Learning Places: Esfahan, Iran (v. 1, Ch. 2)

This post has been adapted from Learning Places: Volume 1, Chapter 2: Bringing the world to Iran. You can order a copy of the full report here.

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Uncovering Iran's Sweet Secret

The Semirom plateau, in central Iran, hides a sweet secret: some of the world’s tastiest apples. The region’s dramatic temperature range gives its apples a sweetness unmatched in both the Middle East and the wider world.

Despite the special taste of their produce, Semirom’s many smallholder farmers have not realised the economic benefits, as their productivity remains far below the world standard, with over one-third of Semirom’s apples wasted between harvest and distribution. Farmers use far more water than they need, but they lack the funds to purchase better irrigation systems. 

Places like Semirom represent a problem and an opportunity for Iran. The country’s isolation from the international economy has led to stagnation and even regression in many regions, especially outside the major cities, in spite of its dynamic domestic economy and vibrant regional trade. With targeted investment, Iran’s regionally- and globally-competitive products, many in the agriculture sector, stand to benefit the country as it continues the process of opening to the wider world. Foreign companies will be welcomed by Iranian companies hungry for expertise and investment.

Over two weeks in October 2015, the Global Institute For Tomorrow (GIFT) brought over twenty high potential business managers from across Asia and Europe to the Middle East, first to Dubai, UAE and then to Iran, engaging in a social impact project more than five years in the making.

The experiential field work module was conducted in historic Isfahan, classically referred to as “Half the World” for the overwhelming beauty of its gardens and architecture. The group also travelled to Semirom, a rural plateau two hours south of Isfahan, both a rich agricultural region and an increasingly popular tourist destination for Iranians and foreign visitors.

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The Global Institute For Tomorrow was invited to Iran by the Esfahan Chamber of Commerce (ECCIMA) and the Semirom Farmers’ Union, both of whom were seeking fresh analysis and proposals for how to revitalise the local apple industry and improve the prospects for smallholder farmers in the region. The Semirom Farmers’ Union serves and supports the region’s agriculture sector and has more than 4,200 members, of which more than 80% comes from the apple industry. After months of planning a framework was developed for a business plan for a Semirom-based apple company focused on the production, packaging and marketing of premium apples and processed apple products.

The Semirom Seeb Company (SSC) was proposed in order to improve outcomes in rural Semirom by creating an agricultural company that would:

  • Source, harvest and process apples for sale domestically and internationally; "Seeb" is the Farsi word for Apple;
  • Provide necessary investment and expertise to local farmers; and
  • Preserve smallholder ownership of their orchards.

The Semirom Seeb Company is expected to achieve the latter by integrating a farmers’ co-operative into the ownership structure, which allows benefits to flow directly to local farmers, as well as provide a channel to distribute investment, expertise and quality control mechanisms.

The SSC model was designed to support Semirom’s apple industry, but can also be adapted to suit other agricultural products, and even artisanal and light manufacturing businesses. It furthermore demonstrates the potential for a commercial structure to overcome the initial costs of developing a collective organisation. Immediate reductions in waste and investment in higher-margin products help encourage membership, which in turn builds links between independent producers and other third-parties.

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Semirom — “The Roof of Iran”

Isfahan Province is located in Iran’s Central Plateau; Isfahan (Esfahan), the provincial capital, is the third-most populous city in the country by population. Semirom County, located on the southern tip of Isfahan Province bordering the Zagros mountain range, had a population of 23,200 people in 2006. Semirom’s economy is dependent on agriculture and specifically apples: 74% of its GDP comes from apple cultivation, with almost half of the 45,000 hectares of agricultural land producing some 300,000 tonnes every year. The vast majority of apple farmers in Semirom County are smallholders. While a few farms have consolidated into larger orchards, there are only a handful of larger-scale agribusinesses.

While Semirom’s productivity has been improving in recent years, it remains significantly below the world average. Estimates suggest that up to 30% of Semirom’s apples, or 90,000 tonnes annually, are wasted during the harvest period. These include both apples lost on-site and apples damaged in the transportation, sorting and packaging stages. Apples are ranked in three categories based on size and appearance: higher-quality Grade 1 and 2 and lower-quality Grade 3. Grade 1 and 2 apples are sold for human consumption, while Grade 3 is typically used for animal feed or discarded.

