 Fair play Improving Iran's share of the U.S. pistachio market March 1, 2002 The Iranian On January 18, the Import Administration Office of the U.S. Commerce Department sent a questionnaire to the Iranian Interests Section in Washington D.C. to inquire about the role of the Iranian government in the pistachio industry and other public programs, such as direct or indirect agricultural subsidies. The Iranian government has until March 29 to respond to this rather comprehensive questionnaire that is part of the U.S. commerce review of Tehran Negah-Nima Trading Company in Iran. This is an excellent opportunity for the Iranian pistachio industry to crack a hole in the existing 317 percent tariff against Iranian pistachio imposed in 1986. Partial removal of sanctions on exports by the Clinton Administration on March 5th 2000 opened the way for export of agricultural products such as pistachios to the United States. But as a result of high U.S. tariffs, Iranian pistachio has continued to stay out of the U.S. market. Recent victory by Tehran Negah Nima Trading Company in getting the approval of the Import Administration Office to launch new administrative reviews of both the antidumping and countervailing duties has come after a fierce opposition by California Pistachio industry and should not be taken lightly by the Iranian government. A victory by Nima Trading Company, particularly on the countervailing duty side that involves the role of Iranian government in the pistachio industry, would most likely pave the way for other Iranian pistachio exporters to successfully argue their cases in future. Therefore it is incumbent upon the Iranian public and private officials, particularly Ministries of Agriculture, Commerce, Foreign Affairs, and Tehran Association of Nut producers, to coordinate their efforts and make sure that the questionnaire is properly answered and filed by the requested deadline. With this introduction in mind let's have a brief look at the state of Iranian pistachio exports from a global perspective and briefly reflect upon the increasing threat of international competition for the future of this industry. The most recent Food and Agricultural Organization data on production and export of the Iranian pistachio indicates that average production for the five-year period between 1991-1995 has declined from 2299 million tons to 1306 million tons between 1995-2000 period by 43 percent. At the same time, the export of pistachios has dropped from a peak of 140 million tons in 1996 to as low as 57 mt in 1997 and 78 mt in 1998. Some argue that the small size of the lots prevent economies of scale to reduce average cost. There are others who believe mismanagement and lack of long-term vision by the leaders of the pistachio industries have resulted in significant loss of exports, and therefore a reduction in the rapid rate of growth that started in the early nineties. Whatever the reasons behind the reduced level of production, there is overwhelming evidence that Iran is rapidly loosing its dominance in the international market, particularly in Europe. Therefore, according to Hossein Ketabi, president of one of the largest European pistachio importing companies, "In the year 2000, Iranian pistachio represented only 40% of the European market, which was more than a 50% drop in sales and market share." Ketabi believes it would be very difficult to gain these markets back this year. In order to do so, he argues it would require heavy discounts, compared to other exporters. It may take a long time to gain back the business and confidence of pistachio importers in Europe, he said. This comes when this year's world pistachio crop is expected to be at a historical high meaning that Iran faces the risk of further loses of its markets share. In his report, he emphasizes that: "Iranian pistachios have been rapidly loosing market shares worldwide against other origins (USA, Turkey). Indeed, due to lighter crop in Iran expected for this season, most growers have been holding on their stock since last May, anticipating a short crop. Also, growers retained products to force the cooperative RPPC to announce the highest possible minimum purchase price. "Therefore the price of pistachios in Kerman and Rafsanjan was far above world market from June 2001 to October 2001. Unfortunately this is the major purchasing time. In previous years, following the aflotoxin issues in Europe, Iran was controlling approximately all European consumption. The fact of being away from this market for more than 5 month, plus the aflotoxin scare on Iran pistachios, forced most large pistachio users to switch origin to American pistachios." At this time, among the most important competitors Turkey, Syria, and the United States, U.S. pistachio industry seems to pose the greatest threat to Iranian pistachio's place in the world market. According to FAO, from 1979 to 1986, U.S. pistachio