Opportunities exist for foreign financiers of Tunisian agriculture

 

Although its share in Tunisia’s economy has declined over the past few decades, agriculture contributes 9% of the country’s GDP, employs 16% of the workforce and accounts for 9% of investments and exports. Extending over 5m ha of cultivated land, agricultural production centres on cereals, fruits and vegetables, olive oil and dates. The sector has traditionally relied on small family farms, but the expansion of larger enterprises in recent decades has led to the development of an agri-business industry. This trend has succeeded in tapping Tunisia’s domestic output for a range of products, while dedicating a growing share of production to exports. However, the sector still has to grapple with challenges, including land fragmentation, low access to credit, increased debt load, a technology gap and more recently, climatic fluctuation and further sector liberalisation.

Production

In Tunisia there is between 1.4m ha and 1.6m ha of land for cereal production, while tree crops occupy nearly 2m ha, including 1.3m ha for olives and 400,000 ha for fruits and vegetables. In geographical terms, the water-rich areas of the north account for the majority of fresh fruits and vegetables produced, while the dry central and southern provinces are focused on trees and livestock. Only 120,000 ha of land is irrigated, of an estimated potential of 200,000 ha. This is mainly directed to growers of produce and citrus, whereas the vast majority of cereals are grown where water is in relatively short supply. As a result of the sector’s high dependence on rainfall, agricultural output can vary markedly from one year to the next. In 2015 the country produced some 1.3m tonnes of cereals, 3m tonnes of fruits, 3m tonnes of vegetables, 223,000 tonnes of dates and 340,000 tonnes of olive oil.

However, output slowed in 2016, with the sector seeing a 3.6% decline in added value in the first half of 2016. Cereals saw a lower-than-average harvest of 1.4m tonnes in the 2016 season, while olive oil and citrus production contracted by 70% and 5%, respectively, partly due to the effects of drought. Still, dates had record production, up 10% for the year.

Investment

Since the 2011 revolution, agriculture has attracted a higher level of investment, growing between 10% and 15% on average per year. According to the Agricultural Investment Promotion Agency (Agence de Promotion des Investissements Agricoles, APIA), the public body overseeing sector investment, agriculture as a whole received TD683.7m (€293.2m) in investment in 2015, up 10% over 2014. Investment in agri-business increased four-fold from TD10.9m (€4.7m) in 2014 to TD41m (€17.6m) in 2015, with the development of several key projects in edible oil extraction and packaging.

Although rising, foreign investment plays a minor role in the sector’s development. In 2015 it more than doubled to reach TD14.2m (€6.1m), against TD6m (€2.6m) in 2014. By law, foreign investors are allowed to hold up to 66% of capital in agricultural companies, exploit agricultural land via land leasing and benefit from free repatriation of profits and the possibility to sell locally up to 30% of production. Latest figures confirm the upward trend as APIA approved TD318m (€136.4m) in foreign investment in the first half of 2016, up 48% on the same period in 2015.

Trade

Over the past two decades, Tunisia has been a structural net importer of agricultural products, with the exception of 2015, when the country’s food trade balance registered a surplus because of an exceptional year for olive oil and higher exports. In 2015 Tunisia’s chief food imports were wheat, worth $616m, corn ($212.6m), vegetable oils ($200m), sugar ($182m) and barley ($119.5m), while the country’s main agricultural exports were olive oil ($983m), dates ($231m), fish ($131m) and citrus ($12m).

However, in the first quarter of 2016 the country slipped back to a food trade deficit of around TD400m (€171.5m). Tunisia’s food exports plummeted by 37%, due to a 66% drop in olive oil exports, an 85% fall in pasta exports, and a 7% dip in fresh and frozen seafood exports. As a result, the contribution of food to Tunisia’s exports declined to 9.8% in July 2016, compared to 15.5% in July 2015. Tunisia exports mainly to the EU, its top trade partner, but has been targeting new markets, like Russia and the Middle East, where demand for precocious fruits and vegetables, cultivatable in Tunisia in winter, is high.

