Morocco invests in agribusiness and improves agricultural efficiency

As the country’s second-largest industrial subsector, agribusiness makes up around 27% of industrial GDP. The sector’s value added stands at around Dh30bn, (€3.26bn), accounting for about 30% of industrial value added. Made up of some 2050 industrial units ( comprised mainly of small and medium-sized companies), agribusiness employs up to 143,000 people, representing 25% of the industrial workforce. Between 2000 and 2011, sector turnover increased by an annual average of 6%. Key growth segments in recent years include processing for cereals, dairy and poultry.

However, the sector remains shy of its potential for several reasons – ranging from competition with the informal sector and imports, to a shortage of inputs and high taxes – which have strained development.

Business Environment

Broadly speaking, the business climate in Morocco remains exposed to a number of the same concerns that have troubled global economies in recent years, notably the lingering effects of the crisis in the EU, the kingdom’s largest trade partner. On the domestic front, the sector was affected by the lack of liquidity resulting from a tighter grip over financial lending, affecting capital spending as well as household purchasing power. Although annual average inflation has not exceeded 3.9% since 2000, household consumption remains on a decelerating trend, growing 2.7% in 2014, down from 3.7% in 2013, according to figures from the High Planning Commission.

Trading

Agribusiness output is mostly destined for the domestic market, with exported goods accounting for 12% of total industrial exports. While they’ve increased in value, volumes have remained more or less constant over the past decade. “The Green Morocco Plan [Plan Maroc Vert, PMV] has allowed the sector to develop a diverse range of exportable goods, both in terms of quantity and quality,” Jamaa Hakim, head of studies, legal affairs and communication at the Ministry of Foreign Trade, told OBG. “The challenge that lies ahead now is to make these goods eligible for export, develop appropriate logistics for produce destined for our traditional trade partners and other potential markets, and devise innovative marketing campaigns.”

The tea industry is one area of potential. According to Hamid Raji, director of T-Man Holding, a Casablanca-headquartered group, “The new Finance Law provides a great opportunity for Morocco to capitalise on its long history of tea culture. Instead of only importing, the kingdom can now transform tea, and create a strong brand to export,” he told OBG.

Demand in recent years has been largely affected by the crisis in Europe, exacerbated by rising competition for market share. In 2014 exports of processed foodstuffs rose 8.3% in value compared to 2013, according to preliminary data released by the Office des Changes in 2015, and stood behind auto and electronics exports. Traditionally, canned goods (principally comprising processed fruits, vegetables and seafood) and olive oil have driven Morocco’s processed exports.

New Contract Programme

While the PMV has played a significant role in expanding primary production, processing activities fared less well in comparison. “Moroccan agribusiness is in need of a clear-cut vision and strategy,” Sadek Cherif, director of the National Federation of Agribusiness (Fédération Nationale de l’ Agroalimentaire, FENAGRI), told OBG. To that end, a memorandum of understanding was signed in April 2014 between the Ministry of Agriculture and Fisheries, the Ministry of Industry and FENAGRI to launch a six-month study, expected to lead to the final ratification of the long awaited contract-programme. The study, currently being devised by German consultancy firm Roland Berger, consists in determining a strategy for the development of high-potential segments.

The new contract programme will also review the industrial policies governing agribusiness and evaluate the impact of foreign trade agreements (FTAs) in a bid to boost the sector’s competitiveness on both the domestic and international fronts.

Aggregation

Central to the development of more productive ecosystems in the agroindustry sector is aggregation. “Connecting small- and large-scale producers is key to developing yields, both in terms of quantity and quality, and generating produce in line with the requiremen ts of our food processing industries,” Soufiane Larguet, director of the division of strategy and statistics at the Ministry of Agriculture and Fisheries, told OBG. “Aggregation is undoubtedly an innovative way of making this possible.” Initiated under the PMV, segments that have so far successfully adopted this new operational model include cereals, dairy and sugar. Nevertheless, the overall impact of aggregation remains limited and is difficult to gauge as obstacles related to financing and the regulatory framework governing the system, for instance, still need navigating.

Agricultural Sites

Six agricultural production sites in key regions are being developed to strengthen upstream activities. These platforms aim to attract agribusiness investment by improving access to land and increasing value added through upstream and downstream collaboration. Meknes and Berkane in the north of the country are already operational, both developed by MedZ, a subsidiary of Caisse de Dépôt et de Gestion, a public finance institution managing long-term savings and territorial development.

Two more sites are planned for the interior regions of Tadla and El Haouz, and another two are due to be developed along the Atlantic coast in Agadir and Gharb in the future. Tadla is likely to be the next to open for business and is currently being developed by Sapino, a subsidiary of Moroccan real estate developer ONAPAR, over a surface area covering 208 ha.

The two operational sites of Berkane and Meknes have slowly started to welcome a number of industrial units, with Swiss Elephant Vert being one of the foreign firms to set up shop in Meknes recently. Now operational, its €25m plant aims to produce 50,000 tonnes of bio fertilisers and 120 tonnes of bio pesticides in 2015, mainly for the local market. The firm is also planning to add two more units in each of Berkane and Agadir by 2017, for a total investment of Dh725m (€78.9m).

Challenges

Despite the potential, challenges persist. Agricultural output has surged under the PMV and yet processing industries still face difficulties acquiring inputs. “Only a small share of agricultural output makes it through to processing, as raw goods are mainly traded locally and exported as fresh produce,” Cherif explained. Crop yields also fluctuate based on climatic factors and imports are affected in some cases by changes in Customs duties.

On the domestic front, competition is fierce with international brands flooding the market, exacerbated by the conclusion of FTAs with countries such as Turkey (See Trade & Investment chapter).

The 20% value-added tax to which the sector is currently subjected remains detrimental to the industry’s overall ability to innovate and remain cost-competitive, therefore discouraging processing activities and resulting in the gradual expansion of the informal sector.