Agriculture is an anchor of Algeria’s non-hydrocarbons economy, contributing 8.9% of GDP and employing over 2.4m people in 2013. The government has made it a priority to boost domestic production to reduce its ever-rising import bill and end the country’s reliance on imports of dietary staples such as cereals and milk. Algeria has made great strides since the 2008 launch of its Agricultural and Rural Renewal Policy (Politique du Renouveau Agricole et Rural, PRAR), and both public and private actors are spreading the use of modern techniques, machinery and quality inputs. The remaining challenge will be to strengthen the links between producers and the local processing industry to maximise the output that enters the formal value chain.
2013 Performance
Although agriculture’s contribution to GDP had dipped slightly from 10% in 2012, domestic output is on the rise. The Ministry of Agriculture and Rural Development (Ministère de l’Agriculture et du Développement Rural, MADR) estimates that the value of agricultural production increased five-fold over the last 15 years, from AD500bn (€4.65bn) in 2001 to AD2.56trn (€23.81bn) in 2013.
In the five years since the PRAR was launched, production has increased by an average of 13.8% year-onyear (y-o-y), up from an average of 7.3% annual growth between 2000 and 2010. According to MADR figures, output increased by 14.9% from AD2.22trn (€20.65bn) in 2012 to AD2.56trn (€23.81bn) in 2013.
The sector employs roughly 20% of the total labour force, a significant number compared to the hydrocarbons sector, which contributes one-third of GDP but just 2% of employment. The majority of activity takes place in Algeria’s northern coastal plains, which accounted for 42.3% of the sector’s value added in 2013. However, cultivation is spread nationwide; the semi-arid Hauts Plateaux region accounted for one-quarter of total production in 2013, followed by the northern mountainous region and the south with 17% each.
Garden produce, or maraîchage, which ranges from onions, peppers and other vegetables to tomatoes, some fruits and herbs, accounts for the largest segment of output, with a total value of AD705.3bn (€6.56bn) in 2013. Red meat was the second-largest segment in 2013, accounting for 20% of total output, followed by cereals (10.4%), stone fruit (8.4%), dates (7.8%), citrus (6%) and milk (6.5%).
Sector Priorities
The MADR set a target to meet 70% of the country’s food needs locally by 2014. Sector authorities stated that domestic production in 2013 represented 72% of the country’s annual food supply, but Algeria remains reliant on food imports in several key areas. Food accounted for 17.5% of total imports in 2013, rising 6.2% y-o-y to reach over €7bn. Import spending was equivalent to nearly one-third of the value of domestic output in 2013, with the highest import levels in cereals, milk, sugar and vegetables.
The ministry’s plan to boost domestic output of key products hinges on its effort to protect the country from external price volatility and ensure national food supply. To this end, measures adopted under the PRAR aim to attract higher levels of private and foreign direct investment (FDI) to inject capital into the agricultural sector, improve market structure and advance production goals. Finally, the PRAR is also meant to distribute economic activity and investment more evenly throughout the country to develop the under-served Hauts Plateaux and southern regions.
Land & Financing Access
Initiatives adopted under the PRAR have so far focused on three factors: land availability, sector organisation and access to financing. Algeria has 42.9m ha of agricultural land, including forested areas, meadows and pasture. Of this total, the country has 8.4m ha of arable land, and only 919,000 ha are permanently cultivated. In the past, stringent lease conditions and unclear land ownership documentation have made it challenging for producers to buy, sell and inherit agricultural land.
In 2008 a new law was adopted making it possible to lease state-owned land for up to 40 years. The National Office for Agricultural Land was also established in 2010 to centralise ownership data and regulate access to the 2.5m ha of state-owned land. In addition to improving oversight of sector activity, the distribution of formal land titles allows small-scale farmers greater access to credit and bank financing.
The state introduced two agricultural credit mechanisms in 2008 in an effort to reduce mounting sector debt and encourage new investment. The RFIG credit, available through Banque de l’Agriculture et du Développement Rural (BADR) and Banque Nationale Agricole, offers one-year, zero-interest loans to individual producers that can go towards the purchase of agricultural inputs, equipment or other means of production. The BADR offers a second credit facility, ETTAHADI, for new operations on unused agricultural land. ETTAHADI offers a maximum of seven-year loans worth up to AD1m (€9300) per ha, for projects capped at 10 ha. If the credit is reimbursed within three years, the ministry covers all interest on the loan.
Southern Development
To boost economic activity in rural areas, the MADR launched the Integrated Rural Development Project in 2009. Over 8250 projects to preserve rural resources and improve living standards were launched in the first three years, and the government aims to reach 12,000 projects by the end of 2014.
