Agro Sector Ideas

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>>> The U.S.-Iran Pistachio War Is Heating Up


As Tehran’s production falters, the nation of Georgia may become a player in the fight.


Bloomberg

February 21, 2020


https://www.bloomberg.com/news/articles/2020-02-21/the-u-s-iran-pistachio-war-is-heating-up?srnd=premium


Forty years of vicious geopolitical competition between the U.S. and Iran came close to open war in January, and it’s still too soon to call a winner—except in one field. American farmers have deposed Iran as king of the global pistachio industry, benefiting from U.S. policies hostile to Tehran, climate change, and egregious failures of economic and water management that have sucked the Islamic Republic’s lakes and aquifers dry. The country is unlikely ever to recover its pistachio crown, spawning a race among other producers to grow the nut and fill the gap created by its defeat. In the reductionist language of President Trump, Iran lost big.

That’s more shocking than it sounds. Persia enjoyed a virtual monopoly on cultivating the hardy yet demanding pistachio tree for at least 1,000 years. Exports followed in the footsteps of Islam’s conquering armies from the seventh century on. Giving pistachio farmers more access to land and water was a core offer of the 1979 revolution, and the country’s new ruling class—in particular the family of former President Hashemi Rafsanjani—saw the hard currency potential. The country devoted ever more land to growing the fatty green nut and replaced the ancient Qanat system of subsoil canals that fed the crop with higher-volume water pumps. Harvests boomed, even through the chaos of the 1980-88 Iran-Iraq war.

Yet the U.S., which started to produce pistachios only in 1976, has now overtaken Iran as the world’s leading producer. Catching up took a while, and picking the one moment of victory is hard, as pistachio harvests can be volatile, alternating between fat and lean years. But from 2004 to 2009, the Islamic Republic still accounted for 40% of global production on average, followed by the U.S. at 33%. By 2014-19, those positions were reversed: 47% of the global total came from the U.S., and 27% from Iran. A catastrophic 2018-19 season briefly pulled Iran’s share as low as 7%.

That collapse had a big impact within Iran, where pistachio nuts aren’t just a $1 billion-plus export earner but a key ingredient in the national cuisine, an accessible luxury, and a point of national pride. The dearth of harvests has led to a kind of despair. “Be mindful when having pistachios at a party,” goes a popular joke that’s been making the rounds in Tehran. “The host will be keeping track of every single one guests eat.” Entire pistachio groves have bleached and died for lack of water as overtaxed wells dry out. Sinkholes have opened as soil collapses into the fallen water table.

Outside Iran, pistachio farmers are hunting for virgin territories to fill a global shortage the International Nut & Dried Fruit Council, a Spain-based trade association, estimates at 10% to 15% of demand. “There is quite an interest in new countries, like Georgia, Uzbekistan, and Azerbaijan, where we are also doing a project,” says Pino Calcagni, the council’s vice chairman and chief executive officer of Besana Group, a nut-trading company based in Italy. Spain, China, and Australia—at least until the recent fires—have all been expanding production, too. Besana Group is developing new suppliers in Kazakhstan, Romania, and Ukraine.

Afzal Ravari, a Dubai-based businessman who made his money selling forensics gear to Gulf police forces, is among the pioneers. For the last six years he’s been living a hermitlike existence in Georgia amid ethnic Azerbaijani sheep herders as he plants pistachio trees. He looked at Kazakhstan and Uzbekistan first, before settling on Georgia for its looser business climate, 100,000 hectares (247,000 acres) of suitable land, and rivers that flow from the Caucasus Mountains, snow-capped peaks higher than the Alps or Rockies. Do the math, Ravari says. With yields as high as 5 metric tons per hectare in the U.S. last year, and a wholesale price of about $9 per kilo, that’s a potential $4.5 billion pistachio nut export business for Georgia in good times, if it were to devote all that land to what Iranians call “green gold.”

It’s been hard going, though. Ravari first had to dig a vast ditch and an earth rampart around his 2,600-hectare farm, to keep out sheep, cattle, and wild pigs. Locals who took umbrage at a foreigner buying so much land poured sugar into the gas tank of the fire truck he brought over from Dubai. The government helped him secure public lands that would have split his holding, but a promised 17-kilometer-long road to bring in labor never got built. On a recent visit, tens of thousands of pistachio seedlings were dying in their pots, because Ravari lacked the means to plant and tend them.

Still, “God created only two paradises, California and Georgia,” Ravari says as he tours his immaculate vineyards and pistachio plantations at the wheel of a Toyota Land Cruiser. And things have been looking up since December. The state grid finally connected the $200,000 electrical infrastructure he built for the farm. The government agreed to partially fund construction of vast greenhouses on 20 hectares of his land to raise pistachio and other nut tree seedlings for sale across Georgia and the wider region. Italy’s Vivai Piante Battistini Societa’ Agricola S.S. is in talks to stock the nurseries, says Giuliano Drodi, the company’s director general. “We have almost 800-year-old trees in protected areas not far from the Aric farm, which are wild pistachios,” Georgia’s Agriculture Minister Levan Davitashvili says, referring to Ravari’s company, Aric Group. The country hopes to take advantage of its natural growing environment for the nut, as well as its property rights, which are stronger than elsewhere in the region, to develop a new export industry, he said.

Geopolitics offer one explanation for Iran’s relative decline. The biggest California pistachio farms are multibillion-dollar enterprises that lobby powerfully for restrictions on their chief competitor. Since 1979 the U.S. has switched from banning imports of Iranian pistachios outright to imposing punitive import duties of just over 241% and back again to banning them. The duties and bans have accompanied broader economic sanctions that restricted the financing available to Iran for investment, whether in agriculture or oil and gas.

