New measures expected to incentivise investment and grow Tunisia's agricultural sector

Agriculture in Tunisia mostly consists of olive oil, cereals, dates, fruits and vegetables. In recent years efforts to modernise the sector have steered it towards the development of an agri-business industry and away from traditional, small family farms.

However, the sector still has to deal with several challenges, including land fragmentation, which contributes to poor access to credit; a considerable technology gap; along with climatic fluctuation and weak irrigation infrastructure, leading to low productivity. Given its export potential, most remarkably for olive oil, the sector has been made a key priority for the government, as exemplified by recent laws that comprise a series of measures to boost agriculture investment.

Sector Contribution

Agriculture plays an important role in the Tunisian economy. Together with fishery, it accounted for 9.1% of GDP in 2016, generating TD8.2bn (€3.1bn), increasing by 0.18% on 2015. Challenging environmental conditions were partly responsible for the low GDP growth recorded in 2016, however improvements were expected for the following year. Indeed, according to the latest data available from the National Institute of Statistics (Institut National de la Statistique, INS), the agriculture and fisheries sector’s contribution to GDP grew by approximately 8% year-on-year (y-o-y) in the first three quarters of 2017, from TD6.1bn (€2.3bn) to TD6.6bn (€2.5bn). In terms of contribution to employment in the country, the sector represented 14.5% of total jobs in 2017.

Output

Arable land in Tunisia makes up 65% of the national territory, or 10.5m ha, of which 5.3m ha is cultivated. These lands are spread between three natural zones, allowing for a diverse agricultural base: the water-rich areas of the north account for the majority of production of fresh fruits and vegetables, while olive trees dominate the dry central region and Sahel coast, and date palms are found in the south. Tree crops occupy the largest share of land, covering 2.3m ha in 2015, according to the INS, including more than 1.5m ha allocated for olives. Meanwhile, some 1.2m ha of land was allocated for cereals.

In 2016 a total of 468,440 ha of land was irrigated. Of that, 41% was located in the northern area and irrigated mainly through dams, 38% in the central region with renewable groundwater and 21% in the south with mostly fossil groundwater. As a result of low levels of irrigation, agriculture in Tunisia depends heavily on rainfall, which means that production can vary significantly from one year to the next.

Partly due to drought, the 2016/17 season started with lower-than-average output, though by the end of the season cereal harvest was up 24.4% on 2015/16, hitting 1.6m tonnes, and citrus production reached an all-time high of 560,000 tonnes. While production of olive oil contracted by 55% over the same season, the 2017/18 harvest is predicted to be more fruitful; output is forecast to rise by 20% to 30% on 2016/17 figures. Similarly, the production of dates is also expected to see an increase in 2017/18, of 26% on the previous season.

Investment

Agriculture benefitted from TD693.8m (€266.4m) of approved investment in 2017, according to the Agriculture Investment Promotion Agency (Agence de Promotion des Investissements Agricoles, APIA), the public body overseeing sector investment. This represented a decline of 5.8% compared to 2016, which APIA explained was caused by the transitory period following the implementation of the 2016 Investment Law. Time may therefore be required for stakeholders to become familiar with the new legal provisions that will impact the way they conduct business in the agricultural sector.

Foreign investment followed the same trend, dropping by 46.8% on 2016 figures to stand at TD5.7m (€2.2m) by the end of December 2017. Investments were largely allocated to existing projects, rather than new ones. In light of the slowdown, the government is working on innovative methods to attract investors. “We are looking to incentivise investment in the sector to help modernise it, in part through the setting up of an accompanying instrument, as well as the establishment of a public-private partnership, for strategic investors and youth,” Abderrahman Chaffai, director-general of APIA, told OBG. Early effects of the government’s efforts to promote investment were felt at the start of 2018, as the agriculture sector saw a 38.4% y-o-y increase in the value of declared investment in January.

Incentives

The 2016 Investment Law, which came into force in April 2017, includes several fiscal incentives in favour of the agriculture sector. Most notably, the law stipulates that agriculture investors be exempt from corporate tax, as well as taxes on income and profit that originate from direct investment in the sector, for 10 years, after which only one-third of those financial inflows shall be subject to taxation.

In the same vein, the 2018 Finance Law further supports investment in the sector, helping reduce, for instance, production costs through the suspension of Customs duties for certain agriculture inputs, such as mineral salt and food additives. This law, however, in an attempt to curb an expanding budget deficit, has introduced new measures to reduce public spending.

“According to the 2018 Finance Law, all products derived from flour will have 10% more consumption duties, even if they are produced locally and sold in Tunisian dinars,” Karim Gahbiche, CEO of Céréalis, a Portuguese food producer and milling company, told OBG. “Although this measure was meant to counter the flour subsidy, industries are now overcompensating and paying more than the real market price for flour.”

Trade

For the last two decades Tunisia has been a net importer of agricultural products. The total value of exports from the sector, including agri-food, stood at TD3.3bn (€1.3bn) in 2017, up 18.1% on 2016. Meanwhile, the value of imports grew by 19.8% over the same period to TD4.7bn (€1.8bn). This put the overall food trade balance for 2017 in a deficit of TD1.4bn (€537.6m), 25.9% higher than the previous year. The coverage rate stood at 70.9%, down 0.9 percentage points as a result of a rise in imports.

In 2017 Tunisia’s chief food import was cereals, worth TD1.8bn (€691.1m), of which 57% was attributable to wheat, followed by sugar with TD683m (€262.3m) and vegetable oils at TD633m (€243.1m).

The country’s main agricultural exports for 2017 included olive oil, which stood at TD1bn (€384m); dates, at TD558m (€214.3m); seafood, worth TD357m (€137.1m); tomatoes, at TD59m (€22.7m); and citrus, which totalled TD21m (€8.1m).

