Oman's increasing domestic production in agriculture and fisheries to reduce imports

The sultanate has ambitious plans to expand production and capabilities in agriculture and fisheries, building up the sector as a contributor to the economy, a key employer and a source of export earnings. Its strategy is based on concrete developments, including supporting new companies that can boost production of dairy, produce, poultry and meat. Building on millennia of tradition in fishing, Oman is also developing its aquaculture sector, which is seen as a potentially major magnet for investment and a key export earner over the long term. Oman’s Vision 2020 sets the target of raising agriculture’s contribution to GDP to 3.1% by 2020, with annual growth topping 4.5%. It also intends to boost the fishing sector to around 2% of GDP by 2020, with growth of 5.6% per annum. The government has the dual aims of reducing Oman’s dependence on imported agricultural produce and increasing exports where possible.

Counting Up

Oman’s agriculture sector was worth 0.7% of GDP in 2014, according to the National Centre for Statistics and Information (NCSI), totalling OR224.1m ($580.2m), up 7.3% on OR208.9m ($540.8m) in 2013. The sector grew by 4.8% in 2013, following a 2.5% drop in 2012. The Central Bank of Oman (CBO) calculated that the agriculture and fisheries sectors together generated a combined OR406.1m ($1.05bn) in 2014, up 9.4% at current prices from OR371.2m ($961.04m) in 2013, when the sectors grew by a collective 8.7%. The CBO’s current price figures indicate steady and consistent growth over recent years, from OR311.7m ($807m) in 2010.

Public spending on agriculture, forestry and fishing rose 29.8% from OR48m ($124.3m) in 2013 to OR62.3m ($161.3m) in 2014, and almost twice the OR33.2m ($85.9m) allocated in 2010. The rapid increase in expenditure on the sector, even at a time when the sultanate has had other pressures on its budget, is indicative of the importance that the government places on agriculture.

Meanwhile, commercial credit extended to agriculture and related sectors reached OR53.8m ($139.3m) in 2014, up from OR45.6m ($118.05m) the previous year. Accessing private credit is often a challenge for farmers, particularly in emerging markets, so growth is a positive sign of banks’ confidence in the agriculture sector.

The last agriculture census carried out by the Ministry of Agriculture and Fisheries (MAF) for 2012-13 has helped policy planners and researchers, providing data that could underpin long-term strategies for development.

The census found that Oman’s overall livestock herd had increased by 39% since the last survey in 2004-05. It also revealed that the area dedicated to aquaculture ponds rose 479% over the same period, albeit from a relatively low base, from 0.57 ha to 3.28 ha. Vegetable plantations grew by 125% in terms of area, from 4964 ha to 11,159 ha.

Crops, Fruit & Vegetables

Total agricultural production – as classified by the NCSI to include vegetables, fruit, field crops and perennial fodder crops, without livestock or fisheries – reached 1.5m tonnes in 2014, up from 1.3m tonnes in 2013 and 1.2m tonnes in 2012. The largest contribution to production was made by perennial fodder crops with 753,600 tonnes from 19,300 ha, followed by fruit at 404,400 tonnes from 29,700 ha, vegetables with 334,600 tonnes from 12,600 ha and field crops at 22,200 tonnes from 4660 ha.

Production of fruit, vegetables and perennial fodder crops has grown over recent years, while that of field crops has dropped, perhaps reflecting a policy focus on those areas of agriculture in which Oman has competitive advantages. In 2013 production of vegetables reached 236,700 tonnes, fruit totalled 378,700 tonnes, field crops rose to 25,000 tonnes and perennial fodder crops grew to 745,900 tonnes. The respective figures for 2012 were 193,100, 350,600, 46,000 and 658,100 tonnes. The total area under cultivation for agriculture in Oman has fluctuated somewhat in recent years, rising slightly from around 66,000 ha in 2013 to 66,400 ha in 2014, down slightly from a recent peak of 73,200 ha in 2011 and up slightly over the decade from 61,100 ha for both 2005 and 2006. Until 2014, the recent peak of production was 1.5m tonnes in 2010.

