Going local: A rapidly growing industry is on its way to meeting demand through domestic production

After decades of heavily relying on imports to meet Algeria’s food needs, the agriculture sector has made significant strides since 2008 under the Agricultural and Rural Renewal Policy (Politique du Renouveau Agricole et Rural, PRAR). This was launched in 2008 to enhance output of key crops, stimulate rural development, strengthen training and provide technical support. The PRAR has proved successful in boosting local agricultural production thanks to partnerships and collaboration, notably between farmers and the processing industry, as well as providing better sector organisation thanks to the creation of trade committees in a number of strategic segments. Today, Algerian agriculture contributes 10% to GDP and employs 2.4m people. Under the PRAR the country aims to meet 70% of its food needs by 2014.

PERFORMANCE: Demographic growth, rising consumption and, most importantly, staunch commitment on the part of Algerian authorities to develop local agricultural production and meet demand are the main factors explaining sector growth. The government’s aim under the PRAR is to expand agricultural output by around 8.3% a year until 2014.

According to the minister of agriculture, Abdelouahab Nouri, the sector has exceeded this target, registering average annual growth of 13.8% since 2008. In 2012, the value of agricultural production reached $29.3bn, up 32% compared to the $22bn of 2011. This increase was driven by cash crops which accounted for 29.2% of the value of produced agricultural goods, followed by red meat (18.2%), cereals (11.8%), dates (8.4%), fruit (7.8%), citrus (5.9%) and milk (6.7%) IMPORTS: Food imports represented 19% of all goods coming into the country in 2012. According to data from the National Centre for Customs Information and Statistics (Centre National de l’Informatique et des Statistiques des Douanes, CNIS), the value of food imports in 2012 declined by 8.8% compared to 2011, falling from $9.85bn to $8.98bn. The drop is a result of lower cereal, semolina and flour imports, which registered a year-on-year (y-o-y) decline of 19.2% from $4.06bn to $3.27bn. This drop in imports has mainly been attributed to higher production of the same products locally, particularly of key crops such as cereals, as well as a broader decline in global food prices.

Over the same period, imports of durum and wheat were down by 26% from $2.85bn to $2.1bn, milk and dairy products down by 18.23% from $1.54bn to $1.26bn, sugar by 13.09% from $1.16bn to $1.01bn, and pulses by 9% from $359m to $356.3m. Meat imports, however, were up by 54.6%, increasing from $164m in 2011 to $254.46m in 2012.

Despite this improvement in 2012, food imports still remain high relative to 2010 when the value of imports stood at €4.57bn before rising by 61% in 2011. Data from CNIS for the first five months in 2013 already point to an increase in the value of food imports by 15.6% in comparison to the same period in 2012, increasing from $3.61bn to $4.17bn.

INVESTMENT: In a bid to stimulate local production and reduce reliance on imports, Algeria has sought to establish a favourable investment environment since 2008. Perhaps one of the most important steps taken by the authorities was the 2008 law making it possible to lease state-owned land for up to 40 years. In 2010, the National Office for Agricultural Land (Office National des Terres Agricoles) was established to regulate access to state-owned agricultural land, estimated at 2.5m ha.

Access to finance has also been eased thanks to newly devised loans from the Banque de l’Agriculture et du Développement Rural (BADR) on offer since 2008, notably the two-year RFIG loan and the three-year ETTAHADI loan for which interest rates are subsidised by the government. Trade committees are also playing an increasingly strategic role in improving organisation, and this has allowed a variety of segments to emerge, promoting private sector participation and enhancing collaboration with the authorities. The impact of these committees has been significant in a number of segments, notably cereals, milk and tomatoes.

MODERNISATION: In addition to favourable legislation and better sector organisation, new investment in developing modern production methods on Algerian soil is expected to increase the surface area used for agriculture. Indeed, out of 42m ha of agricultural land, Algeria exploits only around 8.5m ha. Sector operators are increasingly demanding and adopting modern equipment and machinery, most of which Algeria imports. However, in-country manufacturing is slowly beginning to take off.

