A
Saba Naeli Luigi Orsi Saffron Value Chains
Insights from Iran Aracne editrice
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Ist edition: June Contents
Abstract
Introduction
Chapter I The Importance of the Global Value Chain .. Picture of Saffron Products, – ... Application and Usage of Saf- fron, – ... The Increasing Importance in Health Sector , – .. Global Trade in the Saffron Value Chain and Lead Players, – ... Major Ex- porter, – ... Major Importer, – ... Lead Players and Their Market Dynamics, – .. Saffron Key Global Trends, – .. Saffron Value Chain Development in Iran, .
Chapter II Global Value Chain Conceptual Framework .. Input–Output Structure, – .. The Geographic Scope, – .. Trans- actions and Transaction Costs, – .. The Governance of the Value Chain, – .. Transaction Costs and Governance, – .. Deter- minants of Transaction Costs Analysis, – .. Market Power and Governance Structure, – .. Upgrading, – .. Local Institutional Context, – .. Stakeholders Analysis, .
Chapter III Research Setting and Methodological Approach .. Data Collection, – .. Interview Structure, – ... Supply Side Interview, – ... Consumer Side Questionnaire Structure and Opera- tionalization, .
Chapter IV Main Results and Discussion .. Input–Output Structure, – .. Geographic Scope, – ... Iran
Contents
Positioning in the Saffron GVC, – .. Governance and Contracts, – ... Saffron Value Chain Financing, – ... Saffron Value Chain Main Actors Relationships, – .. Local Institutional Context, – .. Up- grading, – ... Sociodemographic Analysis of the Survey, – ... Con- sumers’ Shopping Behaviour, – ... Consumers’ Perception of Saffron, – .. Stakeholders Analysis, – .. Upgrading Trajectories, – ... Required Workforce Development Initiatives for Upgrading, – .. Limi- tations and Future Direcetions, .
Conclusions
References List of Tables
. Interpretation of suggested development strategies. . Questionnaire structure and sources...... . Questionnaire structure and sources...... . Marketing channels for Iran saffron...... . Quality standards...... . Participants age distribution...... . Frequency of saffron usage...... . Ranking of the importance of saffron attributes for Italian consumer...... . Ranking of the importance of saffron attributes for French consumer...... . Ranking of the importance of saffron attributes for German consumer...... . Ranking of the importance of labels for Italian con- sumer...... . Ranking of the importance of labels for French con- sumer...... . Ranking of the importance of labels for German con- sumer...... . Ranking of different circumstances to use non–European saffron by Italian consumers...... . Ranking of different circumstances to use non–European saffron by French consumers...... . Ranking of different circumstances to use non–European saffron by German consumers...... . Ranking of the importance of the attributes for Eu- ropean consumers...... . Ranking of important labels for European consumers.
List of Figures
. Saffron input–output structure...... . Distribution of the importance of effective factors in shopping choice of Italian...... . Distribution of the importance of effective factors in shopping choice of French...... . Distribution of the importance of effective factors in shopping choice of German...... . Distribution of the importance of label for Italian consumers...... . Distribution of the importance of label for French consumers...... . Distribution of the importance of label for German consumers...... . Different circumstances to use non–European saffron by Italian consumers...... . Different circumstances to use non–European saffron by French consumers...... . Different circumstances to use non–European saffron by German consumers...... . Familiarity with saffron properties–Italian...... . Familiarity with saffron properties–French...... . Familiarity with saffron properties–German...... . Italian expectation of Iranian saffron...... . Italian perception of Iranian saffron...... . French expectation of Iranian saffron...... . French perception of Iranian saffron...... . German expectation of Iranian saffron......