National Priority

The development of agriculture and fisheries is a central priority of the Eighth Five-Year Plan, which runs between 2011 and 2015. The rationale behind promoting the sector is both to enhance food security in a country that imports much of its food and to boost employment levels in rural areas, focusing on expanding job opportunities for Omanis.

To this end, the government has identified several measures it can take to promote growth and diversification, including allocating more public investment, development of new markets, improving product marketing and providing product-specific support for agricultural producers. The sultanate has also adopted a strategy and goal for 2040, developed in cooperation with the UN Food and Agriculture Organisation (FAO). It seeks to ensure optimum use of agricultural and maritime resources by developing value chains, enhancing food security, creating jobs, and improving the competitiveness of Omani products in international and domestic markets.

Livestock

In 2014 Oman had 366,700 cattle, up from 359,500 in 2013, according to the NCSI, while its sheep herd grew from 548,200 to 559,200 over the same period. The number of camels used for meat and milk rose from 242,900 in 2013 to 247,700 just one year later, while Oman’s goat herd, also used for meat and milk, reached 2.1m in 2014, up from 2.09m in 2013.

Red meat production in 2014 totalled 42,000 tonnes, up slightly from 41,000 tonnes in 2013 and a major jump over 25,000 tonnes in 2012. Dairy products totalled 91,000 tonnes in 2014, up from 89,000 tonnes and 72,000 tonnes in 2013 and 2012, respectively. Poultry production came to 43,000 tonnes, up slightly from 42,000 tonnes in both 2013 and 2012. Egg production has remained steady, at 236m, for each of the past three years.

Water

In Oman’s predominantly dry climate the preservation and efficient use of water is a priority. In July 2015 the Ministry of Regional Municipalities and Water Resources announced plans to introduce smart meters for projects requiring substantial amounts of water, including large farms. Saleh Mohammed Al Shanfari, chairman of A’Saffa Foods, told OBG, “New investments and projects in the sector must be designed with scarcity in mind. Planning around these constraints is crucial to a project’s success and commercial viability.” This goes hand-in-hand with efforts to reduce the production of crops that are water-intensive and focus on those that use less water. The new smart meters will collect real-time data on usage and track consumption remotely, which will help the government learn more about demand patterns. The meters will also be pre-programmed to pump a certain amount of water, encouraging farmers to irrigate only in the mornings and evenings, when evaporation rates are lowest. This programme is part of a broader government policy of adapting modern and efficient irrigation methods, cutting down on wasteful flood irrigation.

Fisheries

The sultanate has a strategic plan to develop fisheries that runs from 2013 to 2020, the National Fisheries Development Strategy, which aims to enhance production, increase the industry’s efficiency and protect natural resources. Priorities include ensuring a safe supply of fish for local demand, improving use of fish reserves, and encouraging private investment in maritime and aquaculture industries. The sector has been growing strongly for some years as the sultanate has moved to better capitalise on its long coastline and extensive territorial waters. In 2014 Oman landed 211,315 tonnes of fish, up from 206,517 in 2013, 191,728 in 2012 and 158,722 in 2011, according to the NCSI. Production has risen greatly from 120,421 tonnes at the turn of the century.

The growth of the fishing industry has seen the number of new commercial fishing licences issued reach several thousand a year, peaking in 2009, when 4952 new licences were granted. The number of new licences has since declined, with 1621 issued in 2014, while 6540 were renewed. The sultanate exports roughly 35-45% of its fish, though both volumes and the value of sales fluctuate considerably. In 2014 it exported 77,645 tonnes of fish worth OR52.5m ($135.9m), while in 2013 exports totalled 95,573 tonnes worth OR50.8m ($131.5m),and in 2012 they amounted to 72,237 tonnes worth OR55.8m ($144.5m).

The trend has been broadly upward over the last decade: in 2005 Oman exported around 51,000 tonnes of fish, earning OR37.3m ($96.6m). The five major export species by value in 2012 were sardines, emperor fish, Indian mackerel, sea bream and cuttlefish, according to the MAF’s Directorate of Aquaculture Development.

