The government is spending heavily to boost local production

Once mainstays of the Omani economy, agriculture and fishing still play a vital role in the broader national development trajectory. In a country that imports vast quantities of its food supplies, a thriving agriculture and fisheries sector helps ensure food security and economic diversification. Furthermore, the sector is still a major source of employment in Oman’s rural areas. The total production of crops and aquaculture has been increasing over the last decade, driven in part by a national strategy to expand the industries and to develop robust supply chains.

The Ministry of Agriculture and Fisheries (MoAF) conducted an Agricultural Census for 2012-13 to supply policy planners and other industry participants with critical data on the sector. The results, announced in April 2014, highlighted positive growth across all economic indicators for agriculture and fisheries. The government has also partnered with the private sector to develop food-processing facilities that add value to produce within the country and strengthen Oman’s status as an industrial base within the region.

Cultivating Growth

While growth has been positive, further developing agriculture and fisheries will require overcoming a number of critical challenges. Water resource management is perhaps the single biggest challenge. Crop production is almost entirely dependent on drawing ground water, which in turn leads to a declining water table and seawater intrusion. Increasing levels of salinity in Oman’s freshwater resources, particularly near the coast, has left a significant amount of land unsuitable for agriculture. Fishing practices also risk depleting stock due to over-exploitation. Despite these challenges, however, Oman’s agriculture and fisheries sector is poised for continued growth and is likely to remain an attractive sector for investment going forward.

The Landscape

According to the UN Food and Agriculture Organisation (FAO), Oman has a landmass of 30.95m ha. However, the total cultivable land is limited due to the country’s arid desert landscape. The FAO’s country programming framework notes that mountains and deserts account for almost 97% of Oman’s total landmass. The remaining 3% consists of coastal plains in Batinah and Salalah and interior plains near the border with the UAE.

Soil surveys carried out by the FAO and the MoAF note that only 1.77m ha, or an estimated 5.7% of the landmass, is suitable for agricultural production though only 355,000 acres is currently being cultivated, up from 324,000 acres in 2005, according to the MoAF. The coastal plains of Batinah in the north and Salalah in the south are Oman’s most productive agricultural zones. According to the FAO, Batinah alone produces almost 60% of Oman’s total agricultural output. Seasonal water flows in these regions allow for adequate irrigation, though soil fertility, land degradation, a loss of biodiversity and desertification pose a significant SECTOR STRUCTURE: Land holdings play an important role in shaping the agriculture sector. Due to the longstanding tradition of family-owned-and-operated farms in Oman, agricultural land generally consists of smallholder farms. According to the MoAF, there are over 157,000 farm holdings, of which almost 90% are less than 5 acres in size occupying roughly a third of the total cultivated land. Only 1% of the land holdings are more than 20 acres in size, constituting approximately a third of total cultivated land. Data from the ministry shows that there were over 255,500 Omanis working on farms in 2012, of which 237,000 were landowners and 18,500 were not. This represents a 50% increase over the number of local workers on farms in 2005, according to the MoAF.

The majority of land under cultivation is used to grow fruits trees, which occupy an estimated 58% of the total, according to the FAO. Date palms are by the far the largest agricultural output, occupying nearly half of the total cultivated area, followed by fodders, which accounted for 25%, and field crops and vegetables, which made up some 9 and 8% of cultivated land, respectively. The latest data from the FAO shows that wheat production in 2011 declined marginally over the previous year, dropping from 2286 tonnes in 2010 to 2126 tonnes in 2011. The production of fruits and vegetables has also dipped slightly, going from 362,000 tonnes of fruit and 202,000 tonnes of vegetables in 2011 to 351,000 tonnes and 193,000 tonnes in 2012, respectively.

In addition to agricultural land, Oman also has large grazing lands that serve to house and feed livestock. These rangelands comprise almost 41m acres of land, providing an estimated 67% of animal feed for livestock. The rangelands play an important role in the local ecology, but are also facing the strain of land degradation, rapid urbanisation and desertification.

Sector Output

The MoAF’s 2013 annual report indicates that the total agricultural output between 2012 and 2013 increased from 1.3m tonnes to 1.4m tonnes over the year. Growth in the sector, however, slowed down marginally compared with the previous year, going from 9% in 2012 to 8.6% in 2013. Despite this dip, the contribution made by agriculture and fisheries to the national economy rose slightly over the period from 1.3% of GDP in 2013 compared with 1.2% the previous year. It is not clear if the pace of growth will enable the country to meet its objectives under the national Vision 2020 strategy, which targets average annual growth in agriculture and fisheries above 4.5%, with the sector contributing 3.1% of GDP by 2020. According to the MoAF, the annual growth for the agriculture and fisheries sectors averaged some 8.5% during the 2009-13 period and contributed approximately OR462m ($1.2bn) to the nation’s total GDP in 2012. This represented a 28% increase over 2009 figures, when output reached some OR362m ($937m). Government statistics indicate that livestock production has also grown over the last decade. The number of sheep and cows rose from 643,000 in 2000 to over 750,000 in 2012.