Abstract
Saffron as the most expensive spice demonstrate very bright market in the future. It experiences increasing demand trade as well explored by new sectors such as cosmetics and pharmaceutical. Moreover, the saf- fron flowers grow well in arid and semi–arid regions mostly,the area that suffer from poverty,water scarcity,and other environmental problems. This plant requires very little water and have low environmental impact while have high value added. These makes it good solution for sustain- able development of these regions and bettering off the local community. In Afghanistan it introduced as a replacement for opium cultivation since its high price can compete with opium cultivation profit. Research was done by gathering primary and secondary data from different stakeholders of saffron value chain. Primary data collect by interview and online questionnaires aimed farmers, firms, interme- diators, and European consumers. The secondary data gained from local, national, and international data base mainly on trade statistics. The result from supply side indicated Iran as the main producer and exporter does not enjoy the highest profit rate of this market. Countries as Spain dominated the established distribution channels and gain higher profit by the direct connection with retailers and industries demand this spice. It also could successfully establish Spanish saffron as the most fa- mous and high quality one, whereas most of the saffron traded by Spain comes from Iran and other countries and small amount of it cultivated there. On the demand side the consumers show little knowledge of dis- tinguishing high quality and genuine saffron as well its usage. They also express their concern about safety and hygiene, usage of agrochemical, and environmental impact of saffron come from Iran. Considering all the data the different saffron Global Value Chain (GVC) is mapped, their advantage and disadvantage discussed, and upgrading trajectories and empirical implementation to promote Iranian saffron in the global market suggested.
Introduction
Saffron is a spice obtained from the dried stigma of the flower of saffron crocus (Crocus Sativus). It is the most expensive spice in the world. It is predicted that in the next years, saffron market grows massively due to new and important application of it. Apart from food and beverage sector which is conventional but also growing demand sector for saffron application, this spice become important for pharmaceutical and cosmetics industries since its health benefits are exploring. Nowadays, there are many research and studies on applying saffron in cancer or depression medicine. Saffron market indicated increasing trends of demand, consump- tion, and trade. Iran as the main producer and exporter of this market, % of worldwide saffron production come from Iran (United Na- tions Industrial Development Organization, ), does not enjoy the highest profit. This country exports its product in bulk and companies in other countries as Spain, which is the old actor of this market, or new entering countries as United Arab Emirates (UAE) and China manage the packing, marketing, and distribution of this product. This spice is cultivated mainly in less developed countries such as Iran and Afghanistan, in arid or semi–arid regions which suffer from scarce natural resources. Therefore, it has profound role in the livelihood of people in those area as well can be a product to bring sustainable development there. Apart from the actors in the bottom of the Value Chain (VC) as farmers, intermediators, and cleaning units in recent years new ac- tor in the distribution channel appeared that by using e–commerce connect consumers directly to the farmers and aimed to provide high quality saffron in the market, better off farmers earnings, and fight with the environmental problems, mainly water scarcity in Iran. Start–up Keshmoon is founded in following three main goals, bet- tering off farmers by omitting the intermediators and providing them
Introduction higher share of consumers’ price, providing high quality and genuine saffron to consumers, and attempt to stop extracting water from the deep well which exploit the underground water of the region and has profound negative effect, there is a resistance from farmer side to not using the deep well as their livelihood depends on the agriculture. Despite the high value market of saffron and its importance in people welfare in less developed regions, there were few studies and research on this spice value chain and its future market. The main studies done by organizations as United Nations Industrial Develop- ment Organization (UNIDO) or International Trade Centre (ITC) to suggest how to promote saffron from Iran or Afghanistan in the international market. This work aims to have more in depth look to the saffron global market and Global Value Chain (GVC) to suggest practical implication and strategies to saffron value chain actors in Iran to upgrade their position in the GVC. The main focus is on managerial implications that can be implemented by industries and firms, due to the political issues and complications having governmental agencies on board to follow the policy implications demand. In addition, we studied the conventional actors of the chain the new one who take advantage of technology and e–commerce studied as well to see how technology can improve the present situation. In the literature of review chapter GVCs analysis based on Gereffi’s theoretical framework is explained. Then the importance of saffron, saffron global trade and lead players, key global trends, and the study on saffron GVC by UNIDO were presented. In the third chapter, the conceptual framework, dimensions of GVCs analysis are discussed. The fourth chapter dedicated to method- ology and research design. The data analysis presented in the th chapter followed by mapping existing Value Chains and upgrading trajectories. Policies, managerial implications and suggestions are highlighted in the last chapter. Chapter I
