Consolidation of poultry farms in Iran

One of the most important events of the last few months in Iran has been the merger of a large number of poultry producing companies (poultry farms) and the purchase of a large number of poultry farms by holding and powerful companies in the food chain.

An event that, according to many experts, will bring about many changes in the way of supplying and importing livestock and poultry inputs in Iran and it will have many consequences both for the sellers of grains and livestock inputs to Iran and for the buyers of these products, who are the largest food industry companies in the country today.

The increase in the size of companies and the consolidation of grain consuming units (such as poultry farms and livestock farms) have a great impact on the market and even the management of such companies. In the following, we will mention the most important changes and their effects from the point of view of Mr. Afrashtehpour.

The effect of merger on the management and structure of companies:

Lower Costs: Larger units can purchase and use inputs, equipment, and labor more efficiently, which can lead to lower production costs.

Quality Improvement: Larger units use more resources and expertise to improve quality and implement quality control standards for their products. Therefore, sellers also try to sell a higher quality final product to customers by increasing the efficiency of quality control because their product not only enters the commercial cycle, but also directly enters the production chain of large holdings.

Wider Market Access: Larger units have the opportunity to access new markets by increasing their bargaining power against suppliers.

Increasing Expertise and Decision-Making in Management: Management in larger units is done with more management hierarchy, which leads to more accurate decision-making. Also, managing larger units requires more expertise in areas such as production, marketing, finance, and supply chain management.

Increasing the Financial Strength of Companies and Reducing Risk: A large number of manufacturing guilds in Iran grew a lot due to receiving government subsidies in the past years (for example, flour, fructose and animal feed factories did not need to optimize processes). In this type of economy, each of the small units has a specific profit margin in the non-competitive market by relying only on subsidies, but today, the subsidy of most inputs and goods is being reduced and even removed. As a result of this, the market has become a competitive market, small units need to merge so that they can gain more power, because capable and strong units will survive more. The symbol of the modernization of the economy is its competitiveness. Large units with high financial power and high negotiation power have a higher risk management capability.

The effect of integration on the behavior of grain suppliers in the world market:

Entry of Expert and Professional Managers into the Grain Buying Market: Grain sellers will face expert, capable and professional buyers from now on, because grain buyers buy the product not for distribution in the market of their country, but for the consumption of their subordinate units. Therefore, the way of buying and selling in this market changes noticeably. Due to the quality control pressures that the top managers bear from the managers of the subsidiary units, the purchase must be done with full accuracy and with the best conditions offered by the seller.

The Need to Build Relationships with Key Buyers: In consolidated markets, large supply chain companies often have significant purchasing power. Foreign sellers must establish strong relationships with these key buyers in order to gain significant market share. This requires providing high quality products, competitive prices and reliable services to buyers. External suppliers must also show flexibility and be able to meet the specific needs of each buyer.

The Need for Flexibility of Foreign Sellers: Consolidation can lead to greater price stability, certainty in the supply chain for global grain sellers. Foreign suppliers should consider more diversification and flexibility to reduce their risk of losing customers, and to differentiate themselves from competitors, they should offer value-added services to buyers in integrated countries. These services can include providing market intelligence, risk management consulting, customized logistics solutions, and customer loyalty programs. This practice could lead to the consolidation of supply chains and make some grain suppliers stronger.

Decrease in Bargaining Power of Sellers: As companies merge, their purchasing power increases. This can lead to a decrease in the bargaining power of grain suppliers and pressure on them to reduce prices. Suppliers may be forced to offer discounts or accept unfavorable payment terms to maintain their market share.

Increasing Requirements: Large companies with supply chains to consumption may impose stricter requirements on their grain suppliers. These requirements can include stricter quality standards, sustainability and product traceability requirements. Suppliers may have to invest in new technologies and processes to meet these requirements, which can be costly.

Increased Dependence on Limited Customers and Risk of New Competitors: As companies merge, the number of large grain buyers decreases. This can lead to increased dependence of suppliers on a small number of customers. If one or more major customers reduce their orders or terminate their contract with the supplier, it can have a significant impact on the supplier’s revenue and profitability. With the decrease in the number of buyers and the increase in their power, it is even possible that the buyers will become competitors of the suppliers. For example, to reduce costs, invest in the purchase of a ship and be able to request and receive more competitive prices directly from grain producers. As a result, the buying companies will not wait for complicated and ambiguous answers from the sellers, and by investing in the upper links of the supply chain, such as transportation, storage, etc., they will become competitors of their suppliers.

Higher Transaction Volume and More Stable Income: Large companies with a supply chain to consumption usually buy large volumes of grain. This gives traders the opportunity to make larger and more profitable trades. Traders can have more stability in their income stream by trading with large companies and avoid price fluctuations in cash markets.

Better Payment Terms and Less Risk: Large companies with a supply chain to consumption often offer better payment terms to their suppliers. This can help traders’ cash flow and allow them to invest their capital elsewhere. Traders can avoid liquidity problems and reduce credit risk by receiving faster payments. Dealing with large supply chain companies can reduce traders’ risk. This is due to the credibility and financial stability of large companies, as well as more secure payment terms and contracts. Traders can avoid the risk of dealing with unreliable or insolvent buyers by dealing with large companies.

Better Market Information: Large companies with a supply chain to consumption often have access to better market information and data. This can help traders make more informed decisions about their trades. Traders can stay abreast of market trends, demand and prices using information and analysis provided by major companies.

The vice president of the integrated holding of Afra food value chains stated: The happy thing that is happening in the integration of companies in Iran is the joining of large companies to the stock exchange. But today, with these companies joining the stock market, the risk of doing business with Iran has been reduced in a special way due to the transparency of ownership, the size of the buying companies, and the high financial strength of these companies.

In the end, the vice president of Afra Food Value Chains Integrated Holding said: Until now, government changes have been the main buyer and supplier of inputs and grains. Definitely, with the entry of capable companies, the government will give privileges to the production chain that it has not been possible to offer to smaller and micro units. Practically, the bureaucracy system will face a significant reduction. The cost of waste and throwing away the product will be significantly reduced and the private sector will operate more competitively. Regarding the country’s food security concerns, the government may have been worried at first, but today the private sector of Iran has assured the government that it has the ability to manage strategic reserves. Of course, GTC and Slal companies will continue to import, but only the volume of their imports will decrease and they will import during the crisis. Contrary to the opinion of many experts that the import process has slowed down following the recent political and military crises in the region, in my opinion, this chain will gain more speed. Because most of the large importing companies will operate in a completely transparent manner by entering the stock market, and the government will also provide more effective support and better supervision in the market environment.