Processing

New investments are helping secure access to produce and agricultural products and are thus supporting the development of the food processing industry. In 2013, for example, the Oman Sugar Refinery Company announced a $200m sugar processing plant in Sohar. When fully operational, the plant will have an annual capacity of an estimated 1m tonnes. This output is of particular importance in Oman as the country currently imports its entire demand of 120,000 tonnes of sugar each year. As well as satisfying domestic demand, nearby storage and port facilities will enhance export opportunities. "Supply chain management is critical for the sector, with warehousing and silos at the core of the value chain,” Saleh Mohammed Al Shanfari, chairman of A'Saffa Foods, told OBG. “From here we are able to effectively store and transport food all over the country." FISHERIES: Fish production has seen steep growth in recent years, increasing by 21% from an estimated 158,000 tonnes of fish landed in 2011 to 191,000 tonnes in 2012, according to the MoAF. Traditional fishing dominated production, with commercial fishing accounting for only 2000 tonnes of fish landed in 2012. Revenue was estimated at OR142m ($368m) in 2012, compared to OR362m ($937m) in 2009.

A significant proportion of the fish caught locally was exported to markets in neighbouring GCC countries. According to the MoAF, approximately 72,000 tonnes of the annual catch was exported in 2012, generating revenues of over OR55.8m ($144.5m).

The sector is also a major employer of Omani nationals. MoAF figures show there were over 42,500 fishermen in 2012, representing significant growth over 2011. The government issued 3100 new fishing licences in 2012 and renewed 6920. The increase in issuance comes on the back of multibillion-dollar government investments to improve infrastructure and to boost output in the sector. The state is also actively boosting fishing as it represents a national heritage, with measures including subsidies to support over 2770 fishermen across the country to buy over 3690 fishing boats and related equipment.

Public Sector Investments

The government has been working to develop the agricultural and fisheries sector. For example, in 2013 the authorities allocated a multibillion-dollar fund to finance a number of initiatives to expand the production of fish in the country. With an eye on exports as well as local processing, a large proportion of the investment targeted developing port and processing facilities. There are also a number of major infrastructure initiatives under way that will support growth in the fisheries sector, including an improved airport, a stronger road and rail transport network, and other related developments. Building this core infrastructure system is likely to further catalyse investment.

Planned Spending

In 2011 the government announced funding for projects approved under the eighth five-year development plan for 2011-15. The strategy’s broader goals are to maintain an economic growth rate of at least 3% by strengthening the nation’s non-oil sectors and diversifying the economy. According to the national economy minister, OR5.6bn ($14.5bn) of new funding was approved for new projects, while an estimated OR6.4bn ($16.6bn) worth of projects would carry forward from the seventh development plan, resulting total spending of over OR12bn ($31bn) for the period.

The plan outlined specific projects to support the development of the agriculture and fisheries sector. Over OR25m ($64.7m) was allocated to developing marine fishing ports in Barka, Al Musanah, Muhout, Sadah and Al Shuiymiah; OR9.6m ($24.8m) went to infrastructure to improve production at fisheries; and OR8.6m ($22.3m) to establish processing and marketing facilities across a number of fishing regions.

The plan also outlined expenditure for specific projects to support the agriculture sector, with a particular focus on strengthening economic output from cultivating date palms trees. The budget comprised OR8.4m ($21.8m) to develop integrated management processes and systems for date palm tree pests, OR4.4m ($11.4m) for immunisation of animals, as well as OR3.2m ($8.3m) to roll out a national strategy to develop date palm trees. Several indirect investments also support the sector, including OR12.8m ($33m) to construct central markets and sheds.

In addition, broader investments in roads, airports and seaports also provide critical infrastructure required for the agriculture and fisheries sector. Completing Muscat International Airport and Salalah Airport was estimated to cost someOR468m ($1.2bn) in addition to the OR1.9bn ($4.9bn) spent on the works already. Regional airports in Sohar, Adam, Ras Al Hadd and Al Duqm were allocated another OR184m ($476.4m), while over OR500m ($1.3bn) was given over to develop seaports, including major projects in the Al Halaniyat Islands, Al Duqm and Salalah.

Fisheries Strategies

In 2013 the government embarked on an undertaking to accelerate the development of the fisheries sector under the National Fisheries Development Strategy 2013-20. Investments of over $1.3bn were apportioned for the fisheries sector with the goal of boosting domestic employment and increasing the sector’s contribution to GDP. According to the MoAF, a core objective of the strategy will be to more than double the output from the sector to more than 480,000 tonnes by 2020 and to generate an estimated 20,000 jobs. The impact of new fishing and processing is estimated to total over OR740m ($1.9bn) by 2020.