The southern provinces have been a focus of this and other programmes meant to strengthen agricultural capacity. Though it may seem counterintuitive, many of Algeria’s arid southern provinces have significant subterranean water resources and untapped potential for agriculture. The intense sunshine can yield two harvests per year, instead of one in the north. The MADR launched a 2012-14 programme that aimed to generate up to 115,000 jobs and to irrigate another 385,538 ha of agricultural land in the south. In 2012 the Ministry of Water Resources promised AD3bn (€27.9m) to develop irrigation in the region, in addition to AD6bn (€55.8m) allotted by the South Development Fund to drill wells.
The south accounts for an important segment of garden vegetables, fruit trees and red meat production. The southern provinces of Biskra and El Oued were two of the highest-producing areas in 2013, with output of AD150bn (€1.4bn) and AD130bn (€1.21bn), respectively. The southern region yielded produce worth AD431.9bn (€4.02bn), or 16.9% of national output in 2013, and the objective is to increase its contribution to 30% over the medium term.
Modernisation
The PRAR also accelerated efforts to restructure the sector. The state created several crop-specific trade committees that aim to facilitate cooperation among public authorities, international partners, private investors and individual producers. These platforms are helping to encourage aggregation and promote the use of modern tools and techniques, for example, by making communal machinery available to farmers and boost the use of state-subsidised fertilisers and irrigation systems. So far, the ministry says that trade committees have had a noticeable impact in key sectors such as milk, cereals, meat and tomatoes.
Agricultural equipment and machinery accounted for €371.96m in import spending in 2013, a 50% increase y-o-y, but Algeria is beginning to expand its manufacturing industry. Entreprise Algérienne de Fabrication de Tracteurs Agricoles launched a joint venture with US-based AGCO Massey Ferguson in 2012 for a tractor plant in Constantine. The unit will produce 3500 tractors per year, with a view to reach 5000 units in the next five years for sale in the domestic market.
The Italian group SAME Deutz-Fahr is finalising its new processing plant in Tlemcen in partnership with Agro Industrie, part of Algeria’s Groupe Kherbouche. Groupe Kherbouche estimates that national demand for tractors is roughly 12,000 units per year, and it plans to capture 25% of the market once production begins in 2014. Finally, Mercedes Benz will produce trucks and motors locally, and the Finnish group SOMPO plans to produce grain processors for the local market.
Water Resources
The UN’s Food and Agriculture Organisation (FAO) estimates that between surface and underground resources, Algeria has access to 11.3 cu km of renewable water resources, of which 7.9 cu km are potentially exploitable each year. According to the most recent FAO figures, Algeria drew a total of 6.07bn cu metres of water resources in 2000, of which 3.94bn cu metres (65%) went to support irrigation.
Public works projects led by the Ministry of Water Resources aim to transfer 119m cu metres of water from the Mahouane Dam to Béjaïa, a key grain-producing area, via a 22-km system of pumps and canals. The water transfer project is expected to be completed by the end of 2014 and will support cereal production in the northeast. A national water economy programme, the Programme Nationale de l’Économie de l’Eau, launched in 2010, aims to increase the irrigated land surface from 900,000 ha to 1.6m ha by year-end 2014.
Private Partners
The state has shown unprecedented openness to foreign investors in the agricultural sector in recent years, recognising the need to boost local production. The 51:49 investment rule, which limits foreign firms to at most a 49% stake in any investment project in Algeria, remains an obstacle to FDI. However, government officials stated in the first half of 2014 that the rule could be lifted for non-essential sectors in the near term, with a view to eliminate the measure by 2020, particularly with regard to Algeria’s bid to accede to the World Trade Organisation.
In a revised investment code submitted to parliament, the government opted not to cement the 51:49 rule, leaving the door open to future revision. However, the rule will continue to be applied for the foreseeable future; in fact, officials announced that it would be extended to wholesale and retail commerce in 2015.
In the short term the government has moved to lease public land to private operators and plans to offer 16 pilot farms focused on grain, vegetables, fruit orchards and livestock via tender to both foreign and domestic investors. The farms are each between 100 and 500 ha, located in central, western and eastern provinces.
Inputs & Fertilisers
The development of major industrial groups has helped to structure the sector by encouraging aggregation and spreading best practices. Similar to the effect of trade committees, private agro-industrial or commercial groups have had a positive impact on the use of machinery, fertilisers and certified seeds, amongst others. World Bank statistics show that Algeria used an average of 12.7 kg of fertiliser per ha of arable land between 2009 and 2013, well below the average of 39.1 kg per ha in Morocco and 40.4 kg in Tunisia in the same period. The MADR subsidises 20% of the cost of fertilisers, which has helped to raise usage levels from just 5 kg per ha in 2003.
