By Ariane Gottlieb, Research Associate
Iran, with its population of nearly 80 million people and recent relief from sanctions, offers significant opportunities for growth, international investment and modernization in its already strong food and beverage industry. Currently, 90% of food and beverage sales are conducted through traditional small grocery outlets and local bakeries. In 2014, 96% of bakery sales were for staples like bread. But, in a country where 65% of the population is under the age of 35, tastes are changing and companies are modernizing and targeting younger consumers by rebranding or adding new products and flavors.
In a sign of the times, the packaged goods industry is showing signs of strength as packaged products begin to replace traditional breads. In 2015, the packaged food industry was worth $30.4 billion and was predicted to have a compound annual growth rate (CAGR) of 33%, the highest projected growth in the Middle East. Confection markets have also strengthened, in part because of the younger generation’s taste for sweets. Chocolate (dominated by Parand Chocolate Co., which holds a 20% market share) grew by 10% in 2016, with domestic manufacturers developing ways to improve quality and packaging for increased market visibility. Another market targeted towards younger consumers - soft drinks - is also doing well. After Saudi Arabia, Iran’s retail value for soft drinks is the second largest of all Middle Eastern markets. The soft beverage industry is valued at $2.8 billion (juices making up the largest share), with a projected CAGR at 30% between 2015 and 2020.
While sanctions were never intended to target food supplies, Iran’s food and beverage industry was nonetheless adversely affected by the sanctions regime, with consumers finding it difficult to access staples. Private investors and banks were hesitant to invest in the midst of political turmoil, forcing the Iranian government to seek imports to fill the economic vacuum. Now with sanctions lifted, domestic companies are able to import agricultural machinery, modern technology, fertilizer, and other equipment to invest in the sector’s prosperity.
Domestic companies have a competitive advantage in Iran given their access to local, fresh resources which are more desirable to Iranian consumers, and given their proximity to and current market penetration in both urban and rural markets. With the lifting of sanctions, Iranian companies are starting to seek contracts or mergers with multinational companies, exchanging access to local resources for infrastructure aid and economies of scale. However, as more multinational companies move into Iranian markets, some domestic producers fear being edged out of the market, unable to compete.
One area where this is playing out is in the grain market. From 2015 to 2016, the International Grains Council calculated the yearly grain production in Iran at 19.5 million tons, an increase from 18.8 million tons the year prior. Still, rapid population growth has made it necessary to rely on imports to supply the country with enough grain. Some of Iran’s key import partners include China, Russia, and the European Union. The Iranian government, with the goal of ensuring self-sufficiency, has intervened and offered assistance to local grain markets, but this has proven controversial. From 2015 to 2016, the Government Trading Corporation (GTC), which controls trade policy and facilities, laid a tariff on imports of wheat and barley, making it more difficult to import those grains. The government also decreased a subsidy on flatbread by 20 to 50%, closing the disparity between subsidized and unsubsidized bread, but also reducing consumption and resulting in a price increase of 200%. As a result, underground sales have become commonplace, in which subsidized flour is sold for unsubsidized use.
Below is some information on an upcoming trade fair in Tehran, Iran which will feature food and beverage technology with a special showcase for the pastry and bakery market. More information can be found here.
24th International Food, Beverage, and Packaging Trade Fair
Tehran International Permanent Fairgrounds
May 23-26, 2017