The strategy marks a major step towards developing a foundation for growth in the industry and, more importantly, towards attracting and catalysing private sector participation. The investments pledged to cover the agenda are in addition to funds allocated under the eighth national development plan and will help create a fisheries industry that will ensure adequate supply for local markets while also spurring growth in fish exports, which totalled an estimated $144m in 2012, according the MoAF. The core thrust of the investments will be to add to the existing financing to develop ports and processing facilities, expand fishing fleets and fish markets, undertake value addition activities and support the growth of an aquaculture sector across the country. According to the MoAF, there will be a total of 31 fishing ports across Oman by 2020, up from 21 currently.

Al Duqm Fisheries Industrial Zone

An Integrated Fisheries Industrial Zone in Al Duqm will be one of the landmark projects under the strategy. The $250m industrial park is being structured as a special economic zone (SEZ) that will be located on a sprawling 8-sq-km area. The SEZ will eventually include a major fisheries port, processing plants, cold storage facilities, training centres and laboratories to test product quality. When completed the facility will be the largest processing plant in the Middle East, according to the MoAF. The SEZ is a major investment and is expected to spur growth in Wusta – one of Oman’s poorest regions. The docking facilities at the port will enable both large ocean-going fishing ships to berth, as well as smaller fishing vessels.

Work on the port and some aspects of the industrial zone has started and certain facilities are already operational. Construction of the port is expected to be completed by 2016, according to the Duqm Ports Authority. However, construction of the processing facilities is yet to commence. The MoAF reports that construction and development projects will be tendered once the fisheries port is in full swing because the processing plant will depend on the port for bringing in the catch and for exporting finished products.

The government expects to partner with public and private entities to build and operate various processing and marketing facilities, offering long-term land leases, tax breaks, and duty benefits to incentivise investments. The SEZ is likely to be an attractive project for investors because the port, located on Oman’s eastern coast, will offer access to massive markets in Asia and in East Africa. Future plans are also expected to connect facilities at the industrial zone to local and regional markets via road, sea, air and rail.

Developing Local Aquaculture

The Oman Fisheries Company (OFC) has already announced plans to build a processing plant at Al Duqm. The facility will have capacity to process 35 tonnes of fish per day when it is completed. OFC is building a similar plant at Barka and has facilities close to completion in Salalah and Soqrah. OFC is a publicly traded company, in which the MoAF has a significant stake. OFC posted revenues of over OR26m ($67.3m) in 2012. In addition to the plants, OFC is in the process of expanding its fishing fleets. In mid-2013 OFC secured licences from the government to add 24 ships to its fleet with plans of adding up to 100 vessels in the future.

In March 2014 the MoAF reported it had issued licences for 19 aquaculture projects, out of 31 submitted bids. The investment represented by these projects, which included shrimp, fish and lobster farms, totalled nearly OR129m ($334m), according to the ministry. One project that has received final approval is the Qurun Aquapolis, which has started planning for construction. The project is a joint venture between Arabian Marine Development, Bank Sohar and Lim Shrimp Company of Singapore. China Wuyi has been selected as the lead contractor with the goal of completing construction in 2016.

The group will invest $130m in the project, which includes feeding facilities, a processing plant, cold storage and a desalination plant. Total output is set to comprise some 4000 tonnes of Indian shrimp, 1000 tonnes of sea cucumber and up to 1000 tonnes of black tiger shrimp, according to project press releases. According to Lim Shrimp Company, there is tremendous demand for this output – a Japanese firm has submitted a bid to purchase the entire supply of Indian shrimp – but the project will seek to supply the local market before looking to exports.

Another project that has received operational licensing is a joint venture between an Omani company and two aquaculture firms from Thailand and New Zealand. The combined investment is worth $233m and comprises two ponds, one to produce sea bass and the other farming shrimp. The latter operation will produce some 3000 tonnes of shrimp.

A major regional investment fund that is financed by via private and public sources has also allocated $80m for an aquaculture farm. Originally slated to be a private fund established by Dubai’s Emirates Star Fisheries, the Food Security Growth Fund received strong interest from government, sovereign funds and highnet-worth individuals. When completed, the farm is expected to produce 13,000 tonnes of fish each year, with most of the output expected to be shrimp. The executive director of Emirates Star Fisheries, Prathapa Chandra Shetty, stated that the project expects to start producing by 2016 and will scale up to full production by 2018.

Outlook

The economic and social value of developing aquaculture is clear. Shrimp, in particular, has emerged as an attractive and high-value investment, taking advantage of the natural shrimp populations in the waters off the coast of Oman. Investments in this segment can be recouped within three to five years, with returns as high as 30-35%, said Shetty. Furthermore, Oman’s coast is sparsely populated and offers the space for large-scale projects, such as the Port of Duqm and the Fisheries Industrial Zone.

The agriculture sector is well placed to continue expanding and contributing to national output and employment opportunities. While the country is unlikely to be fully self-sufficient for all its needs, maximising production and developing processing facilities will help reduce imports and build domestic industry.