Agricultural machinery in Iran, the market can bounce back
Lifting sanctions could be worth eight billion euro for Italian manufacturers. The need to renew the machinery inventory and increase the productivity of agriculture offers good prospects for market penetration also in the agricultural mechanization sector
A covered exhibition area of 18,000 m², six pavilions with two of them hosting agricultual machinery and equipment, three hundred exhibitors including thirty from abroad and more than ten thousand visitors. These are the figures for the tenth edition of the Iran Agri Show 2015 held February 17th to 20th in the city of Mashhad, the capital of the Razavi Khorasan Province, an agricultural region in the northwest. A major crop is saffron for which Iran is the world’s leading producer with 56 tons exported in 2011. The province is also home to agricultural machinery manufacturing with plants in Mashhad which turnout 55% of Iranian machinery and equipment.
Important business meetings for Italian companes at the Iran Agri Show
A strong representation of Italian manufacturers took part in the trade fair in a collective organized by ICE, the Italian Trade Agency, and FederUnacoma, the Italian Agricultural Machinery Manufacturers Federation, as well as through the assistance of Iranian import companies. The event was also a forum for these companies’ business meetings with their counterparts in the province. A high point was meetings with the Razavi Khorasan Chamber of Commerce for Minerals and Agriculture and with farmers associations focused on the mechanization requirements of the province. During these encounters it was learned that tractor demand in the province is for units in the 150-200 Hp category and that more powerful 200-300 Hp tractors are not manufactured in the country. On the side of other machinery, priority in demand is for soil preparation machinery, technologies for seeding and fertilization and harvesting machinery. In this connection, the vice president of the Chamber of Commerce Agricultural Commission, Ali Shariati Moghaddam, emphasized the need for the mechanization of saffron crocus crop harvesting, in the early mornings of October and November, and for detaching the stigmas from the flower of Crocus sativus from which saffron is derived to replace manual labor. The farmers associations representatives expressed interest in designing a machine for the harvest of pistachio nuts which does not allow the them to fall to the ground. In general, thanks to these meetings, the Italian manufacturers could make vital contact with real conditions in the country which could offer promising opportunities for market penetration if the comprehensive agreement on Iran’s nuclear program is fulfilled and the economic and financial sanctions are lifted.
For Made in Italy removing the embargo
would be worth eight billion euro
The vice president of the Italian Manufacturers Confederation, Confindustria, Licia Mattioli, who holds the internationalization mandate, estimates that immediately following the removal of sanctions after ratification Iran’s nuclear agreement with the major world powers and the European Union at the end of June, the flow of Italian exports to the country could reach the value of € eight billion. SACE, the Italian export credit insurance group specializing in evaluating and managing risks involving foreign trade, has put the cost of the sanctions for Italian exports at a loss of € 15 billion. A SACE study on Agricultural Machinery in Iran drafted by ICE for FederUnacoma, said “The most hard hit sector has been mechanical instruments accounting for more than half Italian exports to Iran which has suffered losses of more than 11 billion euros since the beginning of the sanctions.” The agro-mechanical sector is not covered by embargo but, the Italian Trade Agency explained, limits on the export of oil, which accounts for 80% of the total of Tehran’s exports, the country’s exclusion from the international banking circuit and strong restrictions on access to new generation machinery and equipment impede improvements in productivity in the primary sector.
A difficult setting for leadership in agriculture
In spite of all this, farming plays a key role in the Iranian economy – contributing a value of 12% of GDP and accounting for 23% of the workforce and 15% of foreign earnings – so much so that the country can claim world leadership for a number of agricultural products. Iran ranks top for pistachio nuts, saffron, berberis and pomegranate, in second place for dates and third for raisins, seventh for grapes and oranges and eighth for fruit. Highly important are cereals, for which Iran ranks as the twelveth world producer, and medicinal plant cultivations in more than two thousand varieties, one hundred of which are used in pharmaceutical industries. Thus the primary sector in Iran can claim top grades despite a geographic and environmental setting which is not very promising due to the facts that half the country is desert or steppe areas and rainfall of little more than 250 mm annually and evaporation potential at 1,500 to 2,000 mm posing serious problems for irrigation. Farming tends to be concentrated in the less inclemet areas along the Caspian Sea, the northwestern valleys and along the mountaneous margins of the central high plain where arid cultivations prevail. The ICE report said, “Of national territory of 165 million hectares some 37 million are under crops but because of the aridity of the soil and the lack of water distribution, most of the land is not cultivated.”
