Italian pasta makers looking to expand in Asia, China coming first

Pasta consumption will grow most strongly in Iran, Turkey, Egypt and Brazil over the next five years, a study by research institute Euromonitor has shown.

Europe is practically a saturated market, said Euromonitor analyst Jack Skelly, adding that from 2011 to today global consumption of pasta has risen just 1% per year.
On the other hand, the four countries in question have seen annual growth rates of around 4-5% recently, which are expected to continue for the next five years.

By the end of 2016, Iran, Turkey and Egypt, with a combined population of 250 million people, will have consumed 1.6 million tonnes of pasta altogether. That is roughly how much Italy, the top producer and exporter in the world, sells every year to overseas markets (1.8 million tonnes in 2015).

But how are Italian exporters approaching these most promising markets? Looking at statistics from Aidepi , the association of the Italian pasta industry, these are minor markets. For the €2.3 billion worth of exports from Italian pasta makers last year, more than 72% of end markets were in Europe. France, Germany and Britain combined amount to 44% of the volumes and 45% of the takings.

About 200,000 tonnes of “Made in Italy” pasta heads to the Americas, and only 50,000 tonnes of that goes elsewhere than the US, which is the fourth export market and has shrunk by 1.3%. Meanwhile 214,000 tonnes of Italian pasta head to Asia, of which 66,000 tonnes go directly to Japan.

“The truth is that these four countries are among the most complicated out there,” said Giuseppe Di Martino, from the eponymous pasta company. He also controls Pastificio Amato and exports mainly to mature markets.

“Turkey, for example, rather than being a destination market, is a key competitor for us on the international stage: it has modern production plants and has invested a lot in the sector, to the extent that it takes a lot of business from us especially in China, Africa, and the Arab countries,” said Stefano Berruto, from the similarly named Piedmont pasta makers. “Made in Istanbul” pasta costs less, also “because it makes use of financing in the form of export refunds,” Berruto said.

Egypt is another difficult market for Italian pasta. “It has recently introduced a series of protectionist barriers to defend its nascent local production,” said Berruto. “In terms of an end market it is at a standstill due to the social-political crisis,” he said.

Iran is possibly the most promising among the four countries. “We will have to see in what sort of time-frame its market opens up,” said Di Martino. “But there is no doubt that it has an excellent base of potential consumers who are furthermore already used to pasta, because the country itself has a local industry that is rather developed” he said.

Regarding Brazil, between its economic crisis and the high tariff-linked entry barriers, Italian exports fell 18% in volume terms in 2015.

It is therefore not these four countries on which “Made in Italy” pasta is prepared to bet for its future export growth. “In Asia we are setting our sights on India, Vietnam and Thailand,” said Berruto. “Furthermore we see signs of recovery in the Russian market,” he said. Russia’s imports of Italian pasta fell by more than 50% between 2013 and 2015 (according to Italian export credit agency SACE).

Di Martino, on the other hand, prefers to focus on eastern European countries and China, where Italy is still under represented. According to Aidepi, in 2015 Italian producers sold less than 19,000 tonnes of pasta to Beijing. Even if Chinese consumption of Italian spaghetti rose by 495% in the last eight years, we are still talking about income for Italy of about €18 million compared for example to the €260 million coming from the US market, that only has a quarter of the population of China.

“The fundamental difference for us pasta exporters is that while China is opening up, Egypt and Turkey are closing, while Iran at least in the short term remains a somewhat closed market,” said Di Martino. Therefore, the fact that these countries are closer than China and more accessible logistically and with a more simple distribution system still does not manage to make the difference.”