How Iranian Dairy Traders Are Tapping into the Kazakhstani Market

Iran is a regional leader in milk production. Iran’s Dairy Industries Association reports that the country produces 7 million tons of milk annually. Government policy aims to support export through subsidies. In 2019, Iran exported 450,000 tons of milk for about $770 million. For 2020, it planned to sell milk for $1 billion.

Kalleh is the second largest milk producer in Iran. In 2017, the company accounted for 16% of the Iranian market.

The Dairy Union of Kazakhstan estimates the volume of imported Iranian milk as statistically irrelevant.

In general, the Republic of Kazakhstan does not import significant amounts of drinking milk: according to last year’s statistics, the country supplies 96% of the product on its own.

How new milk finds its audience

Import of Iranian milk to Kazakhstan is done by a Kazakhstani-Iranian joint venture MehKaz. Teymur Farajov, director of the logistics department, said that the first batches of milk were delivered to Kazakhstan in early 2019. Iranian milk is an unfamiliar product for Kazakhstanis, so at first the milk was imported in small volumes, no more than four tons a month. Now, according to Teymur Farajov, one-time deliveries have increased to 60 tons.

For a long while, their main wholesale buyers were small shops and coffee houses. The company arranged «blind» tastings for them and even gave away small batches for free.

Currently Iranian milk can be purchased in several Almaty supermarkets and Shymkent stores. It has a fat content of 3%, unusual for the Kazakhstani market. The wholesale price is 340 tenge per liter (about $0.81). The retail price is 350–360 tenge (about $0.84–0.86).

Can the Iranian product compete with Kazakhstani milk?

Dinmukhamed Aisautov, expert of the Dairy Union of Kazakhstan, described the current volume of Iranian milk imports as insignificant and statistically irrelevant. However, he noted that the dairy companies of Kazakhstan shouldn’t ignore the emergence of a new player on the market.

According to the expert, the main difficulty in the Kazakhstani market of drinking milk is the extremely low margin of this product for the manufacturer. Nonetheless, it’s an important social product and its market presence is supported via government subsidies. This support, as well as processing raw milk into more expensive products, helps businesses «spread» the losses from milk production across the entire product line.

Dinmukhamed Aisautov also pointed out that Iranian milk is clearly underpriced in Kazakhstan, being comparable to the wholesale price for local milk. Perhaps this is a consequence of undercutting by the importer who is trying to secure a foothold in a new market in this manner.

«If they continue the expansion, they are going to occupy a niche in the market, but it’s unlikely to be a significant share,» the Dairy Union expert says.

Aisautov characterizes the dairy market of Kazakhstan as «very lively and mobile,» rapidly changing in accordance with global consumer trends. For example, today there is a strong demand for plant-based milk in large cities around the country, although it’s much more expensive than cow milk.

Dairy imports are also subject to change. In 2014, for example, the main importers of drinking milk to Kazakhstan were Russia (60% of all imports), Ukraine (13%), Belarus (10%) and Kyrgyzstan (8%). France, Lithuania and Poland imported 3% each. Since 2018, Belarus has taken the lead (55%), while Russia reduced its share to 24%, Kyrgyzstan to 4%, and Ukraine to 7%. The European Union retained its share at 9%. 1% of the imports is accounted for by «other suppliers,» including Iranian producers. At the same time, drinking milk accounts for 5% in the total import of dairy products.

Iranian dairy industry is overcoming obstacles

The dairy industry of Iran has natural limitations: a shortage of water and feed,dictated by the generally harsh climate. The Ministry of Agriculture of Iran estimates the dairy stock at nearly 9 million cows, the average milk yield – at more than 10,000 liters per year, the fat content of milk – at 3.1–3.2%. Iranian milk is exported to the markets of the Middle East and Central Asia, with the main buyers being Iraq and Afghanistan. Russia has become one of the main trading partners of Iran since 2016.

According to data from the Iranian Ministry of Agriculture, 90% of the country’s milk is supplied by the ten largest state-owned dairy companies, Kalleh being one of them. Iran adopted a state program to improve the quality of milk in line with European standards. For that reason the milk processing plants are undergoing active modernization. One of the problems for Iranian producers is that their brands aren’t well known outside the country.

Milk exporters are supported by subsidies. When entering foreign markets, Iranian exporters frequently set the selling price at a lower level than local producers can afford. Often, the desire to increase exports at any cost leads to the opposite consequences. For example, in 2016, Iranian dry cream immediately occupied 10% of the butter manufacture market in Russia. But due to the lack of experience in transporting large cargo volumes, the Iranians could not ensure a stable quality of their supply, and the market turned away from their product.

Iran’s support program for milk export has intensified during the coronavirus pandemic. However, the situation of Iran’s dairy market is complicated: in April, warehouses of the milk processing companies got overstocked. Suppliers of raw milk couldn’t sell their goods and buy new feed. In late April, Iran’s Dairy Industries Association announced that, together with the Ministry of Agriculture, it was looking for a way to keep the usual local prices for drinking milk, as well as to support the original plans to earn $1 billion in foreign markets.