Aquaculture Potential

Aquaculture is a fledgling industry in Oman, with 350 tonnes of shrimp produced in 2013, according to a 2015 report by the directorate titled “Investment Guidelines for Aquaculture Development in the Sultanate of Oman”. However, drawing on research undertaken in recent years, the report estimated that by 2030-40, the country could be producing up to 220,000 tonnes from aquaculture, generating $900m directly and with a cascaded contribution of $2bn to GDP. Fish farming is seen as an area in which the broader agriculture and fisheries sector has the most potential for exports. The segment contributes up to 60% of all fish produced for human consumption, according to the directorate, with the proportion expected to increase as wild sea and freshwater stocks decline.

In 2007 the MAF initiated a process of developing aquaculture by working with the UNFAO to draft a national strategic plan for the sector, which the ministry has since developed, modernising legislation, coordinating with other government agencies with interests in the industry and working with international experts to identify potential fish farming projects.

The result is a range of investment incentives that are intended to enhance Oman’s competitive advantages as a destination for aquaculture development, complementing its favourable climate and geographical location. Foreign investors can apply for five-year corporate tax and Customs duty holidays, extendable for a further five years. In addition to this, projects undertaken by companies with at least a 30% stake held by Omani nationals may also be eligible for soft loans from the Oman Development Bank. Omani nationals are eligible for government funding of up to 80% of the cost of fish feed, fingerings (young fish) and equipment, including fish tanks.

OFIC

One of the leading organisations driving agricultural development, and a key partner for investors, is Oman Food Investment Holding Company (OFIC). Founded in 2012, OFIC is a state-owned enterprise that seeks to promote investments in the food sector to benefit the country.

“The aim is to enhance Oman’s food security and support economic development and diversification by investing in food projects at home and abroad in partnership with companies in the sector, other investors and stakeholders,” Saleh Al Shanfari, CEO of OFIC told OBG. OFIC sees the financial support of the government, as well as the company’s growing talent pool and clear strategy, as competitive advantages that will be appreciated by potential partners.

Its broader aim is to enhance Oman’s food security and export potential via a stronger food industry, which will entail bringing in new capital and expertise to leverage the sultanate’s resources and location. OFIC has three main areas in which it aims to deliver on this. First, a key goal will be forging partnerships with food companies and other stakeholders to invest in domestic and international food production projects. Second, the company will provide guidance and support to management for early-stage projects, but with minimal operational participation over the longer term. OFIC does not intend to become a monolithic state-owned food producer. Third, it will operate a holding company to manage the sultanate’s investment stakes in the food industry and manage its long-term financial well-being.

Beyond these aims, OFIC has a range of objectives, such as finding commercially viable projects in Oman and elsewhere that offer the sultanate both strategic and financial advantages, while having a clear exit plan. The company will develop partnerships with private and public companies and institutions in order to bring more investment into the food sector. OFIC will also support the adoption of responsible, sustainable and efficient practices across the value chain. The company will select agri-food projects in both rural and urban areas to create jobs, boost economic diversification, and foster the growth of small and medium-sized enterprises, which make up a substantial part of the sector, as well as collaborating with agricultural collectives. Improving food quality standards through adoption of established international practices will also be key, and will allow Oman to leverage its geographical advantages to make it a hub of quality food production. Finally, OFIC aims to become a centre of excellence for integrated agri-food solutions in the Gulf region.

Activities

OFIC aims to participate in companies and projects to different degrees at three stages of development: active management of start-ups, strategic management by the holding company of projects needing guidance without operational decision-making, and a long-term minority strategic investor in more mature companies. In the latter case, the holding company will focus on portfolio performance, according to S V Uppiliappan, CFO and Investment Manger of OFIC.

The company divides its operations into core and non-core activities. Core activities include: commercially viable projects that present high investor appetite in the poultry, red meat and dairy industries; projects that need government support, such as marketing, milk collection and processing; and short-term investments through a food sector private equity fund. Non-core activities include: establishing a commodity trading and management platform; setting up a fisheries and agribusiness logistics centre; investing in aquaculture; producing commodities such as rice, wheat, corn, soybean and sugar; and creating a programme for food safety labs.

