The sector relies on imports of key products despite rising food output

Authorities have made food security a top priority in the last five years, considering Algeria’s growing population, rising consumption and income levels, and its exposure to volatile commodity prices. Food imports increased nearly 65% in the last five years from €4.3bn in 2009 to €7bn in 2013. Food represented 17.5% of total imports in 2013, and its value has continued to rise in 2014.

Algeria’s oil and gas resources have put it on a comfortable financial footing, but the impact of the 2008 financial crisis has made officials increasingly wary of the country’s reliance on food imports. Declining hydrocarbons export revenues in the last two years, combined with continued commodity price volatility in the first half of 2014, have brought renewed focus to Algeria’s goal of providing 70% of its domestic food supply in the near term.

The launch of the Agricultural and Rural Renewal Policy in 2008 has helped to improve market structure, increase mechanisation and irrigation, and expand usage of quality inputs. Officials from the Ministry of Agriculture and Rural Development ( Ministère de l’Agriculture et du Développement Rural, MADR) announced that it plans to invest AD200bn (€1.86bn) annually between 2014 and 2018 in order to meet its food security goals.

Cereals

Increasing domestic output of cereals, particularly for soft wheat used in refined flours, is a pillar of the government’s self-sufficiency programme. Annual production peaked at 6.1m tonnes in 2008/09, but has since averaged around 4. 5m5m tonnes per year. Annual domestic consumption is estimated at 8m tonnes, forcing Algeria to rely on global markets to make up the difference. Algerian cereals output dropped to a five-year low of 4.24m tonnes in the 2010/11 season, coinciding with a Russian wheat export ban imposed after poor weather cut annual production there. The ban caused global prices to spike and pushed Algeria’s cereal imports up 103% year-on-year (y-o-y) to €2.98bn in 2011.

Improved Output

The creation of Algeria’s Interprofessional Cereals Committee (Comité Interprofessionnel des Céréales, CIC) has helped to structure the market and spread the use of best practices. The presence of private industrial firms such as Groupe SIM and Groupe Benamor has also had a significant impact on the market by fronting the cost for quality inputs, spreading the use of certified seeds, and providing access to modern machinery, equipment and training. Demand for certified seeds is on the rise; according to the national grain regulator, the Algerian Interprofessional Cereals Office (Office Algérien Interprofessionnel des Céréales, OAIC), 50% of the land allocated to cereal production is now planted using certified seeds. The MADR estimates that the number of farmers that produce at least 5 tonnes per ha has risen quickly from 16 in 2010 to 173 in 2012 and 279 in 2013.

The OAIC announced that it had distributed some 900 irrigation systems to local farmers in 2014, increasing the irrigated surface area of cereal plantations to 600,000 ha by April 2014. Authorities hope to raise this to 1m ha in the long term. The public sector has also taken on some of the cost of machinery acquisitions; for example, the OAIC acquired 1500 new combine harvesters between 2011 and 2013. In addition, the OAIC announced it would invest AD48bn (€446.4m) in the construction of 39 grain silos nationwide between 2014 and 2016, in an effort to boost domestic storage capacity, increase food stocks and avoid waste.

Weather Concerns

The 2013/14 season was expected to yield near-record production of 6m tonnes, according to the Technical Institute for Field Crops (Institut Technique des Grandes Cultures, ITGC). However, the onset of particularly hot, dry weather in April 2014 slashed annual estimates to a five-year low of 3m tonnes, 35% below 2012/13 production of 4.9m tonnes. Drought conditions have especially impacted the eastern provinces, which contribute a large portion of the national cereal crop. In the first two weeks of June 2014, more than 20 crop fires were reported around the eastern Sétif region, destroying approximately 12 ha of cereals in addition to forage and fruit tree plantations.

Algeria will have to resort to wheat imports to meet domestic demand, and at a time when some traders are concerned that the political crisis in Ukraine and economic sanctions against Russia will push wheat prices higher in the near term. The country imported 3m tonnes of cereals in the first five months of 2014, up 22% y-o-y.

Despite efforts to better structure, equip and fund the cereals segment, Algeria’s cereal production remains extremely vulnerable to weather conditions. As Omar Zaghouane, ITGC director-general, explained, “Algeria is challenged not just by its semi-arid climate, but by the fact that rainfall is inconsistent throughout the season and weather conditions can vary drastically from year to year. In the last decade, no two years have been alike, making it difficult to adapt farming techniques. In the future, efforts to encourage aggregation and expand the strategic irrigated surface area will be crucial to allow producers to overcome this variability.”

Milk Market

Dairy products are another key element of Algeria’s plan to ensure its own food supply. On average, Algerians consume 137 litres of milk per capita, for total consumption of over 5bn litres each year. Much of domestic consumption comes from powdered milk, which is imported by the National Dairy Office and distributed to public and private dairies, or by private industrial groups. Dairies either transform this into UHT milk or repackage it for sale in powdered form; the ministry provides subsidies to keep the price of a one-litre equivalent packet of powdered milk at AD25 (€0.23).

Price volatility on global markets has also prompted Algerian authorities to focus on increasing domestic production of fresh milk in recent years. Imports of powdered milk have risen modestly in volume from about 251,000 tonnes in 2005 to 262,000 tonnes in 2013, according to the national press. However, their value has nearly doubled from €494.7m in 2005 to €786.6m in 2013.

New Zealand produces much of the world’s inputs for powdered milk, and a shortage on the New Zealand market in late 2013, combined with a series of public health scares in China that prompted panic buying, caused powdered milk prices to jump 45% in Algeria between November 2013 and March 2014.

According to the international firm Promasidor, which dominates the domestic market for powdered drinks, prices have stabilised since May 2014. According to Customs data, dairy imports in the first half of 2014 jumped by 88.2% y-o-y to reach €757.2m, up from €403.6m in the same period of 2013.

Supporting Loal Dairies

The creation of trade committees and the structuring effect of private industrial groups such as Soummam, Danone and Lactalis has helped to modernise milk production in the last five years. Algeria produced roughly 3.4bn litres of fresh milk in 2013, of which 24% came from the top four producing provinces: Sétif, Batna, Sidi Bel Abbès and Skikda. Of this, the ministry estimates that roughly 850m litres were collected and channelled into the formal distribution chain. Productivity remains relatively low, at an average of 12 litres per head of cattle; this is due to a number factors, including inefficient production methods, the use of ill-adapted or low-quality animal feed and the small size of the average dairy farm.

Private industrial groups are working to increase their reliance on fresh milk, and their engagement with private producers is helping to strengthen output. For example, agro-industry firms are providing quality animal feed and making machinery available to their network of producers. Soummam estimates that it has distributed over 5500 high-producing dairy cows to its network so far, with a view to use exclusively fresh milk in its products by 2015/16. JeanYves Broussy, director-general of Danone Algérie, told OBG, “On the production side, efforts to support the development of existing farms and increase the number of dairy farms with 500-1000 heads of cattle will help boost national output. On the distribution side, it will be critical to improve the quality collection system in order to maximise the amount of fresh milk that enters the formal value chain.”

Meat

Efforts to streamline the meat industry and refurbish outdated infrastructure will be necessary to reduce Algeria’s particularly high meat prices. The state-owned agro-industry firm SGP Proda is overseeing work to refurbish and expand four abattoirs; a facility in Djelfa was completed in July, and a second is due to open in Mila before 2014 year-end. In addition, the state aims to increase refrigerated logistics and storage space from around 2m cu metres today to 9m cu metres in the long term, including the construction of nine meat collection centres, 11 logistics platforms and 29 new storage facilities.