Similarly, imports fell by 8% in the first half of 2016, pushed down by weaker purchases of sugar, vegetable oils, dairy products and durum wheat by the government, which has the monopoly on the imports of these staples. The state issues tenders to international traders via the Cereals Office (Office des Céréales, OC), which is responsible for importing cereals; the National Oil Office is responsible for importing vegetable oils; and the Trade Office is tasked with importing tea, coffee and sugar.

Cereals

The cereals industry is a crucial component of Tunisia’s food sector, with over 1.4m ha of land under cultivation. Wheat covers 740,000 ha, broken down into 620,000 ha of durum and 120,000 ha of bread wheat, while barley covers an area of 660,000 ha. The segment employs 250,000 farmers and includes 200 cereals collection centres with an aggregate storage capacity of 770,000 tonnes, which are operated by 12 private firms, two state-backed cooperatives and the OC. Production for the 2016/17 season was expected to hit 1.5m tonne – 1.1m tonnes of wheat and 400,000 of barley. This is 15% above the total for the previous season, which was itself a below-average harvest. Area planted remained largely stable over the two seasons at 647,000 ha for wheat and 533,000 ha for barley.

Tunisia is the world’s third-largest per capita cereal consumer, with monthly consumption of 98m tonnes of wheat, 95m tonnes of durum and 65m tonnes of barley. Local production meets 70% of domestic needs in durum and 40% of barley, but only 15% of wheat. The rest is imported by the OC, which buys 1.5m-2m tonnes annually. Local cereals yield have been structurally low, with production of 14-19 quintals per ha (1 quintal equals 100 kg), due to the dependence on rainfall and inadequate irrigation.

Dairy

After independence Tunisia focused its milk sector towards the reconstitution of imported powdered milk before shifting to raw milk production in the early 1990s. Milk production has steadily developed to reach self-sufficiency in 1999, supported by the implementation of a series of subsidies for milk-processing equipment and a price control system for producers. Today, milk production averages 1.1bn litres per year, of which approximately 800m is directed to the milk-processing sector, comprising eight major dairy holdings and 50 small-sized milk-processing centres. The sector, worth TD100m (€42.9m), has dealt with a surplus in production in the past two years due to a combination of low domestic demand, fewer tourists and the loss of the Libyan market. Raw milk surpluses reached 68m and 61m litres, in 2015 and 2016, respectively. To redress the market imbalance, authorities took emergency measures throughout 2016, such as repurchasing 20m litres of milk for the Ministry of Education to distribute to schools and under-privileged families.

To increase exports, authorities also lifted a 2013 requirement for authorisation of exports transported by land, and implemented a 200 millime (€0.07) per-litre export subsidy financed through Tunisia’s Centre de Promotion des Exportations. However, for Noureddine Agrebi, director of the Food Industry Department in the Ministry of Industry, domestic milk production must raise investment to gain productivity. “As it stands, Tunisia’s milk sector in general, and powdered milk production in particular, cannot compete with European production, which is heavily subsidised. Tunisia’s milk sector is one of the few food sectors where the country still has to make some changes to meet international standards.”

Olive Oil

Olive oil plays a crucial social, economic and environmental role in Tunisia. The segment accounts for 40% of the country’s agricultural exports, supports 1m families and protects soils from desertification. The industry comprises 1723 oil presses with a capacity of 45,000 tonnes a day, as well as 10 oil extraction plants and 15 oil refining units. In addition, there are 30 oil packaging plants, with a total capacity of 165,000 tonnes per year. Current storage capacity is 365,000 tonnes, of which 41% is owned by the state via the National Board of Olive Oil, the entity in charge of organising and promoting the sector abroad.

Olive oil cultivation relies on 90m trees mainly planted in Tunisia’s arid central and southern regions. To boost production the authorities set out a $19m programme in 2016 that aims to plant 5m additional trees by 2020 in north-western areas where rainfall is highest, to produce an average of 250,000 tonnes per year. However, per-ha output has remains low, with a return of 100 litres of oil against 400 litres in Spain, owing to a series of structural challenges.

The lack of integrated management is a key obstacle to efficient growth, while old olive groves, which produce less, dominate the landscape and mechanisation is limited. In addition, 80% of Tunisia’s olive production hinges on precipitation, which has declined in recent years. According to Abdellatif Ghédira, executive-director of International Oil Council, Tunisian production is competitive, but its farms are the least-profitable in the world. Improving drip irrigation, soil conservation and oil mill technology are possible solution.

