Breakout Market: Saffron
July 3rd, 2018
Saffron is one of the most expensive and sought-after spices in the world, pricing in at roughly $5,000 per pound. The harvesting of this red gold is a tradition that dates back more than 3,000 years in the Middle East and Central Asia. The three main chemical components of saffron are picrocrocin, crocin, and safranal, which are responsible for the taste, smell, and color of saffron respectively. One of the principal reasons for the spice’s notably high price is that it is naturally derived from the stigma of the saffron crocus flower. The stigma of each flower must be hand-picked and dried in order to create the strong, aromatic spice. In addition, harvest yields are typically very low because each flower has only 3 stigmas. Further limiting yield capabilities, the purple flowers only grow in microclimates consisting of specific dry environments during a small window in late September to early December. The laborious process, low yield, and small harvest window continue to maintain elevated prices.
Despite the high price of saffron, the market is expected to grow because of the increase of saffron applications, which include food, medicine and cosmetics. These new uses are driving an expected 12.0% compound annual growth rate which will boost the market to $2 billion by 2025 [Figure 1].
Capturing over 50% of global saffron market revenue in 2015, food is the biggest market segment. Saffron can be used in a variety of products including traditional dishes, tea, milk, ice cream and baking powder. Medical is the second biggest category, with over 25% of the market segment. Saffron contains antioxidants such as zeaxanthin, lycopene, and a- and ß- carotenes, which act as immune modulators and can help protect the human body from stress, cancers and infections. As herbal treatments become more popular in North America and Europe, saffron demand continues to grow because of its ability to help cure asthma, whooping cough and dry skin. On the lower end of the total market breakdown, cosmetics, textiles and paints combined share less than a quarter of market revenue. Saffron can be found in anti-blemish lotions and cleansers because of its antioxidant, antiseptic, anticonvulsant and antidepressant characteristics.
Although the report presents an optimistic outlook on the future of the saffron global market, there are legitimate risks. Challenges for saffron producers include selling at a high price while international labor costs continue to increase, creating an integrated supply chain, maintaining the optimal ecological conditions and mitigating political risks. Specifically, rising labor costs amplify already high prices. If the cost of labor continues to increase, firms can either watch their profit margins decline or increase their price. The major producers of saffron have affordable pricing structures and integrated supply chains. Without these dynamic integrated supply chains, newer firms will have trouble competing in an increasingly consolidated market. Additionally, as global temperatures increase, farmers will have a hard time maintaining the necessary ecological conditions to harvest this very delicate spice. Firms will have to innovate their production processes in order to cope with these environmental risks. In terms of political risk, Iran’s central role in the saffron global market poses the greatest threat for saffron producers.
Today, Iran is the biggest market producer of saffron, with a 90% share of global production. The other 10% is shared with Morocco, Spain, Italy, the Netherlands, Afghanistan, India and the United States. Given varying sanctions regimes, Iran’s saffron businesses have had to learn how to circumnavigate restrictions and added costs, a task that they have done so with relative effectiveness. Tapping into markets in the Gulf, Middle East, India and China, Iranian exports of saffron have grown by 36% since 2014. Although some exporters have found ways around sanctions, the political risk of producing saffron in Iran remains high considering the hardline stance US President Donald Trump has taken with the country. Given an inherent disadvantage in Iran due to sanctions and political risk, opportunities have opened up around the world for this growing market.
Afghanistan presents one of the many opportunities for saffron producers to meet rising global saffron demand. Similar to Iran, certain regions of Afghanistan have the arid climate and particular soil needed to produce saffron in large quantities. Currently much of the country’s agricultural regions are used to grow poppy. In 2017, the country had a record 810,488 acres devoted to the crop, but a saffron farmer can earn up to seven times more than a poppy farmer. This potential transition to saffron could decrease opium-related conflict and opium addiction. Barriers to fulfilling this production potential include political turmoil, lack of capacity and an unfriendly business environment. Against these odds, companies have proven that Afghanistan can support a successful saffron industry. Rumi Saffron has recognized this opportunity and have set up a successful saffron production and exporting business, supporting local communities, contributing to Afghanistan’s economy and giving Afghan women jobs. By the end of 2017, Rumi Saffron will be employing 1,000 Afghan women. As the world saffron market grows and President Donald Trump doubles down on Iranian sanctions, opportunities arise for new saffron businesses around the world to compete in the global market.