After a brief respite that followed the signing of the 2015 Iran nuclear deal, sanctions reimposed by the Trump administration tanked the Iranian economy and caused a massive devaluation of the Iranian rial. That, in turn, stoked inflation to the point that domestic demand collapsed. Exporters also got hit. Sanctions made insuring Iranian cargoes more expensive, while the government decreed that all sales made in foreign currencies should be done via the central bank, which takes a percentage.

Climate change played an even bigger role. In the Nutsellers’ Hall of Tehran’s Grand Bazaar, a prominent pistachio trader who gives his name only as Mahdi says the recent collapse in production largely resulted from four consecutive years of drought. Output is recovering after heavy rains, he says, but the crop is substandard and the future clouded. “Winters are not cold enough for pistachio crops, and summers are too hot,” says Mohammed Salehi, chairman of the board of the Iranian Pistachio Association. “There’s not much we can do about it.”

For sure, growing pistachios is a tricky business. The trees need hot summers for their nuts to fully grow and ripen, and cool winters so the trees can fall dormant and rest—1,000 hours per year at 7C (about 45F) or below, according to one study by California agricultural scientists. If the winter is too warm, the crop suffers in the spring. Then there’s the pollen. Because it’s carried on the wind, rather than by insects, pistachio trees have to be planted in blocks, with a single male at the center of as many as 25 females. Plus, new trees are slow to get established and can require a good bit of botanical engineering.

Ravari estimates he’s spent over 1 million Georgian lari ($350,000) so far on an outdoor laboratory where he grafts species together by slashing roots and jamming branches into the wounds to grow. Pointing to a tree with markedly different leaves on either side, he proudly says it combines Californian and Iranian strains on a Georgian root. It took California’s pistachio pioneers close to 30 years of experimentation to create a plant—named the Kerman, after the dominant pistachio province in Iran—ideally suited to conditions in the state.

The Iranian industry’s biggest problems are homegrown, according to Kaveh Madani, who briefly served as deputy minister for the environment from 2017 to 2018, before being driven out by conservatives in the regime who took exception to his ideas. About 90% of Iran’s water consumption goes to agriculture, with 52% of that drawn from wells that rely on declining rainfall for replenishment. As a result, the country of 83 million is second only to 1.4 billion-strong India in terms of depleting groundwater for agriculture and industry. It’s hard to see a way back without a massive change in policy approach.

High crop yields require investment in modern drip-feed irrigation systems, efficient water management, and good governance—a rare combination anywhere, let alone in the Middle East. And though far from a thirsty crop relative to their value, pistachios do require water—11,363 cubic meters per ton of nuts, according to one study. That’s more than four times as much as a ton of wheat, maize, or rice.

Even in California, the sale of groundwater rights to the state’s biggest farms has raised questions of fairness and sustainability, while climate change is warming the cool foggy winters that made the state perfect for pistachios. The U.S. industry has proved more resilient to climate challenges; American farms have invested more, and their water supply—for now at least—is more certain. Relentless breeding of stronger rootstocks means U.S. pistachio saplings can grow to fruition in 4 years, rather than 7 to 10. Add to that improvements in irrigation and other technologies, and average U.S. yields have tripled to more than 3.5 metric tons of in-shell pistachio nuts per hectare, from just over 1 ton in 1980, according to the United Nations’ Food and Agriculture Organization. Iranian yields started in about the same place but never improved.

A plan to build a canal to Kerman, similar to one that brings water from the Sacramento River to the farms of Central California, never materialized. Even if it had, it’s likely that no canal could solve Iran’s problems, which are mainly about governance: More water would encourage the cultivation of more land, more production, and more strain on the water supply. The bigger problem, according to Madani, who now teaches at Yale’s MacMillan Center for International and Area Studies, has been the persistent failure to enforce regulations designed to protect the aquifers that feed Kerman’s pistachio groves. Shutting down the more than 400,000 unlicensed wells that farmers have drilled is politically unpalatable. Rather than penalize illegal drilling, the government has issued two blanket amnesties for unlicensed wells. Still, Madani says, “you could argue that for a system capable of attacking an American air base with its home-produced missiles after decades of sanctions, managing water and developing irrigation systems should be a piece of cake.”

Ravari knows these hurdles better than most. In the prospectus for his Georgian farm, Vinichio Valley, he includes satellite photos comparing it to the region around Lake Urmia in northwestern Iran in 1984 and 2014. Once the largest lake in the Middle East, Urmia is now a tenth of its former size. The hydraulic picture symbolizes a wider crisis for Iran that Environment Minister Isa Kalantari once described as a greater threat to the Islamic Republic than either Israel or the U.S.

Ravari, who says he was “born under a pistachio tree” in Kerman province, was among the leftist revolutionaries who fought the Shah’s regime before 1979 and then emigrated as they were pushed aside by the new Islamist regime. In 2003 he was invited back to produce a report on developing Iran’s rural areas. The 13-volume study took three years to write, according to Ravari, the last of which he spent living among poor ethnic Turkmen wheat farmers, in a pilot project to test the proposals the study came up with. The pilot succeeded, dramatically raising yields, Ravari says. But like Madani, his ideas struck resistance and he was put on a plane out of the country.

Asked where he’d go next if Georgia doesn’t work out, Ravari says: “Australia!’’

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