional impetus to the local feed mills to expand their operations.