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The majority of Semirom’s apples are sold directly to domestic and Gulf Region markets, with little or no value added in processing. Approximately 60% of the region’s apples are purchased by the Ajmandi Group: a local export company that collects the apples and transports them to a local storage facility for sorting and export. Farmers that sell directly in the market incur their own harvesting, packaging and transport costs, which when performed to a lower professional standard results in damage and wastage.

Throughout GIFT’s visit in Semirom, farmers themselves as well as the Semirom Farmers’ Union blamed a lack of effective organisation for the problems facing the region’s apple orchards. Without this, farmers were unable to bargain for higher prices or better-quality inputs, nor could they work together towards common goals. The Union’s inability to bring about positive change meant that many farmers had lost trust in the organisation, choosing instead to manage their orchards without assistance, weakening the Union further.

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Leveraging Semirom’s Special Character

Upon visiting Semirom one immediately senses the special quality of the place, which includes its fresh high-altitude environment but also its unique local identity drawn from the historical blending of nomadic cultures and a more contemporary tradition of holiday visitors, especially Isfahanis, enjoying picnics in nature. This atmosphere contributes to the flavour of its apples but had not been captured in a brand. Much also remains to be done to improve the production and processing.

Participants quickly identified one key area for improvement: reducing waste. Semirom’s apple farmers had traditionally only focused on Grade 1 and Grade 2 apples; little to no revenue was gained from Grade 3, most of which was discarded or sold as low-priced animal feed. Farmers could benefit  by working to convert Grade 3 apples into higher quality apples through improved orchard and input management while also processing smaller low quality apples into other higher-margin products. Improved techniques would also reduce damage and wastage through the value chain.

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Processed apple products from Semirom were expected to appeal to consumers’ changing tastes, as fruits are already a staple of the Iranian diet. Fruit snacks, though they currently account for only 1.7% of snack sales in volume, saw consumption increase by 16% in 2014. Chips, such as potato chips, account for a major share of total retail volume (45% of the total), and thus the group determined that fruit chips would be a well-targeted new product for the domestic retail market.

However, a strategy focused on processing — as well as improving cultivation and transport — requires significant capital investment. Individual farmers in Semirom do not have the resources to purchase the slicing and drying machinery required for producing apple chips. Acquisition of processing machinery must be done collectively, but the lack of an effective organisation presented a major obstacle. Semirom farmers furthermore were generally unaware of the available channels, within and outside of Iran, to secure necessary financing.

Water management emerged early on as another area of paramount importance. The Semirom plateau in fact receives among the highest levels of precipitation in Iran. However, much of it runs off the mountains and past the apple orchards without being collected. Inefficient usage impacts the farmers’ ability to maintain their orchards, and thus limits further expansion and long‑term sustainability. Widespread implementation of gravity-drip irrigation systems, proven successful in reducing water usage for farming in sandy soil, would dramatically improve efficiency.

However, according to officials in the Iranian government, the fragmented nature of Semirom’s apple sector complicates the delivery of improved irrigation technology. The issue was not a lack of resources, but rather a lack of channels to deliver funding and expertise to thousands of Semirom farmers. Without links to individual farmers — or a collective organisation that could provide those links — there was no feasible and cost-effective way for the government, an NGO or a university to provide technology to independent farms.

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Abundant apple orchards at the base of Mt. Dena, Semirom in the far south of Isfahan province, Iran.

Driving resource efficiencies is not the only benefit of improved organisation and management. Collective bargaining allows farmers to negotiate higher prices for their produce and lower prices for higher-quality inputs. Farmers spoke about their inability to negotiate better contracts from buyers like the Ajmandi Group who, to their credit, were open to new ways of restructuring the industry.

A farmer-centric organisation would also support the establishment of a regional agricultural brand, facilitating a premium price for Semirom apples in Iranian and global apple markets. Many advanced economies, such as the United States, France, and Japan, have well-known agricultural regions and associated consumer brands for their produce. Europe has even codified some of these brands into law: regions like Champagne or Gorgonzola may only be used as legal names for goods which are actually produced there; others are prohibited.

