Iran : Potential Market for Malaysian Palm Oil

Introduction

İran is located in Western Asia. İt has border at northwest by Armenia and Azerbaijan, at north Caspian Sea, at northeast Turkmenistan, at east Afghanistan, at southeast Pakistan, at south Persian Gulf and at the west Turkey and İraq. Population of İran is about 83 million, the most populous country with Turkey in the East -Suez Region.  Per capita consumption of oils and fats is 25 kg per person a year with an estimated Gross Domestic Product (GDP) in 2021 of US$410 billion, İran continues to be an important oils and fats player in the region.

Vegetable oil market size is one of the biggest in the region. Due to the growing demand for food manufacturing, population growth oils and fats consumption is recorded 2.003 million tonnes in 2020.  The gap between local production and demand is around 1.100 million tonnes which was met mainly by imports of palm oil, sunflower oil and soybean oil.

İran has been Malaysia palm oil’s (MPO) one of the leading importers in the East of Suez (EoS) region contributing to 321,011 tonnes or 21 percent of total MPO imports in 2020. However, İran’s export MPO went up to 31% in Jan- May 2021 with 253,856 tonnes palm oil.  Low stock level of vegetable oils and fats has contributed to 10 % increase this year.

Oils and Fats Situation in İran

Local oilseeds production has been stagnating due to flat growth for planted area and yield. Water usage for agriculture is also too high due to inefficient method. Currently, the country used 97% surface water, 40% underground water which is way too high and hardly any room for more planting. Things are expected to stay the same over the years if significant improvements are seen in:

 i.  Capital put in by the government to improve irrigation, funds to subsidize local seeds producers and help farm operations i.e., machinery, expansions.

 ii. Increased allocation for planted area.

 iii. Advancements in technology that improve yield, better irrigation, and increased mechanisation.

Currently Iran’s mechanization is just 1 HP per hectare vs Europe’s 5 HP per hectare.

 iv. Incentives to stop urban migration especially among youths and retain a strong workforce in the agriculture sector.

Domestic production of oils and fats are not sufficient in İran to meet the demand by locally produced oils and fats. As a result of an insufficient supply of oils and fats and growing demand of edible oils in domestic market, İran does not also export much of her oils and fats. Therefore, İran is a net importer of oils and fats.  İt has always been a soybean market for more than 40 years.

İran produced 380,000 MT of soybean oil, 142,000 MT of rapeseed oil 123,000 MT of butter as fat and 38,000 MT of sunflower oil in 2020. Total production of oils and fats remained at only 694,000 MT in 2020.

Source: Oil World

The country imported 467,000 MT of sunflower oil, 430,000 MT of palm and 156,000 MT of soybean oil in 2020. Total oils and fats recorded about 1.03 million tonnes in 2020. However total oils and fats import registered 1.5 million tonnes in 2019. Import trend of oils fats in İran around 1 million tonnes, nevertheless in 2019 drastic increase is seen this is because sunflower oil stocks level was very low. 740,000 MT of sunflower oil was registered in 2019, however 467,000 MT of sunflower is imported in 2020.

Source: Oil World

Sunflower oil and rapeseed oil are mostly used as cooking and salad dressing. There are 2 types of frying oil in İran.

1.  Frying oil blended with sunflower oil, corn oil and rapeseed oil.

2.  Frying oil mixed with super olein, soybean oil and rapeseed oil.

There are few major factories who are playing the main role in İran vegetable oil market. Savola has the main share around 36% than followed by Koroush industry with 12 % and Margarine Co.  has share of 10 % and Mahidash Kermanshah has 6 % and the rest of the industry member are small factories and traders.

Palm Oil Situation in İran

Most of the bulk import comes from Malaysia. This is because İran is under sanction by US government, and the main part of doing business is how supplier is going to receive the value of documents. İran can open LC to European banks and supplier must have an account with these banks in Europe to be able to transfer money back to their account. Although İndonesian palm oil is cheaper than Malaysian palm oil but so far they have not been very active in this in this market. Therefore, İran source the most of the palm oil from Malaysia.

Palm oil is used mainly for margarine production, biscuits, and other fats-based production.

Malaysian palm oil to İran declined about 200,000 MT in 2020 compared to 2019. Due to lockdown imposed by the government to curb covid 19 cases has caused lower demand from HORECA sector.

PRODUCT Jan – Dec 2016 Jan-Dec 2017  Jan-Dec 2018 Jan-Dec 2019 Jan-Dec 2020
CO / DPL 8,599 9,481 745 1,375 46,583
RBD Palm Olein 259,933 389,840 377,480 438,102 200,895
RBD Palm Oil 85,948 112,321 97,958 78,056 72,297
RBD Palm Stearin 7,670 10,185 11,420 3,824 679
 Total 362,150 521,827 487,602 521,357 320,454

Source: MPOB

Opportunity for Palm Oil

Iran’s oils and fats import will inevitably increase as insufficient domestic output of oils and fats and growing population spur demand. As a result, demand has to be met with and will continue to be met with imports of edible oils and oilseeds. Palm oil will continue to make inroads in Iran as it is the most affordable, most readily available and most suitable to meet manufacturers and consumer’s needs.

Iran’s purchase pattern is based on needs i.e., stocks of other oils, local productions, and companies’ quotas. Palm oil prices did not significantly impact palm purchases may be due to palm oil is already offered the lowest price regardless of its global pricing with limited suppliers.

Currently there are 2 issues for palm oil trade in İran. İt involves G2G meeting of two countries.

Firstly, İran Food İndustry association impose import quota for palm oil. Companies are allowed import amount palm oil that they imported previous year. İf a company imported 50.000 MT in 2020, a company is allowed import 50.000 MT in 2021. İf government lifts the quota, more palm oil will be imported by İran in the future.

Secondly import duty for palm oil is the highest among other vegetable oils. Currently custom duty is 40 %. High import tax leads to higher landed cost of palm oil compared to other vegetable oil. Levelling import duty of palm oil with other vegetable oil may lead to increase palm oil export to İran.

Prepared by Hakan Alkan

*Disclaimer: This document has been prepared based on information from sources believed to be reliable but we do not make any representations as to its accuracy. This document is for information only and opinion expressed may be subject to change without notice and we will not accept any responsibility and shall not be held responsible for any loss or damage arising from or in respect of any use or misuse or reliance on the contents. We reserve our right to delete or edit any information on this site at any time at our absolute discretion without giving any prior notice.

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