Only 30,000-40,000 tonnes of olive oil are consumed domestically each year and 80% of olive oil production is intended for export. After record exports hitting around 310,000 tonnes in 2015, the sector struggled with drought in 2016, with output dropping to 70,000 tonnes, significantly below the 2006-16 average of 180,000 tonnes.

Most of the oil is exported in bulk, mainly to the EU (73%) and North America (18%). European importers include Spain (35%) and Italy (32%) where Tunisian oil is mixed with local produce, repackaged and rebranded. Tunisian olive oil receives preferential access to the US market under the Generalised System of Preferences framework, and as part of the Tunisia-EU association agreement, Tunisia can ship 56,700 tonnes of oil duty free to Europe annually. In 2015 the EU reviewed the quota regulation to allow another 35,000 tonnes for the next two years, in addition to the 56,700 tonnes already available for duty-free importation. In March 2016 the EU extended the measure to 2017. The retention of the allowance and lifting of quotas are part of negotiations for the Deep Comprehensive Free Trade Agreement (DCFTA), expected to be concluded in 2017.

In a bid to promote bottled olive oil production, which accounts for 6% of oil exports, a fund to promote packaged olive oil was created in 2006 with the aim of reaching 50,000 tonnes of bottled oil by 2020. The initiative has seen the volume of exported bottled olive oil increase 15-fold, from 1250 tonnes in 2005/06, to 20,000 tonnes in 2014/15. The chief importer of bottled oil is the US with 38%, followed by Europe (37%) and the Gulf (17%). Some 75% of Tunisian olive oil is extra virgin, the highest quality level granted by the International Olive Oil Council.

Dates

Dates play a significant role in Tunisia’s food exports, as the second most important food produce behind olive oil, accounting for 16% of food exports. With 5.4m date trees, including 3.5m of deglet nour, the most prestigious variety, the sector ranks first worldwide for trade value and fifth in terms of export quantities. Unlike cereals and olive oil, the date sector saw record production in 2016 at 246,000 tonnes, compared to 223,000 tonnes in 2015. Date exports climbed as well, with 104,500 tonnes – worth TD465m (€199.4m) – exported, against 95,600 tonnes in 2015. Tunisia exports to 64 countries, with markets in Western Europe (34,000 tonnes), North Africa (28,000 tonnes), Asia (15,000 tonnes) and North America (5000 tonnes).

Land

The key challenge of the agricultural sector is land fragmentation, with the average size of farms around 10 ha. The sector relies on more than 500,000 farming units, a figure that has been rising over the years as a result of inheritance laws. There are three forms of agricultural land tenure in Tunisia, including private lands (4.7m ha), state-owned land and forest domain (1.3m ha, of which 926,000 ha are forests), and collective lands (about 4m ha, mainly rangelands). State-owned land may be leased by the government to private farmers or directly managed by the Ministry of Agriculture. Foreigners are not allowed to own agricultural land, but may obtain long-term leases. Over the years, access to land has been hampered by a series of factors, including the scarcity and high price of arable land as well as a low level of officially titled land (10%). In recent years, authorities set up TD150,000 (€64,000) of credit lines aimed at national investors to acquire land, but the measure has proved insufficient, prompting agricultural unions to call for the loan ceiling to be raised to TD500,000 (€214,000).

Access To Finance

Access to credit has also been a major hurdle for the modernisation of the sector. Only 7% of Tunisian farmers have access to credit and only 8% are covered by insurance. Most local farmers resort to trade credit with their suppliers to fund themselves, which has led to higher lending costs. In recent years the sector has had to deal with increasing debt loads, estimated at TD1.2bn (€514.6m) in 2016, resulting from mounting production costs, mandated price ceilings and output variability heightened by frequent droughts. Most of the debt is owed to the National Agricultural Bank, with interest rates are 8%, as opposed to 2% in Europe.