However, there are fewer brands associated with agricultural regions in the developing world, and such associations are often negative, such as China’s public issues with food safety.
Quality control is essential to regional brand building, and collective organisation can ensure farms are achieving certain standards. Given that compliance is likely to be voluntary, the organisation must be accepted by local farmers, who need to see real and clear benefits.

Finally, it is expected that such organisation can achieve scale while preserving individual ownership of farms. When local farmers own their property, they have more control over what they produce and how they operate. Property is also an asset that allows small farmers to withstand economic fluctuations, allowing them to weather occasional bad harvests or low prices.

Merely consolidating land, a common practice in much modern agriculture, turns farmers into employees. They lose the ability to decide what to grow and how to grow it, and to develop their own agricultural expertise. As employees, they are also more susceptible to the vagaries of the business cycle and commodity markets. The fact that most farm labour is seasonal, if not day-by-day, points to the transient nature of employment on plantation-style farming.

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Introducing the Semirom Seeb Company

In response to the aforementioned constraints and challenges, a new business model was proposed with the following objectives:

  • Improve the productivity of Semirom’s farmers by “converting” Grade 3 apples into higher-quality Grade 1 and 2 apples through better cultivation processes.
  • Process lower-grade apples into apple chips and other fruit products, which requires securing the necessary funds for equipment.
  • Establish an ownership and governance structure that includes smallholder farmers and does not dispossess them of their land. By giving farmers a stake in the success of the organisation, it will both ensure that profits are returned to farmers, and build its legitimacy.
  • Resolve the pressing resource and productivity challenges facing smallholders: access to higher-quality inputs at lower per unit prices, improved water efficiency, and reductions in waste. It will also need to promote the latest expertise in apple farming.
  • Develop marketing channels to promote awareness of “Semirom” as a premier agricultural region, especially important for international markets, where it is currently not well-known. This requires quality control, to ensure products achieve international standards.
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With these goals in mind, the Semirom Seeb Company (SSC) will aim to provide technically-sound and appropriate harvesting, sorting and packaging solutions, and support the marketing of branded fresh produce and processed apple products.

In this model, the SSC operates between apple orchards and retail markets and owns sorting and packing facilities, processing machinery and transportation infrastructure for collection. The first step toward realising this vision is to increase the number of Grade 1 and Grade 2 apples that can be sold by improving cultivation, harvesting and transportation procedures and reducing damage. The SSC would also invest in machinery that produces apple chips from Grade 3 apples, with future plans to invest in equipment to produce higher-value, higher-margin apple products like apple juice, apple jam and apple vinegar.

 
 

The long-term vision is to improve the livelihoods of Semirom’s apple farmers, which includes the dissemination of best practices, expertise and technology. The SSC proposal includes a knowledge platform to provide technical support in orchard management, crop protection, irrigation, soil management, and harvesting. Both the Agriculture University and Semirom University expressed an interest in holding workshops for farmers, managing pilot projects, and teaching farmers through direct interventions. They are also willing to cooperate with actual practitioners on a platform for experimentation and research.

By working directly with local apple farmers, the SSC model facilitates the delivery of expertise, resources and investment. Foremost among these are improved irrigation systems, which the local Semirom government expressed a willingness to subsidise for smallholder farmers. The business model supports the implementation of such a scheme by providing a channel for government funds to reach individual farmers.

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Links to individual apple farmers are codified in the SSC’s ownership structure, where a significant share is owned by a Farmers’ Co-operative,  reflecting the breakdown of apple farmers in Semirom County. The owners of farms smaller than ten hectares will be organised into sub co-operatives, which will in turn elect a representative to sit on the main Co-operative. Owners of larger farms will be directly represented.

The Co-operative is granted “sweat equity” in the SSC: in exchange for supply commitments, local farmers receive a share of its profits. The SSC also reserves 10% of its yearly net profits for local community development. The Co-operative will provide support for the farmers, through the provision of high-quality seeds and fertilisers, as well as leverage to secure higher prices for Semirom apples.