The Importance of the Global Value Chain
This chapter discussed the terms of global value chains (GVCs) and the importance of its analysis firstly. Subsequently the application of saffron in the different sectors explored and followed by the overall view of global saffron market, main producer, main exporter, main re–exporter, and current and new entrants lead players. Finally, the result of UNIDO value chain analysis of saffron as one of the rare publications on this topic is provided. The global value chains (GVCs) constitute a rising share of inter- national trade, global GDP and employment. A widespread range of sectors now involve in the GVCs, from commodities to business ser- vice outsourcing, has significant implications in term of global trade and the way developing countries firms and producers are integrated in the global economy. GVCs which link firms and consumers around the world is a perfect opportunity for developing countries firms to integrate in the global economy.The effective insert into the GVCs results in capability building, successful competition, and generating jobs to reduce unemployment and consequently the poverty.Therefore, the ability of effective insert to the GVCs is a profound condition for the development of low–income countries. Participation in the global economy is not mattered solely, more importantly it is the matter of doing it gainfully. The GVC framework examines structure and dynamic of different actors of a given industry and indicates how global industries are organized. By studying job descriptions, technologies, standards and regulations, products, process and markets in the specific industries and places this framework provide a holistic view of global industries from the top down (for example, examining how lead firms “govern” their global–scale affiliate and supplier networks) and the bottom up
Saffron Value Chains
(for example, asking how these business decisions affect the trajectory of economic and social “upgrading” or “downgrading” in specific countries and regions) (Gereffi & Fernandez–Stark, ). Unlike the previous paradigms this framework allows policy mak- ers to address questions regarding development issues, due to its holistic nature. Moreover, it provides a mean to explain the changed global–local dynamics that appears in the last years (Gereffi & Korzeniewicz, ). The increasing importance of this framework is in the tackling of new industry issues including the role of emerging countries as new drivers of global value chains, the importance of product and process certifications for export–oriented economy as precondition to gain competitive success (Corsi et al., ), increasing demand of work- force development schemes for dynamic economic upgrading (Orsi et al., ), and dramatic increase of private regulations and standards (Mayer & Gereffi, ; Stranieri et al., , ). Nowadays there are governments and institutions who have commissioned GVC analysis for a specific product or service to understand global industries and to formulate new programs and policies to upgrade its position in the GVC and boost economic development (Mazzocchi et al., ). GVC methodology explore six basic dimensions including global (top–down) and local elements (bottom–up). Global dimensions deter- mined by the dynamics of the industry at global level are as following: . An input–output structure, . The geographic scope, and . A gov- ernance structure. To explain how individual country participates in the GVCs the second set of dimensions, local dimensions, is applied. Local dimensions include . Upgrading, . Institutional context, and . Industry stakeholders (Gereffi & Fernandez–Stark, ).
.. Picture of Saffron Products
... Application and Usage of Saffron a) Food and Culinary
Saffron attracted by food and culinary the most, due to its superior flavour and colour. Beside its household application to prepare differ- . The Importance of the Global Value Chain ent cuisines all around the word it applied widely as an alternative to chemical food ingredient in the diary and confectionary industry to produce a wide range of products such as milk, tea, ice cream, jelly, fruit cakes, muffins, cake powder, and baking powder. Moreover, liquid saffron extract is used for colouring food, beverages, and liquors as well as a health supplement (Grand View Research, ). b) Cosmetics
Application of saffron in the cosmetics production back to thousands of years ago. Today saffron not only has a wide range of homemade cosmetics application but also witness an increase in various appli- cation in the retail cosmetics sector including the production of skin creams, anti–blemish lotions and cleansers (Grand View Research, ). c) Perfume
For millenniums saffron liquid extract have been used in Middle East to prepare perfume. This application creates a new, not yet signif- icant, market segment for saffron as perfume industry recognized the attractive features of saffron aroma (International Trade Centre, b). d) Dye
Saffron has different applications of dyeing. It is a substance to dye textile since ancient time, although this application has become less common in recent years due to high cost and lack of stability of the colour. Instead, it is more common now to use it as natural dye in food industry as consumer shift away from chemical dyes to natural ones (International Trade Centre, b).