A joint venture between US-based AGCO Massey-Ferguson and the Algerian Enterprise for Tractor Manufacturing (Entreprise Algérienne de Fabrication de Tracteurs Agricoles, ETRAG) saw its first tractor come out of its Constantine factory in late 2012. The company is looking to increase production from a projected 3500 tractors in 2013 to 5000 tractors a year over the next five years. More recently, another joint venture was signed between Agro Industrie, part of the Groupe Kherbouche, and Italian SAME Deutz-Fahr to establish a tractor assembly factory in the north-eastern province of Tlemcen. The first tractors are expected to be delivered in 2014.

FERTILISATION: The rise in agricultural production has also been accompanied by increased demand for fertilisers in recent years. Nevertheless, fertilisation in Algeria remains relatively low, with only an estimated 7% of agricultural land being fertilised. This is, however, seen as an opportunity to develop organic farming (see analysis). A focus on the quality of produce is also encouraging more farmers to opt for certified seeds. The country is still dependent on imports in this area but is slowly shifting to developing organic seeds locally. In April 2013, for example, the Algerian Cereal Office (Office Algérien Interprofessionnel des Cereals, OAIC) signed an agreement with Axereal, a French firm specialising in grain trade, to establish a joint venture in Algeria to produce seeds. In addition to all this, the country is modernising its irrigation system under a water-saving programme (Programme Nationale de l’É- conomie de l’Eau 2010-14) to extend the surface of irrigated land from 900,000 ha to 1.6m ha by 2014.

RURAL DEVELOPMENT: Rural Development Projects (Projet de Proximité de Développement Rural Intégré, PPDRI) were launched in 2009 as part of the rural development programme under the PRAR, which aims to improve living conditions of rural households and preserve natural resources. By the end of 2012, 8257 PPDRIs had been approved, benefitting up to 5.4m people. The goal is to exceed 12,000 projects by 2014.

Improved access to land, credit, water and electricity has also significantly contributed to development in the wilayas (provinces) of the south, which, in 2012, contributed 18.3% of local agricultural production. The objective is to bring the contribution of these wilayas to 30% over the medium term.

A complementary three-year programme (2012-14) was therefore launched to develop agriculture in the south of the country, generate up to 115,000 jobs and extend irrigated surfaces by a total of 385,538 ha. In 2012, AD3bn (€27.6m) was mobilised by the Ministry of Water Resources to develop irrigation in the south while the South Development Fund (Fonds du Developpement du Sud) mobilised AD6bn (€55.2m) for drilling wells. The Ministry of Agriculture and Rural Development and the Ministry of Water Resources are devising three programmes to develop Saharan agriculture in 10 southern wilayas.

The first will focus on the planning and the preservation of Saharan land and will include the construction of wells to provide water for livestock and building units to supply animal feed. The second focuses on the preservation and development of oasis agriculture, which is expected to include the rehabilitation of the traditional irrigation system in oases (Foggara). The last programme will focus on developing new farms. The aim is to boost local production and meet the needs of the processing industry. However, this will require further extension of irrigation systems and electricity resources to meet its full potential.

Overall, however, the government’s efforts are starting to generate results. M'hamed Metidji, the general manager of Metidji Holding, told OBG, “The impact of the government’s agricultural policies has begun to show. Irrigation is seen in an increasing number of places, although the need for more remains strong, and modest bank financing is allowing for more modern farming techniques.”

CEREALS: Local cereal production increased from 4.24m tonnes in 2011 to 5.12m tonnes in 2012. Thanks to incentives introduced under the PRAR since 2008, especially better access to land and credit, cereal production is up from an annual average of 2.9m tonnes between 2000 and 2008. This increase can also be attributed to significant attempts to modernise production methods as well as the quality of produce. Recent years have witnessed rising demand from farmers for certified seeds, for instance. In early 2013, Abdelouahab Derméche, general manager of OAIC, the public grain regulator, claimed that 50% of land devoted to cereal production was planted using certified seeds.

QUALITY: “Quality is improving as more farmers adopt more modern production techniques and open up to foreign experiences,” Fatiha Sadli, director at the France-based Cam Negoce, told OBG. Efforts deployed by the Cereal Trade Committee (Comité Interprofessionnel des Céréales, CIC), which is currently headed by Mohamed Laid Benamor from private Groupe Benamor, are playing a significant role in the overall organisation of the segment, boosting collaboration among operators and laying the foundation for a competitive environment.