To alleviate the sector’s financial difficulties, the government intervened in 2015 to clear debt for farmers with arrears of TD3000 (€1290) or less. In recent years, microfinance has increasingly appeared as an alternative to traditional credit channels. Enda Tamweel is the largest microfinance institution in Tunisia, responsible for 300,000 loans in the sector since its inception in 2007. In April 2016 the French Development Agency granted a €10m loan to Enda Tamweel to support 40,000 family farming units in the north-western and central-west regions. The loan follows an earlier financing agreement of €2m, sealed in 2013. The sector is also a major recipient of international cooperation. As part of the German-Tunisia cooperation, Germany granted Tunisia funding of €145m to implement projects in the fields of agriculture and rural development.

Agri-Business

Since the 1990s, the Tunisian agri-business industry has developed rapidly, driven by population growth, higher per capita incomes and expanded production capacities. Agri-business is the third-largest manufacturing sector in Tunisia, accounting for 9.5% of Tunisia’s gross added value. The sector is composed of more than 1000 companies, including 200 fully exporting companies and 166 majority foreign-owned firms. Investment in primary food processing increased four-fold in 2015 to reach TD41m (€17.5m), with the realisation of 12 investments in edible oil extraction and packaging activities valued at a TD23m (€9.9m), as well as 14 investment operations in refrigerated food storage for TD10.9m (€4.7m). Investment maintained its positive trend in 2016, with the level of investments hitting TD315m (€135.1m) from January to September 2016, against TD191m (€81.9m) over the same period in 2015, according to the APIA’s latest figures.

Tunisian agri-business exports to 138 countries, including the EU as its chief market but also to the US, Canada, Russia, Japan, the Gulf states and sub-Saharan Africa. The sector is supported by the existence of an agri-business cluster AgroTech in Bizerte, made up of 100 businesses. The 45-ha facility is home to three higher education institutes and one engineering school, and focuses on nine strategic sectors, including olive oil, canned fish, cheese, cereals and derivatives, potatoes and potato derivatives, wine, fruit and vegetables, and canned food.

Tunisia also boasts several research centres, including Centre Technique de l’Agro-Alimentaire and Centre Technique de l’Agriculture Biologique. In 1996 authorities began the €960m Programme de Remise à Niveau aimed at raising the industry’s quality, productivity and management. It has resulted in a widespread compliance by Tunisian agri-businesses with food security ISO standards. The authorities are now prioritising private investment in niche markets, such as organic food, olive oil bottling, fruit and vegetable packaging, semi-cured, canned products, frozen food, prepared food, fish and seafood farming, dried tomatoes, essential oils, meat and dairy products. According to the World Bank, some challenges remain, including restrictions on imports, state control on distribution channels, market segmentation, a technology gap, and under-exploitation of supply and processing capacities.

DCFTA

The EU is by far Tunisia’s most significant trade partner, accounting for 62% of all of Tunisia’s trade and 71% of its exports. The two parties are linked by the Euro-Mediterranean Association Agreement signed in 1995, which laid the framework for liberalising exchanges.

Tunisia is currently negotiating the DCFTA, which aims to lift import duties, further promoting access to market opportunities and streamlining sanitary and quality standards with the EU. Two industry bodies, the Union Tunisienne de l’Agriculture et de la Pêche, and the Syndicat des Agriculteurs de Tunisie, have been strongly opposed to the treaty. Tunisia has to grapple with competition from European firms. According to the Institut Arabe des Chefs d’ Entreprises, Tunisian agriculture would need to increase export by 8% per year and productivity by 5% to compete with European production.

Outlook

During the post-revolution years, agriculture has appeared as one of the most resilient sectors of the economy. The sector has experienced double-digit growth in investment, expected to boost added value in strategic segments such as cereals and olive oil. As a whole, food production has been variable as a result from the sector’s heavy reliance on rainfall. Therefore, the country has raised access to irrigated water as one of its top priorities in its Tunisia 2020 strategy, introducing a $60bn infrastructure development programme.

The Tunisia 2020 strategy includes several irrigation projects and rural development initiatives, which – once completed – are expected to significantly improve the level of production and logistical competitiveness. That said, the growth of the agricultural sector will largely depend on the government’s ability to prepare for a series of upcoming challenges, including droughts from climate change, farmers’ growing debt loads and land fragmentation. The country’s capacity to accelerate the development of new agri-business subsectors, such as bottled olive oil and processed dates and vegetables, is also key.

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The Report: Tunisia 2017

Agriculture chapter from The Report: Tunisia 2017

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