... The Increasing Importance in Health Sector
Apart from the dominant culinary applications of saffron it has med- ical application since last millenniums. Recent medical researches associated saffron biological compounds with certain health benefits. Saffron Value Chains
This spice contains high level of antioxidants, vitamins and miner- als (FoodData Central, ). Some of the broad–spectrum medical benefits of saffron listed in the following table. Safranal or crocin and Crocetin are claimed as the components with the greatest treatment applications. Safranal demanded in the manufacturing of various antibiotics. The pharmaceutical industry has great interest to Crocetin due to its high potential for treating cancers and depression. While there are ongoing medical researches on pharmaceutical applications of saffron, many of health claims have not been proven yet as a result of insufficient evidence (Grand View Research, ). However, pharmaceutical industry is not the only health product sector which interested in medical benefits of saffron. The nutraceuti- cal sector, particularly, use saffron widely due to this huge range of health claim and as consumers, especially in western market like EU, increasingly seek natural means to good health. As a result of market- ing activities of companies in the nutraceutical sector the consumer awareness of saffron benefits and consequently the number of new consumers grow. The most common saffron–containing nutraceutical products are:
— Daily memory brain supplement containing pure saffron ex- tract and red Korean Ginseng; — Appetite suppressant capsules containing . mg saffron ex- tract per capsule (.%); — Ocular support – eye health supplement containing saffron extract; — Mood and energy level enhancer containing % saffron ex- tract. (International Trade Centre, b)
.. Global Trade in the Saffron Value Chain and Lead Players
... Major Exporter
The global value of exported saffron in were million dollars. Iran as the main saffron producer has the highest share of saffron export in the world ( million dollars’ worth export in , % of . The Importance of the Global Value Chain total world export). Followed by Spain with around million dollars in and % of total export, Portugal with million dollars in and % of total export and Afghanistan with million dollars and around % of total export. Even though Iran is the largest saffron producer and exporter, this country lack of effective participation in the saffron trade result in its low position in the saffron global value chain and consequently has led other countries with so much fewer production and even without production re–export Iranian saffron and generate more added value. Countries as Portugal, Netherlands, United Arab Emirate (UAE), Germany, China, and Hong Kong are not saffron producers, but they are among the top ten exporters. a) Spain
Spain has a long and rich history with saffron. It used to be one of the main saffron producers in the world, but the rising wages and labour–incentive nature of saffron production made a huge reduction in Spanish saffron production. Nevertheless, Spain still has huge effect on the control of the global distribution of saffron. This country enjoys ex- ploiting competitive advantages in packaging, branding and distribution channels which result in capturing nearly all the added value. Spain export higher amount than its production for instance in Spain production was around . tons but it exported about million dollars’ worth of saffron. Hence a huge part of imported saffron to this country processed further, re–packaged and re–exported with high–end branding. Approximately % of the branded and exported saffron by European countries is supplied by Iran, based on anecdotal evidence (United Nations Industrial Development Organization, ) b) United Arab Emirate (UAE)
It should be taken into account that based on ITC Trade Map (Trade Map—Trade statistics for international business development, ) in the last decade UAE gradually has taken Spain position as the main export market of Iranian saffron. Although few data are available but UNIDO report on “Saffron Industry Value Chain Development” (United Nations Industrial Development Organization, ) estimated Saffron Value Chains that % of imported saffron to UAE is re–exported to India, China and other far Asian countries, Persian Gulf countries, and even Europe. In comparison with Iran situation UAE has taken advantage of the free trade zone, proper export facilities and economic stability, these advantages also attract Iranian companies or companies with Iranian investors to establish saffron exporting companies there which is one of the reasons behind increase of UAE import from Iran.
... Major Importer
The global value of imported saffron in were million dollars. The largest importer of was Hong Kong with . million dollars import (% of global import). Followed by Spain with million dollar import in (% of global import), UAE with million dollar import in (% of global import), India with . million dollar import in , USA with . million dollar import in , Arabia Saudita with . million dollar import in and Italy with around million dollar import in .
... Lead Players and Their Market Dynamics a) Iran
Iran produce approximately % of world saffron production (United Nations Industrial Development Organization, ) consequently there is a high correlation between Iran export and world overall export. Iran is the global leader in terms of quantity and value of exported saffron, despite the effect of current fluctuations in dollar value of overall export of Iran. Based on the data recorded by the Khorasan Saffron Exporters Association in out of ton saffron exported from Iran . ton exported in bulk, worth million dollars (“Achieve ()”, n.d.). This saffron packaged and distributed through established trade networks of re–exporters. Strengths:
— Highly experienced and capable producers; — Large domestic market;