Agricultural machinery: Italian brands on standby
Land and environmental conditions are not the only difficulties faced by Iranian agriculture with farms of less than ten hectares. Though the sanctions have not directly affected the primary sector they have had repercussions penalizing access not only to specific technologies and chemical products but especially on financial instruments. As the ICE report explained, this means that a large part of the country’s farming enterprises are operating at below full capacity and at low levels of productivity. The question of the mechanization of the countryside and renewal of the machinery inventory, with the current crucial factor for purchasing being the quality/price ratio, looks certain to be raised in the not distant future. On the other hand, with consideration of the structural make-up, Iran appears strongly focused on tractors, 16% of the total, power ploughs, 14.1%, and trailers, 10.3%, whereas forage harvesting machinery with balers, mowers and rakes account for only 1.73% at the opposite end of inventories. In detail, the tractor market is clearly an oligopoly with some brand names strongly denominating the market followed by a few other in competition among themselves. According to Iranian Ministry for Agriculture data cited by ICE, the tractor inventory in 2013 consisted of slightly fewed than 390,000 units and 51% of them, more than 200,000 of them, were Massey Ferguson tractors and another 35% carried the Romanian brand Tractorul Brasov. Far on down the standings were John Deere at 3.4% and Goldoni at 4.1%. This oligopolypic arrangement is more visible in the sector of combine harvesters for cereals where it may be more appropriate to refer to a monopoly for John Deere, the supreme leader with 75% of the market with 10,911 harvesters out of a total of 14,608 units. The Claas, New Holland, Massey Ferguson and Belarus brands compete in a market share of marginally less then 12% and the remaining 13% is held by other brands. In this polarized setting, Made in Italy production played a marginal role up to 2013 with 4.6% of the tractor market and 3% for harvesters. Confirming this picture is the trend for 2011 to 2013 when Italian tractor exports to Iran came to the value of only € 780,000 per year for a total of € 2.3 million to indicate a degree of chill in these trade relations. This was especially true for 2013 when Italian exports went beyond the value of € 470,000 only with difficulty. The statistics on tractors for the first nine months of 2014, on the other hand, provide a glimpse of a decisive reversal of this trend with export value quadrupled over the previous year. It is difficult to say whether this recovery might be the beginning of a new course or is merely an episode in a sector in which the climate of caution and uncertainty will continue until the problem of the sanctions is solved.
Iran: thirty years of sanctionsThe United States was the first to impose restrictions on activities with Iran under various legal authorities since 1979,following the Islamic Revolution seizure of the U.S. Embassy in Tehran. These restrictions were extended in 1995 whenthe U.S. announced a comprehensive ban on U.S. trade and investment in Iran. The sanctions went on to apply to businessesand individuals involved in certain transactions with the Iranian government. They became multilateral in 2006with the U.S. Iran Sanctions Act and the range of sanctions adopted by the United Nations Security Council with Resolutions1696 and 1737 motivated by Iran’s refusal to suspend illicit nuclear activities. Sanctions were strengthened from2008 to 2012 with a European Union ban on the transfer of funds between the EU and Iranian financial institutions andthe U.S. decision to extend restrictions to the automotive, marine and banking sectors doing business transactions inthe Iranian rial with sanctions which especially hit the oil and gas, finance and technology industries.Source: Agricultural Machinery in Iran - Ice office, Teheran