Several companies produce fertilisers on the local market, which helps to keep costs manageable. Fertial, a 66:34 joint venture between Spain’s Grupo Villar Mir and Algeria’s Amidal, produces phosphate fertilisers for local consumption and ammonia, much of which is exported. Sorfert, an Oran-based joint venture between Sonatrach and Egypt’s Orascom Construction Industries, began production of chemical fertilisers in 2013 and plans to reach an annual production capacity of 2m tonnes per year. The government also announced in 2012 plans to invest €103bn in the construction of three additional production units by 2020 in Arzew, a gas processing and export terminal located on the coast.
Cereals
Algeria is one of the world’s largest cereal importers, bringing in €2.43bn worth of cereals in 2013, a slight increase from €2.42bn in 2012. In the first half of 2014 imports rose by another 1.46% in value to €882.1m, and by 15% in volume to 3.65m tonnes, setting the tone for another costly season. Boosting domestic production is a top priority for government officials, given the significant variation in global prices and domestic output from one year to the next. The spread of certified seeds, increasing aggregation and further mechanisation have helped to raise national capacity, but annual output has hovered between 4.3m and 5m tonnes since peaking at 6.1m tonnes in 2009.
The cultivated surface area devoted to cereals has remained steady at 3.4m ha in recent years, equivalent to nearly half of the country’s arable land. The dry climate limits cereal cultivation to the north; therefore, with little room to expand, Algeria will need to focus on increasing productivity from an average of 1.8 tonnes per ha to 3 tonnes per ha, according to targets set by the Algerian Cereals Office. Particularly dry weather slashed output to 3.4m tonnes at the end of the 2013/14 season, 30% below 2012/13 output.
Annual consumption typically reaches 8m tonnes per year, thus efforts to scale up production will take on added urgency in the near term (see analysis).
Self-Sufficiency
Algeria is largely self-sufficient for durum wheat production, which is primarily used for animal feed, as well as some food products. However, lower than expected yields this season pushed imports of durum wheat up 25.6% y-o-y in the first half of 2014 to reach €284.4m by end-June.
The country is also approaching self-sufficiency with regard to cash crops, including fruit, citrus and garden vegetables such as tomatoes, peppers, onions and garlic. The production of garden vegetables, excluding potatoes, reached 7.2m tonnes in 2013, on par with 2009 levels but below a peak of 10.4m tonnes in the 2011/12 growing season. In particular, tomato production has been driven by the expansion of industrial plantations, which helped to push output from 4.2m tonnes in 2012 to 4.8m tonnes in 2013. Citrus production in Blida, a key agricultural area west of Algiers, hit a record level of 4.2m tonnes in the 2013/14 growing season. According to the local press, favourable climate conditions, technical monitoring and financial support mechanisms helped to push Blida’s citrus crop to the highest level seen since the 1960s.
Potato crops have seen the largest spike in the last few years, exceeding the market’s capacity to absorb annual output in 2013. Production jumped from 4.25m tonnes in 2011 to 4.9m tonnes in 2013, with one-quarter of the national crop coming from the southern province of El Oued. The potato surplus drove prices on the domestic market from AD60-100 (€0.56-0.93) per kg of potatoes in April 2012 down to AD15 (€0.14) for the same period in 2013. This highlighted the need to widen links between farmers and local industrial groups, to increase national storage capacity and to develop the processing industry necessary to manage the rising production levels.
Meat & Animal Feed
Algeria produced 472,000 tonnes of red meat, 400,000 tonnes of white meat and around 6m eggs in 2013. Meat production has risen slowly in recent years, including a 7.2% y-o-y increase for red meat in 2013 and 11% for white meat. However, prices remain relatively high when compared to neighbouring Morocco and Tunisia, which therefore keeps consumption levels down. A number of factors contribute to higher prices, including the cost of imported animal feed, outdated and insufficient infrastructure, and a lack of sector organisation.
The state-owned enterprise SGP Proda, which manages activities in livestock, agriculture and agro-industrial distribution, signed a partnership agreement with the French National Interprofessional Cattle and Meat Organisation, better known as Interbev, in May to help modernise and develop the beef industry in Algeria by contributing its expertise in supply, distribution and training. In addition, SGP Proda is working to overhaul public infrastructure, including projects to refurbish and expand four state-owned abattoirs and to add another 600,000 cu metres of facilities to the refrigerated distribution network (see analysis).
Dairy
Algeria is one of the largest milk consumers in the world, averaging 137 litres per capita and a total of 5bn litres nationwide each year. Much of the demand is met through powdered milk, all of which is imported and either repackaged for immediate sale or transformed into UHT milk. Algeria’s National Dairy Office imported 137,000 tonnes of powdered milk in 2013, up from 127,000 tonnes in 2012, to supply the country’s 167 public and private dairies. A spike in global milk prices in late 2013 and early 2014 caused milk prices on the domestic market to rise over 45% in the first months of the year; according to Customs data, the value of dairy imports in the first half of 2014 increased 88.2% y-o-y to reach €757.2m.