production grew from 7,802 ton in 1979 to 85,280 metric tons in 1998. This rapid rate of growth was particularly enhanced after 1986, when for the first time antidumping and countervailing orders was imposed on the import of Iranian pistachio, the U.S. output has grown from 1.5 million pound in 1976 to 251.1 million pounds in 2000 -- almost 30 times. It is expected that this year's world crop will be at a historical high record, and U.S. production crop will be almost half of the Iranian crop. Introduction of new technological innovations in production, processing, and distribution, along with strategic thinking and planning in protecting and expanding the U.S. domestic market, fierce attempt to compete in the traditional international markets such as Japan and Europe, and intensive effort to penetrate new potential international markets such as those of South Korea, India, and China, are among the few successful steps taken in the course of the last decade. In the meantime, Western Pistachio Association (WPA) has been aggressively trying to keep the Iranian pistachio of the U.S. markets. It has further mobilized its resource to take a big bit of Iranian share of the world markets. The (WPA) is a major reason for the success of California growers. It acts as the political and legal arm of American pistachio growers. The WPI lobbies the U.S. government and members of Congress in order to keep current U.S. tariffs on Iranian pistachio. They are currently asking the U.S. government to put pressure on the Mexican government to enforce NAFTA laws, which allow U.S. products to have no duties compare to those from other origins, and avoid under-invoicing techniques that is alleged to be used by the Iranian exporters. The WPI is asking the U.S. government to put pressure on the Israeli government to avoid Turkish pistachio that they argue originated in Iran. The U.S. government is asking China, which recently became a member of the World Trade Organization, to enforce new high tariff protection against countries which are not members of the WTO, including Iran. The three-day "Pistachio 2001" conference sponsored by Western Pistachio Association was convened in Washington D.C. between October 28-31. When I asked about the purpose of inviting Iran's U.N. Ambassador and Iranians who represented the interests of Iranian pistachio exporters, Bob Schuram, chief lawyer and fundraiser for the WPA, responded that he believes American and Iranian growers share a strategic interest in opening new world markets and lowering existing tariffs of countries like India and South Korea. Although, at first this assertion seems to be quite hypocritical and misleading, it has some economic ingredients of truth and logic that are as follows: a. Increased international competition is not all that bad for Iranian growers and exporters. There are positive aspects even in seeing the U.S. pistachio industry increasing international demand by "shifting the demand". This is what is known among economists as "shifting the demand curve", by encouraging consumption through advertisement and other promotions and institutional changes. Thus, for example, within recent years American consumers have been much more exposed to pistachio as a delicious, affordable nut. b. There can be cooperation between the Iranian and U.S. growers in expanding international markets such as those of South Korean and India. This is exactly what was conveyed to me by Mr. Schuram. c. There can also be an exchange of technology and technical know how in increasing yield and fighting diseases, particularly aflatoxin. Unfortunately, the above arguments could make sense only when the WPI drops its complaint in the U.S. Commerce Department, and let Iranian pistachio enter U.S. market at a zero or more reasonable tariff rates. There are various U.S. importers that are quite supportive of the current initiative to tackle U.S. tariffs and enable American consumers to enjoy lower prices at the counter. In the meantime, as long as the WPA prevents Iran from fair play in the U.S. market, rhetorical statement of shared long-term interests by WPA officials can only be taken as good and calculated move to, perhaps, divert energy and resource of Iranian exporters away from the real issue -- that is taking proper action in filing requests at the U.S. Commerce Department to review their case. Iranians in both public and private sectors of the pistachio industry must devote proper and immediate attention to timely responses to U.S. commerce questionnaires. This is a golden opportunity that may not come along again in the foreseeable future. The leadership of the pistachio industry should reevaluate current policies in favor of a long-term strategies. Author Mehrdad Valibeigi is a professorial lecturer of economics at the American University in Washington, DC.
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