Groupe Benamor has come to play a major role in overseeing the quality of production, particularly to the east of the country where the group was founded. In 2010, the group set up a network for better quality (réseau d’amélioration de la qualité) gathering 26 farmers in the eastern wilayas of Sétif, Mila, Constantine, Guelma and Annaba. Upon evaluation of their produce (mainly durum) in terms of both quantity and quality following the 2010/11 agricultural season, 15 members went on a fact-finding tour to France in early 2012. The trip was organised in collaboration with France Export Céréales, a non-profit body promoting French cereals abroad. The mission allowed Algerian farmers to explore French fields in La Rochelle and exchange experiences with producers there. In early 2013, French farmers took their turn to visit Algerian fields in the east of the country. “We were impressed by the results the farmers had achieved and the extent to which they had incorporated into their own production methods what they discovered in France,” Sadli told OBG.

Encouraged by the improved crop yields, the network’s members grew to 44 farmers in the 2011/12 agriculture campaign, and production subsequently increased y-o-y by 80%, exceeding 6817.4 tonnes. To accommodate this rising production, the OAIC is expanding its storage capacity, which has long been an impediment to growth despite the fact that private operators in the processing industry also provide storage space. The OAIC has plans to install 39 new silos with a total storage capacity of 820,000 tonnes, financed thanks to an AD48bn (€441.6m) loan from the BADR.

PRODUCTION: Enhanced production in 2012 resulted in lower imports, with the value of imported wheat and durum declining from $2.85bn in 2011 to $2.11bn in 2012. In terms of volume, Algeria imported 6.29m tonnes of wheat and durum in 2012, down from 7.45m tonnes in 2011, showing a y-o-y decline of 15.5%. The country’s cereals demands are estimated at some 8m tonnes a year. While durum has traditionally been the main variety to prosper on Algerian fields, the production of wheat remains underexploited, although it is slowly progressing. Wheat imports in 2012 totalled 4.71m tonnes, at a cost of $1.45bn, as compared to durum imports of 1.5m tonnes, equal to $655m. However, higher yields of wheat and barley are expected in 2013 thanks to considerable rainfall during the year.

In the first five months of 2013, imports of wheat and durum continued to decline, falling from 2.58m tonnes a year earlier to 2.45m tonnes, a y-o-y decline of 5.22% according to statistics from the national press agency. Nevertheless, driven by higher wheat costs, the value of imported cereals for that same period increased from $841.8m in 2012 to $913.3m in 2013. This stresses the need to develop local output in the face of global price volatility and the decline in cereals production in major producer states in recent years.

MILK: Dairy production is one of the main segments the country has sought to modernise since 2008, and production has significantly improved, rising from an average of 173.2m litres between 2003 and 2008 to 3.08bn litres in the 2011/12 agricultural season. Milk production has seen sustained growth in the past four years, rising from 200m litres in 2008 to 700m litres in 2012. This can be seen as a result of government efforts to reduce imports of powdered milk to meet consumers’ needs, which is estimated at around 3.3bn litres annually, but also a result of enhanced collaboration in the segment as part of plans to modernise the sector.

“In Algeria, the predominant format of milk consumption is subsidised pasteurised milk, a product processed from milk powder and water,” Dirk Laeremans, managing director of Promasidor El Djazair, told OBG.

While a number of foreign firms, notably Danone and Lactilis, have been present in the country for years, Algeria is looking at further collaboration to allow the sector to achieve its full potential. A collaboration agreement was signed in May 2013 between the Ministry of Agriculture and the Dutch Ministry of Economic Affairs to provide a pilot dairy farm in Mekhancha with technical assistance. The programme will last three years and will contribute to the modernisation of existing dairy farms. Algeria will spend AD167m (€1.54m) on the project, while its Dutch counterpart will contribute €550,000. Further collaboration is expected to raise production to 3.6bn litres a year in the next seven to 10 years. This would require doubling the number of milking cows to 600,000 and developing animal feed.

Better linkages between producers and buyers would also help to further the segment’s development, according to Jean-Yves Broussy, the general manager of Danone Algeria. “While the quality and capacity of Algeria's dairy production has consistently risen since the start of the millennium, associations with industrial buyers are now needed to help farms develop into sustainable and competitive players,” Broussy told OBG.