Algerian officials are working to replace imports with locally produced fresh milk to protect against future price volatility. Domestic production of fresh cow milk rose over 50% from 1.57m tonnes in 2007 to 2.39m tonnes in 2011, and current capacity is estimated at around 3.3m tonnes. Rising output has been supported by the structuring effect of private industrial groups and trade committees, the use of higher-quality inputs and financial incentives included in the PRAR. However, productivity is still low, averaging 12 litres per head of cattle, and much of production is wasted through inefficient collection and processing methods (see analysis). Moreover, there are further concerns about the popularity of fresh milk over powdered milk. Promasidor Djazaïr, managing director at Bart Willems, told OBG, “Algerians will not substitute powdered milk for fresh milk anytime soon. There is a concern about the quality of fresh milk, and the high price of imported products is an impediment for consumers.”
Industrial Output
The agro-industry represents one-third of the industrial sector’s value added, making it the second-largest industrial contributor to GDP after hydrocarbons. The PRAR has helped to stimulate investment in food processing, particularly in vegetable oils, milling and dairy farms. Much of the agro-industry still relies on imported products, due to insufficient local supply. The Algerian private group Cevital produces refined sugar from raw imports, and Groupe SIM produces pasta, flour, semolina and couscous from a mixture of domestic and imported wheat.
Industrial groups are working to boost their local supplies, often by launching their own production. Algeria’s Groupe Benamor produces tomatoes, garlic and carrots in the province of M’Sila, and Cevital is acquiring land to launch a sunflower project to support its vegetable oil and animal feed activities. Groupe SIM acquired a 5000-ha land concession in 2012, where it is beginning to produce wheat, olives, and some fruits and vegetables to supply its various operations.
Some of the crops produced here will go towards supporting SIM’s new 51:49 animal feed joint venture with French group Sanders. SIM Sanders will construct three production units for specialised animal feed designed to improve animals’ health and increase milk output from dairy cows. The first 70,000-tonne production line is expected to launch in 2015, and two similar units will come on-line by 2020, bringing the total level of production to 210,000 tonnes per year.
Beverages
The beverage segment is expanding in Algeria, with over 350 active producers. The Algerian Beverage Producers Association (Association des Producteurs Algériens de Boissons, APAB) estimates that only 50 of these brands have nationwide sales, while another 300 operate on a local scale. The sector has seen annual growth of around 8% in the last five years, reaching turnover of AD215bn (€2bn) in 2012. The market also faces competition from a number of informal producers, but APAB is working to transition producers to the formal sector and ensure that health norms are respected. For example, APAB is encouraging regular dialogue among beverage producers, acting as an intermediary between operators and the government, and has circulated a best practice code in an effort to professionalise the sector.
Exports
In addition to serving the domestic market, agro-industrial production contributed about 18.3% of non-hydrocarbons exports in 2013, for total revenue of €270.5m. Cevital’s sugar exports accounted of the majority of this figure, generating €200m in 2013, up over 30% y-o-y. Mineral water, dates, truffles and SIM’s pasta products rounded out the export offering. Algerian sugar is expected to see tougher competition in the near term, as the EU prepares to lift sugar production quotas in 2017. The EU, a net sugar importer, could export up to 2m tonnes of sugar per year in the future, according to sector experts, which may push Algeria to seek new export markets.
The government’s current focus is on increasing local production to satisfy domestic demand, but the country aims to develop agricultural exports in the medium term. Exports of both fresh and processed food products are on the rise, jumping 27.6% y-o-y to reach €296m in 2013, and Algeria stands to become a more important exporter as the agro-industry expands. However, potential exporters still face a number of operational and legal obstacles, including insufficient links to foreign markets and tight currency controls. In November, the Bank of Algeria lifted its long-standing ban on foreign investment and outgoing money transfers in response to strong demand from the private sector. The new regulation still requires companies to obtain approval from the Central Bank, but will reportedly allow companies to invest in foreign operations, as long as they fall within their primary area of activity.
Outlook
Government efforts to subsidise fertilisers, certified seeds, machinery and irrigation equipment have helped to modernise the sector. The presence of private agro-industry groups should further help to carry this effort onwards and increase productivity going forwards. However, the sector remains highly fragmented, with 80% of farms measuring less than 10 ha, and it will take time to install more efficient crop collection and processing systems. The ministry will also need to focus on attracting private investment in the future to continue working towards the ambitious self-sufficiency targets it has laid out for the sector.
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