IDM ¦ Country Report
30 · May/June 2022 ¦ international-dairy.com
Lack of feed is a big problem
for the Iranian dairy sector
(photo: Vorotnikov)
Most dairy plants in Iran process
less than production capacity
would allow (photo: Vorotnikov)
In the first half of the year, Iran exported 37,000 tonnes of milk
powder. This figure used to be higher, but the international sanctions
stripped the country from most foreign markets. Salimi said
that currently, Iran exports most dairy products primarily to the
neighboring countries of the Persian Gulf.
The domestic demand for milk powder dropped just like in
other dairy market segments. In the previous year, the domestic
demand stood at 60,000 tonnes per year, while now it is close
to 40,000 tonnes, Salimi said, admitting that in this background,
some dairy producers in Iran have to operate at a partial capacity
utilization ratio.
Production issues
In addition to a vicious circle of rising costs and shrinking demand,
the Iranian dairy industry experiences severe pressure from the US
sanctions, which prevent dairy plants from modernizing their production
capacities.
Iran faces several impediments in buying foreign equipment.
The main hurdle is to pay for foreign equipment amid a US banking
sanction that threatens foreign banks with third-party sanctions
if they deal with Iran. Before the sanctions, Iranian dairy companies
imported equipment from the European Union. Now, the
trade is put on halt, and some companies reportedly experience a
shortage of spare parts for repair and maintenance of the equipment
currently in operation.
"Some equipment is produced now in Iran, while some are
imported though gray schemes from some foreign countries. In
the past few years, some companies imported equipment from
China, but having a choice, most companies would still opt for
European stuff," a spokesperson for a dairy processing company
commented.
During the past few years, some Iranian dairy companies asked
the government to approve equipment imports under a subsidized
exchange rate in order to facilitate modernization. However, this
has not happened yet.
Iran currently uses three different exchange rates: the official
subsidized rate, the market rate, and a rate controlled by the central
bank available to importers and exporters of essential goods.
The latter is known as the NIMA rate. The US sanctions introduced
in 2018 have substantially reduced Iran's dollar earnings since
2018, forcing the country to dip into its foreign currency reserves,
which have dwindled since that time.
In this background, the Iranian dairy industry is reportedly in
poor financial health, especially since production costs have been
seen rising.
"We are facing an increase in production costs other than raw
milk, meaning that since the beginning of the year, salaries went
up by 40% and packaging costs by 80%," Tabaa said.
In the past few years, the Iranian government set ambitious
goals to boost dairy export to 1 million tons per year and bring the
domestic consumption in line with European countries. Now, most
market participants are confident that the industry is likely to dive
deeper into crisis in 2022 unless the authorities would be able to
agree on the terms of the new Nuclear Deal with the US administration
and have the sanctions lifted.
/international-dairy.com
