Iran Agribusiness Report

BMI's Iran Agribusiness Report Q4 2009 continues on themes touched upon in previous publications, as the Islamic Republic battles to lessen its import dependence while drought places further limits on a tight domestic water supply.

Iran's economy is heavily reliant on the foreign exchange reaped from its massive oil sector. High global prices in recent years have helped the country to accumulate sizeable capital reserves, which the government is increasingly keen to invest in other areas of the economy. The agricultural sector has been a notable beneficiary, in line with plans to alleviate import dependence in some important food staples.

The government has helped support agricultural growth with incentives to producers by way of subsidised crop inputs and in some instances guaranteed buying prices. We believe such assistance will contribute to significant output growth across the range of crops covered in our forecast, with wheat and rice the most notable beneficiaries, increasing harvest yields by 45.22% and 76.97% respectively to 2013.

Notwithstanding, we still imagine that strong consumption growth will do little to cut domestic deficits in both goods.

Another potentially destabilising factor attributed to the price controls and subsidies is their weighing down effect on the economy. Meanwhile, reports of corruption and inefficiency undermine the potential for the private sector to attract investment. As a result, there is a flurry of informal market activity, while inventory shortages are commonplace, with the rice and sugar industries the worst affected; these are the sectors where the state's presence is strongest.

The drought that has ravaged the country for nearly two years continues to affect producer sentiment.

Grains farmers have borne the brunt of the water shortages, while meat consumption has been held up by imported feedstock. A positive to be gleaned from the arid conditions is the strengthening of the state's resolve to improve the standard of irrigation.

Despite trying to foster improved international relations and the potential investment that can be facilitated on the back of this, we feel that it is by addressing domestic issues where Iran can do much to improve its agricultural status. The state's continual overbearing presence in some subsectors is deemed detrimental to private sector investment. The development of infrastructure should be of primary concern as this will provide the fundamentals from which investors will be increasingly likely to take a risk. At present, there is not too much to suggest that a major shift in Iranian farming is imminent.