Algeria’s wheat market has long been dependent on imports, a trend the government wants reversed through interventions targeting reduction of the wheat import bill and incentivizing local and foreign investors to put their money in the country’s huge industrial agriculture space.
A growing national population, now estimated at 44 million, and expanding urbanization that has seen nearly 73% of the people move to urban areas and cities, has meant increased consumption of both bread (common) and durum wheat, estimated at between 11 million and 10.7 million tonnes, surpassing the North African country’s domestic wheat production of approximately 3.9 million tonnes.
The market also is being shaped by policy modifications that are impacting the pricing of wheat-derived products and charting a new path to ramping up domestic production in an endeavor to reduce the national wheat import bill while at the same time meeting the local consumption requirements.
Wheat production in the 2019-20 marketing year is estimated at 3.95 million tonnes, according to a July 2020 analysis by the US Department of Agriculture (USDA). This production, which is largely weather-driven and channeled to meet the country’s bread and couscous needs, was a mere 0.3% increase from the 3.94 million tonnes for the previous marketing year.
During the second quarter of 2020, reports quoted Algeria’s Ministry of Agriculture indicating an estimated 2 million tonnes of durum and bread wheat having been harvested at the start of the April/May 2020 season.
The USDA estimates wheat output to decline 5.1% to 3.75 million tonnes in the 2020-21 period even as Algeria’s acreage under the crop remains an estimated 2 million hectares. Other market reports, however, indicate Algeria’s overall agricultural sector grew 1.9% for the same period.
The current wheat production is inadequate to meet Algeria’s growing demand, especially from millers and other consumers that require an estimated 11 million tonnes in the current marketing year that could possibly decline to 10.7 million tonnes, according to the USDA.
This means Algeria is only able to meet between 34% and 36% of its wheat requirements and therefore must import between 5 million tonnes, with the possibility of increasing the volumes to nearly 8 million tonnes, according to USDA estimates, with France, Germany, Poland, Canada, Mexico and the United States and United Kingdom being the key import sources for Algeria’s common and durum wheat.
Eager to change the narrative
A 2019 country report by the Food and Agriculture Organization (FAO) said Algeria, even in times of ample cereal production, has “relied heavily on imports of cereal grains, with common wheat being the most prominent.”
“In the last five years, the country’s import requirement was on average about 7.9 million tonnes of mostly common wheat per year, representing about 70% of its domestic utilization,” the FAO said.
But Algeria is eager to change this cereal grain trade narrative, especially by reducing its wheat imports through ramping up of domestic production backed with new investor-friendly policies meant to attract local and foreign investors.
“The Algerian government and its Ministry of Agriculture are continuously striving to reduce the imports and increase the domestic production of the crops that are in demand,” said a market report by India-based market researcher Mordor Intelligence.
Already the government has capped the annual bread wheat imports at 4 million tonnes with the USDA projecting a possible higher figure of 5 million tonnes during the 2020-21 marketing year.
Additionally, in June 2020, the government enacted the Complimentary Finance Act for 2020 that is partly aimed at attracting foreign direct investment, especially in commercial agriculture such as large-scale modern wheat production.
The Act revises the 51/49 local majority shareholding rule except for strategic sectors such as oil and gas, railway transport, ports and airports.
With the majority obligation for foreign investors now removed for non-designated business ventures, potential foreign commercial wheat investors would also benefit from the removal of the government’s pre-emption right spelled out under Law 16-09 specifically set aside for the promotion of investment, according to market analyst Ernst & Young.
“In line with the government’s objective to attract foreign investors, specifically by modifying the requirement for a majority national shareholding obligation (51/49 rule), the possibility of foreign financing for investments made by Algerian companies has been reinstated,” Ernst & Young said.
More state incentives have been provided to investors keen on investing in the wheat-producing southern regions of Algeria.
The incentives include benefiting from “a 50% reduction on the paid amounts of personal income tax and corporate income tax for a period of five years.”
However, investors keen on accepting the incentive should be “fiscally registered and permanently established” in selected regions where Algeria wants to increase agricultural production, including wheat farming.
According to the Mordor Intelligence report entitled, “Agriculture in Algeria — Growth, Trends and Forecast (2020-2025),” the government “is offering incentives on taxes, including farming concessions, and free long-term leases of farmland to foreign investors and local counterparts.”