The SSC will also launch and promote a “Semirom” brand in marketing the region’s apples, focused on the unique taste, colour and aroma of local apples: an association with quality that will grow as the SSC improves productivity and quality-control. The “Semirom” brand is aligned with health benefits, in response to demand for healthier snacks both in Iran and abroad. It will play an integral role in the Semirom Apple Festival and other food fairs, as well as tapping into Semirom’s growing tourism industry for example by offering packages to visit orchards and participatory harvesting excursions.

 
 

By capitalising on “wasted” agricultural produce, the SSC can provide immediate benefits to Semirom’s apple farmers. This encourages membership in the Farmers’ Co-operative, which becomes a platform for collective bargaining and the distribution of investment, advice and expertise. The commercial structure of the SSC and its alignment with farmers’ interests thus overcomes the initial obstacles to the development of an effective collective organisation:

By working directly with the farming community, the SSC develops channels through which other institutions, such as NGOs, the government or universities, can distribute money and advice. By offering equity to the Farmers’ Co-operative, farmers share in the success of the SSC without losing ownership of their orchards. By handling the financing, marketing and other “commercial” activities, the SSC frees the Farmers Co-operative to focus on its core strengths: collective bargaining, quality control and disseminating expertise to improve quality.

While the SSC model was designed for the cultivation of apples in Semirom County, key aspects of this model could be applied to other agricultural products in Iran, or indeed other industries altogether. Iran has large numbers of independent farmers, artisans and manufacturers that could benefit from a company designed and managed in their interests that provides up-to-date advice, channels to international markets and finance and an ownership share in profits — the SSC model provides these benefits while protecting the livelihood and assets of independent workers.

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Conclusion: Apples are a Starting Point

Iran’s historically high degree of economic development and enviable human capital resources contribute to its vast untapped potential. Many in Iran are eager for foreign investment and optimistic about the future. However, years of sanctions and decades of isolation mean that many industries have stagnated or even regressed. Institutional experience and modern management systems are wanting. Even if officials, business leaders and members of civil society know what is needed to improve outcomes, they may well lack the experience and capacity to drive change. New models for socially-driven commercial entities, can act as facilitators for agricultural and industrial development.

The business model for the Semirom Seeb Company model has been designed to act as this facilitator in the context of Semirom’s apple industry. Many farmers know that key problems could be resolved through an effective collective organisation. Government and academia need an entity to help facilitate the distribution of investment and expertise. The SSC provides immediate gains to farmers by capitalising on wasted produce, providing an incentive for farmers to join and conferring attractive benefits of the knowledge platform, a regional brand and a collective bargaining tool.

The commercial model thus creates the conditions where a co-operative organisation can weather the uncertain initial stages. In Iran, where years of underdevelopment have limited knowledge of best practices and access to international finance and markets, this approach is promising.

Government officials and ECCIMA may well apply this model to other agricultural products in the region. With some modification, the model could also be implemented in non-agricultural sectors. For example, an entity, structured similarly to the SSC, could focus on the financing, collection and marketing of handmade Persian carpets bound for international markets, with similar benefits for independent carpet manufacturers. Apples are a starting point, and it is hoped that the pioneering work from Semirom will inspire others in Iran and beyond.

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We wish to thank all of the participants who worked hard to make this project a success and everyone in Iran with whom they met and offered invaluable support. This included, among others, representatives from the Iranian government, including the former Parliamentary Representative from Semirom Mr. Afshari, the Mayor of Semirom Mr. Nosrati, the Chairman and management team of the Semirom Farmer’s Union Mr. Ghorbani, as well as the founder of the Ajmandi Group Mr. Ajmandi, the largest exporter of Semirom’s apples.

Mr. Mohammad Babaesmailli and his company Sam Pouyan provided invaluable support in facilitating the group’s visit and pioneering work in Isfahan. Key proposals and recommendations for implementation of the business plan are underway.

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Contact us to learn more about the Semirom apple project in Iran or any of GIFT's past experiential learning programmes. Click here to order Learning Places: The GIFT Report and enjoy all five chapters covering inclusive business projects: Iran, India, Hong Kong, Vietnam & Myanmar.

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