March 29, 2010


Iranian poultry industry shows progress


One area where production infrastructure has progressed rapidly in Iran is the poultry sector, according to Iran Agribusiness Report Q2 2010.


While production was characterised by small-scale, backyard rearing, the face of the industry has now been transformed dramatically so that the entire supply chain process can take place domestically. In February 2010, the largest poultry slaughter house in the Middle East was opened near Tehran. The factory was 70% financed by the private sector and will provide 1,000 jobs. The investment is a testament to the promising future for Iranian poultry production.


The report takes a closer look at production of wheat, the country's staple grain. In 2008-09, wheat production plunged by a third following the drought of 2008. The outlook for 2009-10 is far brighter. There has been improved rainfall in much of the country, particularly the northern regions where most of wheat is grown on rain-fed land. However, it is not all good news. Drought has persisted in parts of the country and reservoir levels are still well below historic averages. Consequently, while output growth of 19.7% on-year is forecast, wheat production is expected to remain low compared to the levels seen before the drought.


The Iranian grain sector is highly regulated. Producers receive subsidised access to input costs such as fertiliser and pesticides, as well as a guaranteed support price for their crops. Wheat is then sold to consumers at heavily subsidised rates. Despite the government aid, farmers often complain that the support price is too low for them to generate an acceptable profit. The considerable investment in input support has also allowed inefficient farmers to continue producing wheat when other activities would have been a better use of capital and labour. This has inhibited the development of larger, more efficient farms and drained funds that could have been used to further boost infrastructure, such as irrigation. The effect of more targeted support for farming can be seen in the rapid rise in wheat production in the past decade.


A similar problem can be seen in the dairy sector. Government funds have been directed to supporting prices and subsidising input. However, the milk collection infrastructure has been somewhat neglected. This means that in rural areas, getting milk to market is often problematic. Smallholder farmers often lack the facilities to store milk or transport it to major towns. This leaves them at the mercy of traders who offer far less than the government minimum price for milk. With low returns and no guaranteed buyer, despite strong domestic demand, there is little incentive to invest in increasing production. 


The report said that improving infrastructure in rural areas and facilitating the development of regional milk collection and storage infrastructure would be a more efficient way for the government to direct its agricultural subsidy than on guaranteed prices and input subsidies. However, it would likely prove unpopular with farmers who, in the short term, may lose out. However, until infrastructure is improved, Iran's modern dairy sector will remain clustered around large population centres.