Lead Projects

As of November 2015, OFIC was in the process of developing three projects in red meat production, poultry farming and dairy. In June 2015 the company announced the establishment of the Anaama Poultry Company, a poultry project with OR100m ($258.9m) in initial capital, 50% of which is debt and 50% equity. OFIC holds 20% in the project and has a seat on the management board, with the remaining shares held by institutional investors. The company is expected to produce 60,000 tonnes of poultry meat a year by 2020 from a site near Ibri in north-west Oman.

As of late 2015, Anaama was already operational. Combined with existing producers, the project is expected to ensure that Oman covers 70% of its poultry needs from domestic production by 2030, up from 36% at present. OFIC expects to engage partners across the project development cycle, including supplying equipment, construction, retailing and distribution, boosting job creation in a number of sectors.

Milk

OFIC’s second project is Mazoon Dairy. Mazoon also has a 50:50 debt/equity mix and start-up capital of OR100m ($258.9m), with OFIC taking a 20% stake. The vertically integrated farm will start with around 4000 cows in 2017, with a target of a 25,000-strong herd by 2026.

The project launched in 2015, with Mazoon Dairy already operational and planning to scale up substantially. Mazoon has a target of producing 202m litres of milk by 2026 and 985m by 2040. Combined with increases in output from other producers, and a new milk collection scheme being devised by OFIC, this should cut milk imports from 69% of consumption in 2014 to 13% in 2026. It is estimated that by 2040, Oman could be a net exporter of milk, although the domestic market is forecast to continue growing over the next decade.

Meat

A third major project involves producing red meat and was expected to launch in December 2015. The aim is to improve Oman’s control over its red meat supply by investments in Omani-controlled farms and production facilities both domestically and in Africa. Currently, Oman controls 20% of its red meat supply, while OFIC’s target is to increase this to 52% through investments in farms, ranches, slaughterhouses, and storage and packing facilities, producing 55,000 tonnes of red meat a year. Saleh Al Shanfari, OFIC’s CEO, told OBG that feed for all three projects would be imported in order to preserve domestic water resources and that the sites for the three farms had been chosen so as to make importing a straightforward affair. Suppliers from the Americas, Europe and Africa have already expressed their interest, with OFIC aiming to ensure that companies active in Oman participate. Pricing and marketing strategies are also being crafted by carrying out feasibility studies, taking into account the need to develop supply chains. “We are looking to build companies that will ensure food security, develop economies of scale to compete globally and meet social requirements,” Al Shanfari said.

Marketing Companies

The MAF is also working with OFIC to develop three separate agencies to improve the processing and marketing of fruit and vegetables, dates and livestock. According to OFIC, Oman has 8m date palm trees, but could do more to drive up standards, strengthen exports and improve competitiveness more broadly.

A consultant has been appointed to develop a feasibility study for the date agency. Oman produced 308,000 tonnes of dates in 2013, up from 281,000 tonnes in 2012, according to the MAF, though it only exported 7000 tonnes. As dates are a higher-value product, Oman could generate significantly more in export earnings from its crop, giving growers cause for optimism.

The second organisation will be a marketing company for the fruit and vegetables sector, to an extent filling the gap left by the 2000 closure of the Public Authority for Marketing Agricultural Produce. The company will operate on a commercial basis, with government support, establishing procurement centres to pack and grade produce in selected regions, particularly Batinah. Officials told the local press that it will handle crops including tomatoes and cucumbers, and that the company will build infrastructure such as cold storage, warehousing and transport facilities.

The third project will focus on improving the processing of milk and dovetails with the development of Mazoon. It foresees the development of a milk processing plant in the Dhofar region, where as much as 70% of Oman’s livestock herd is located. Six collection centres will feed into the plant. The company intends to process 90,000 tonnes of milk per year and launch by 2017. The MAF aims to raise milk yields through a range of schemes, including by improving farmers’ knowledge of breeding higher-yielding animals.

Outlook

Oman’s goals for developing agriculture and fisheries are ambitious, but they are based on solid plans for long-term growth. OFIC will take the lead in livestock-related farming, and is already making significant progress in that sphere. The company’s projects will create opportunities for private sector and international partners in financing, supply, management, logistics, and downstream distribution and retail, among other high-growth areas. This increased investment capitalises on Oman’s natural advantages.

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The Report: Oman 2016

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Agriculture & Fisheries chapter from The Report: Oman 2016

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