Driven largely by olive oil exports, early figures for 2018 looked promising, registering a positive food trade balance of TD268m (€103m) by the end of February 2018, compared to the TD295m (€113m) deficit recorded in the same period of 2017.

Cereals

Historically considered the breadbasket of the Roman Empire, today Tunisia mostly depends on imports for its cereal needs. With monthly consumption clocking in at 98,000 tonnes of wheat, 95,000 tonnes of durum and 65,000 tonnes of barley, it is the world’s third-largest cereal consumer per capita. However, local production meets just 70% of domestic demand in durum, 40% in barley and 15% in wheat. Local production for the 2016/17 season reached 1.6m tonnes, including 1.1m tonnes of wheat and 476,000 tonnes of barley, an increase of 24.4% on the previous season.

Despite the strategic role of the cereal industry in Tunisia’s food sector, the industry deals with a number of challenges, among which is a lack of irrigation – only 77,600 ha of land cultivated for cereals is irrigated – and a poor grasp of irrigation techniques, as well as a shortage of equipment and competition with other crops. In late December 2017 a study by the Institut Tunisien des Etudes Stratégiques, in collaboration with the UN World Food Programme, found that the low yield in cereals was also a result of the poor quality of land and inputs, and ranked Tunisia 120th out of 191 countries in terms of cereal production.

Olive Oil

As one of the world’s largest producers and exporters of olive oil, Tunisia has been placing increasing importance on this segment in recent years, not least due to its economic, social and environmental relevance; olive oil accounts for 30% of Tunisia’s total food exports, supports 1m individuals and protects soils from desertification. The sector comprises 309,000 producers, or 65% of all farmers; 1750 oil presses, with a capacity of 43,680 tonnes per day; 15 oil-refining units; and 14 extraction plants.

The production of olive oil is dependent on 80m trees, 30% of which are located in the north, 45% in the central region and 25% in the south. After hitting a record high of 310,000 tonnes of olive oil exports in 2015, the drought in 2016 saw output drop to 112,700 tonnes, substantially below the 2006-16 average of 180,000 tonnes. According to the December 2017 bulletin of the National Office of Oil, olive oil exports for that year decreased further to 102,800 tonnes.

Productivity remains a concern, according to Mohamed Mahjoub, manager at farming corporation Sadira. “In the regions where olives are planted, there is low productivity. Tunisia has one of the world’s lowest agricultural productivity rates for olives. The soil is poor and there is not enough water, especially with the last few years of drought,” he told OBG.

To boost production, government authorities launched a $19m programme in 2016, with the objective of planting an additional 5m olive trees by 2020, raising average annual output to 250,000 tonnes of olive oil.

On average, 80% of olive oil is exported and 20% is consumed locally. Some 90% of exports are sold in bulk, with the remainder packaged in glass bottles and metallic tins. Historically, Europe is the largest importer of Tunisian olive oil, making up about 70% of the market – Italy imports 42% and Spain 26% – followed by the US, which imports around 18%. The Tunisian olive oil industry benefits from trade agreements with both Europe and the US, with the former allowing Tunisia to export 91,700 tonnes of oil duty free to Europe annually, and the latter granting preferential access to olive oil shipped from Tunisia under the US Generalised System of Preferences programme.

Furthermore, Europe and Tunisia are looking to strengthen their trade relationships through ongoing negotiations for a Deep and Comprehensive Free Trade Agreement, the outcome of which is likely to ensure at least the retention of the duty-free allowance.

Access to Finance

Notwithstanding the support for investment and trade in the agricultural industry, the sector faces certain challenges stemming its development. Access to credit, in particular, represents a major hurdle, with just 7% of Tunisian farmers having access to bank loans, not least because of the difficulties faced by the sector, including output variability, and weak profit margins on the back of rising production costs and mandated price ceilings. The Initiative pour la Promotion des Filières Agricoles, carried out by the German international development agency, GIZ, for the 2015-19 period aims to develop a new approach to financing small and medium-sized enterprises. The approach is based on a new tripartite funding model created in partnership with the National Agricultural Bank (Banque Nationale Agricole, BNA); the micro-finance subsidiary of Islamic bank Banque Zitouna, Zitouna Tamkeen; and local bank Taysir Microfinance.

Agro-Industry

The agri-business industry accounts for 3% of Tunisia’s GDP and 14% of value added in the industrial sector. It comprises 1086 companies, 20% of which are exporters, and generates 80,000 jobs . The industry has been growing over the years, boosted by changes in consumption habits towards processed products over fresh ones and higher purchasing power.

The food retail subsector has benefitted from the development of modern distribution outlets in joint ventures with mostly French foreign investors, such as Carrefour and Casino. However, the sector industry is characterised by a lack of integration, which impacts end-consumer prices, exacerbated by creeping inflation that is expected to reach 7.2% in 2018.

Furthermore, irregular access to raw materials, which depend on rain-fed agriculture, limits opportunities for firms to expand their business internationally and makes it more difficult to forecast output.

To overcome these obstacles, several stakeholders are looking to promote vertical integration, as illustrated by the cluster approach to sector financing currently being developed by GIZ, the BNA, Zitouna Tamkeen and Taysir Microfinance, with the goal of boosting output and promoting collaboration between subsectors at the regional level.

Outlook

Strategic segments such as olive oil and cereals are still heavily reliant on rainfall, which threatens the sector’s objectives in terms of output and clouds visibility of long-term development plans. In the face of increasingly constrained public funding, the government has chosen to lay the groundwork for attracting further private investment to help modernise the sector, with raising access to irrigated water one of the top priorities in the Tunisia 2020 strategy. The government’s commitment to tackle upcoming challenges, including climatic hazards and desertification, will be key to the sustainable growth of Tunisia’s agriculture.