“The development strategy promotes foreign direct investments and partnerships, particularly in the field of cereals, oilseeds, and sugar productions,” according to a brief on Algeria’s agricultural sector by the International Trade Administration.
Investment in agricultural processing
Not only is Algeria enticing local and foreign investors into actual farm production but also in value chain activities such as crushing and refinery to support agricultural processing, expansion of the current agricultural storage capacity, setting up of cold chain infrastructures and launch of packaging facilities.
Moreover, Algeria has operationalized the office for the development of industrial agriculture under the Ministry of Agriculture with a focus on increasing investment in commercial agriculture in wheat-producing regions.
Other policy modifications that could support Algeria’s drive to achieve the elusive self-sufficiency in wheat production and even join the global league of importers, is the management of the state-run subsidy program.
For example, the government previously banned exports of locally made pasta and couscous products to discourage the utilization of subsidized wheat for products that are finally sold in the global market.
However, Algeria later realized the policy was hurting wheat millers who could no longer access global pasta and couscous markets because of the ban.
The policy was subsequently revised to allow pasta and couscous exports but with millers now required to import their own wheat at full market prices if the end-user products were designated for the export market.
Furthermore, the Algerian government has knocked off wheat products’ subsidies through two recent executive decrees targeting pricing of bread wheat flour and durum semolina.
Starting in November 2020, millers and other durum wheat buyers must buy it from the Algerian Office of Cereals (OAIC), the national grains agency, at market prices.
Previously in September, the government issued a decree on consumer retail prices for a kilogram of ordinary flour, fixing it at 27.50DZD (US$0.21) while a hundredweight (cwt) of ordinary wheat flour for bakeries has been recommended at 2000DZD (US$15.56).
For both ordinary and extra fine semolina, the government has recommended maintaining the retail price for each kilogram at 38.5DZD (US$0.30) and 42.5DZD (US$0.33), respectively.
Wheat and wheat products’ pricing is further expected to be affected by Algeria’s relaxation of wheat import specifications, especially those affecting state importation tenders.
The changes, which were yet to be implemented by October 2020, include increasing the limit for bug damage allowable in bread (common) wheat import specifications from 0.1% to 0.5% for selected wheat origins.
This relaxation of the specifications is likely to benefit wheat exporters from the Black Sea region such as Russia, which is expected to produce an estimated 83 million tonnes of wheat during the 2020-21 marketing year.
Loosening of the wheat import restrictions is not only likely to allow more wheat from the Black Sea region but shrink further the European Union wheat exporters’ share, especially when France is reportedly posting a 25% decline in production to 31 million tonnes, a result of adverse weather. The low output volumes would see France scaling back its 2019 export volumes of 23 million tonnes to between 13 million and 15 million tonnes, according to USDA estimates. France was earlier projected to export an estimated 1.5 million to 2.5 million tonnes during the 2020-21 season.
Self-sufficiency needed in pandemic
Meanwhile, Algeria would in the short term require more wheat and wheat products to mitigate the effects of the COVID-19 pandemic that as of Dec. 8 had infected 88,252 people in the country and killed 2,516 others.
The International Center for Advanced Mediterranean Agronomic Studies (CIHEAM) said Algeria is among the countries that have shifted their production plans as an indirect response to the pandemic and cites the creation of the National Office for Saharan Agriculture “for the development of millions of hectares in the Algerian Sahara.”
The pandemic, the center said, “reinforces the urgency for the country to quickly reduce its dependence on imports.”
Like other Mediterranean region countries, Algeria experienced a “quick increase in demand” of finished products such as pasta and semolina, creating challenges in the supply chain.
“In Algeria, millers had to face an urgent demand and to accelerate grain processing to supply retailers,” CIHEAM said.
OAIC said it was forced to “make advances on the quantities allocated to processors to meet strong demand.”
Although Algeria, like many other global wheat producing and consuming markets, would expect the future of its wheat supply to be influenced by key drivers such as rising disposable incomes, rising population, growing urbanization, increased demand for starch-based food, an expanding middle class, and general performance of the country’s food sector, there is no doubt the COVID-19 pandemic will greatly shape the global wheat market and hence the availability and consumption of all forms of the commodity in the near and medium future.
Shem Oirere is a Nairobi, Kenya-based freelance journalist who specializes in covering the African grain markets. He may be reached at email@example.com.