Iran faces U.S. challenge in "pistachio war"

By Fredrik Dahl

KERMAN PROVINCE, Iran (Reuters) - For some Iranians, it's a galling thought: the United States may oust Iran as the world's largest producer of pistachio nuts this year because of one of the worst harvests ever in the Islamic Republic.

The popular nibble is Iran's main export commodity outside the oil sector, earning it more than $1 billion last year, and providing many people with jobs in the arid, southeastern province of Kerman, which has 140,000 pistachio farmers.

Unusually cold weather during the flowering in April dealt a blow to the 2008 crop, which farmers say is down by as much as 75 percent from last season's record of 280,000 tons (617.3 million pounds).

The shortfall has helped push up pistachio prices but not by enough to compensate for lower volumes, they say.

The poor harvest follows a severe drought that is forcing Iran to import millions of tons of wheat and causing power shortages in the world's fourth-largest crude producer.

"We actually never had production as low as this," said Behrooz Agah, whose grandfather pioneered exports of the split-shelled nuts in the 1930s.

"For Iranian pistachio farmers, yes, it is a crisis," he said, standing in sweltering heat amid rows of trees with bunches of the red-green nuts growing in desert-like terrain.

Agah said he expected export revenue to fall to $350-400 million and that this year's frost would also hit the 2009 crop.

Though pistachio prices have now jumped after a period of stagnation, margins have been squeezed by double-digit inflation -- running at an annual 27 percent -- and rising costs.

The relative stability of Iran's rial against the U.S. dollar has not given those selling abroad any major relief.

Mehdi Agah, Behrooz's uncle and a board member of Iran's Pistachio Association, said the country was experiencing the so-called Dutch Disease, where the value of a currency is strong because of lucrative oil or gas exports, hurting the ability of other sectors to compete internationally.

"Already the carpet industry has lost business to the Dutch Disease," he said, referring to another export earner.

JOB LOSSES

Economic consultant Saeed Laylaz said Iran's imports were growing faster than its non-oil exports, making the country more sensitive to the price of crude, which has plunged from a July peak of $147 per barrel on deepening global economic gloom.

Iran relies on windfall gains from its hydrocarbon wealth for its budget and to pay for surging imports of goods, which are forecast to almost double to $83 billion between 2005-2010.