Iraq digs in to rebuild agricultural sector
Iraq, once known as the "breadbasket of the Middle East" for the vast tracts of fertile land between the Tigris and Euphrates rivers, is expected to import 80 per cent of its wheat this year at a cost of more than US$1.4 billion (Dh5.14bn). Devastated by decades of wars, sanctions and neglect, Iraq's once abundant farms, pastures and date palm groves produce just a fraction of the needs of the country's more than 28 million people. Billions of dollars are spent each year on tomatoes, milk and other products from the neighbouring countries of Iran, Turkey and Syria.
But as the country's security situation begins to stabilise, government officials and private investors are beginning to focus on rebuilding Iraq into a major agricultural producer. At the forefront of these efforts is the regional government of Iraqi Kurdistan in the north of the country. Officials there announced an ambitious plan in January to spend $10.5bn to expand farming during the next five years.
"Agriculture is the backbone of our economy," said Nechirvan Barzani, the prime minister of the Kurdistan Regional Government, calling this year "a year for the rehabilitation of the agriculture sector". Among its many goals, the strategy calls for doubling of milk production to 400 million litres per year, building 30 agricultural factories and providing farmers access to $100m of micro-loans annually to run their businesses.
Riad al Khouri, the dean of the business school at the Lebanese French University in Erbil, said agriculture in the Kurdistan region "could be a major money spinner in the coming decade". "The amount of underutilised resources is vast," he said. "With a kick start from the government and others, it could become a fantastic prospect." Officials have been hosting investment delegations from the US, Italy, Spain and other countries since the strategy was first announced. So far, deals have been slow to materialise, but economic consultants say they expect a major growth of investment into agriculture over the next several years.
The Marshall Fund, a US-based private equity group, has made the first move into the sector with a $6m investment into the Harir Tomato Paste and Fruit Processing Plant, north-east of Erbil. Iraq currently imports $100m worth of tomato paste annually. "You are looking at one of the greatest potential markets in the last 50 years that is just now going online," said Dan Rice, a founder and partner of the fund, who previously was stationed in Iraq as a US army economic development officer. "There is a sea change shift within the environment in Iraq. Certainly there are occasional incidents still, but it's different than five years ago."
The investment is already having an impact on the economy beyond Kurdistan. Mr Rice said farmers as far south as Karbala had begun contacting the Harir factory about selling tomatoes. For years, they had simply let their excess harvest rot on the vine. "They want to farm," he said. "We are seeing the radius of our suppliers expanding rapidly." The Marshall Fund is looking to invest in the dairy sector next, where local production is covering just 10 per cent of the country's demand, according to the UN's Food and Agriculture Organisation (FAO).
So far, the Marshall Fund involves mostly US investors, but Mr Rice said he believed that over time the "majority of capital that will flow into Iraq will be from the Middle East". Kyle Stelma, the Dubai-based director of Dunia Frontier Consultants, said he was advising companies on several agricultural investments in the range of $5m to $25m in the Kurdistan region. "A lot of them are consolidating and industrialising what were previously family-run enterprises," he said. "There are very few industrial-sized companies, so it isn't difficult to become a market leader in a rather sizeable market without that much initial investment ? They need everything in Iraq."
The challenges for these investments are still formidable, starting with a lack of supply chains to get products to the markets. Opening a food processing centre in Iraq means also securing a cold storage infrastructure and lorries to get the product to the stores. "There is no countrywide or region-wide supply chain," Mr Stelma said. "For every investment into a plant, there also needs to be a concomitant amount of investment in the infrastructure, which is definitely a drawback for some investors."
An even more severe problem is water. The Tigris and Euphrates are flowing at 46 and 42 per cent of last year's volumes respectively, because of increased diversions of the rivers in Syria, Iran and Turkey, said Fadel el Zubi, the head of the FAO programme in Iraq. This, combined with a two-year drought, has wreaked havoc on the country's crops. Wheat production this year will probably fail to reach 1 million tonnes, compared to 2.5 million tonnes in 2007.
Rice production is expected to be halved during the same period. "There needs to be a water rights agreement between the countries," Dr el Zubi said. "I think the situation can be restored. Iraq can go back to become a major agricultural producer as before, once an agreement is reached." Farmers have also lost touch with agricultural traditions after years of conflict inside the country, the migration to cities and the Oil for Food programme of the 1990s.
"Traditional agriculture and farming knowledge largely disappeared," said Aram Zamgochian, the managing director of government affairs for Enterra Solutions International, a company assisting investors and companies setting up in the country. He said this affected the quality of the food produce and the productivity of the farms. But some of the shortfalls in the agriculture sector could be used to Iraq's advantage.
For instance, because of the neglect of the industry there has been limited use of pesticides over the years, with only three crop-dusting planes operating in the whole country. This could provide a lucrative opportunity to produce organic fruits and vegetables. "There needs to be a focus on local markets," Mr Zamgochian said. "But there could be some niche exports." @Email:email@example.com