MEAT & ANIMAL FEED: Algeria produced 440,000 tonnes of red meat and 360,000 tonnes of white meat during 2011/12, up from 420,000 tonnes and 336,000 tonnes, respectively, in the previous season. Although local production has improved, market prices – for red meat in particular – remain high. This is mainly due to the high costs of importing meat but also high production costs related to animal feed, of which imported corn and soya constitute two main ingredients. In 2012, Algeria imported 3m tonnes of corn, amounting to $951m, and 900,000 tonnes of soya, at a cost of $471m.

The global rise in the price of these two main crops in the summer of 2012 prompted the government to cut Customs duties and VAT on imports in September. While this policy was originally scheduled to last until August 2013, the government recently announced it would maintain these measures for another year in the face of rising costs for white meat. A programme to boost production of corn has been in place since 2010, and efforts are being made, particularly in the south of the country, to increase the production of these two crops.

FRUIT & VEGETABLES: Local production of fruit and vegetables has considerably improved in the last five years. The production of cash crops reached 10.4m tonnes in 2011/12, up from 9.4m tonnes in 2011 and 7.2m tonnes in 2009. Better sector organisation and the development of individual segments overseen by the trade committees, notably for tomatoes and potatoes, have contributed to significantly increased production in these particular segments. Indeed, 4.22m tonnes of potatoes were produced in 2011/12, up from 3.84m tonnes in 2011 and 2.2m tonnes in 2008. In fact, potato production exceeded the projected target of 4m tonnes set for 2014. The rise in production in 2012 led to speculation among farmers in the first quarter of 2013 that they would not be able to sell all their produce and this would consequently drive prices down. While in April 2012, the price per 1 kg of potatoes ranged between AD60 (€0.55) and AD100 (€0.92), in April 2013, the price per 1 kg on bulk markets fell to as low as AD15 (€0.14).

“Trade committees need to take on a more active role in regulating production,” Djamel Barchiche, communication adviser at the Ministry of Agriculture, told OBG. “There needs to be a mechanism to absorb excess and avoid prices from falling too low, thus discouraging farmers.” Authorities are currently seeking solutions by expanding storage capacity and encouraging collaboration with agro-industry to absorb any excess as potato production in 2013 is expected to rise 15% y-o-y.

AGRIBUSINESS: Agro-industry is the second biggest industrial contributor to GDP after hydrocarbons, accounting for around 33% of the industrial sector’s added value. The sector has undergone some significant privatisations since 2007, particularly in the sugar and vegetable oil segments. Incentives introduced under the PRAR have also stimulated investment and competition in these two areas as well as in milling, breweries and dairy farms. With local agricultural production on the rise, operators stressed the need to boost collaboration between agricultural production and the food processing industry, at a seminar held by the Forum des Chefs d’Entreprises (FCE) in April 2013 to discuss food security in Algeria.

One of the suggestions made by Benamor, who is also president of the CIC, following this meeting consisted of encouraging collaboration between the processing industry and members of the “Club 50” (farmers producing more than 5 tonnes of cereals per ha) by forming integrated agribusiness poles (pôles agricoles inté- grés). In fact, some major Algerian agro-industrial players are already actively engaged in agricultural production. Groupe Cevital, for instance, is in the process of acquiring land from the government to develop a sunflower project to produce both oil and animal feed. Groupe Benamor is already producing tomatoes, garlic and carrots in the wilaya of M’sila.

While such collaboration is expected to help modernise and boost local production, it should also allow the processing industry to make greater use of the local availability of raw materials rather than rely on imports as it currently does. Enhanced collaboration between farmers and the processing industry will also allow absorption of any excess in production and potentially build export capacities. Nevertheless, this is likely to prove just as challenging for Algeria as it has been for its regional neighbours. “One of the biggest challenges currently facing the regional agribusiness sector is finding international export markets for food products,” Laeremans, of Promasidor El Djazair, told OBG. Certification on food products is difficult to obtain, particularly for exports to the EU, Algeria’s main trading partner. However, rising purchasing powers and changing consumption patterns within the Maghreb region, as well as the rest of the African continent, offer considerable potential.

OUTLOOK: Domestic agricultural production is expected to continue growing thanks to increased support from the state as part of broader ambitions to modernise the sector and meet 70% of the country’s food needs by 2014. On the one hand, such growth will need strategic planning of production to allow the country to meet its objectives, particularly in critical segments such as cereals and milk. On the other hand, the industry must prepare to absorb excess production by expanding its storage capacity and enhancing synergies between farmers and the local processing industry.