KANSAS CITY, MISSOURI, US —A decline in global oil prices and a spike in international food prices has triggered an agricultural policy change in Algeria, one of North Africa’s net grain importers, with a shift toward improving production as a way of diversifying its economy and reducing the country’s worsening international trade balance.
The drive to increase agricultural output has motivated the government’s promulgation of a new roadmap for growth of key agriculture sectors with emphasis on private sector investment in commercial farming, increasing acreage under essential crops, especially cereals, and improving on existing practices such as supplemental irrigation and utilization of farm inputs, particularly fertilizers and seeds.
But even before the September 2020 unveiling of the 2020-2024 agricultural roadmap that is part of the national economic revival plan, investors in Algeria’s grain sector already were taking advantage of opportunities provided under the new Finance Law to establish business ventures in the wheat, corn, soybeans and oilseeds value chains.
Furthermore, the agricultural sector roadmap provides a conducive environment for foreign investors willing to invest in Algeria’s agriculture, including retaining the 2008 provision for the investors who lease government land to farm for 40 years. The National Office for Agricultural Land was created to regulate access to state-owned land, estimated to be more than 2.5 million hectares.
During the 2020-21 marketing year, an estimated 3.5 million hectares will be under cereals production compared to 3.2 million the previous marketing year.
International and local investors keen on Algeria’s grain sector can also rely on provisions in the Finance Law such as the business-friendly withholding tax rates, introduction of an e-filing system and the exempting of approved startups from professional activity tax, global income tax, and corporate income tax for at least 48 months.
Startups, including those in the sectors of wheat, soybean meal, corn, animal feed, pulses, agriculture equipment and grain storage facilities, will have an additional one-year extension of the exemption clause when their business permits come up for renewal as well as a VAT exemption and a reduced 5% customs duty rate on equipment acquired for investment ventures.
The Finance Law has exempted grain and feed products from the recent increase in VAT rates from 17% to 19%.
Currently, Algeria’s Ministry of Agriculture subsidizes 50% of the cost of equipment used in irrigation and is involved in promoting the use of fertilizers and certified seeds, widespread specialized mechanization and modern storage infrastructure such as the construction of new silos.
More than five years ago, the government launched a new import and export licensing system that initially focused on agricultural commodities and goods originating from the European Union (EU). Some of Algeria’s key wheat, corn and barley suppliers include EU members France, Germany and Spain.
Additionally, the Ministry of Commerce has allowed automatic renewal of import licenses for essential commodities such as semolina and wheat to ensure constant market supply. It is estimated Algeria would consume more than 11 million tonnes of these commodities in 2020-21 and 11.2 million in 2021-22.
Elsewhere, the barley domestic resale price subsidy enacted in 2008 previously had been removed, thus reducing the role of Algeria’s state grains agency, OAIC, in the barley market. The agency previously had the mandate to buy, store and market domestic barley that is consumed mainly as a grain in animal feed, at a guaranteed support price for the sellers while selling the same barley to consumers such as mills and livestock producers at a set price. In the 2020-21 and 2021-22 marketing periods, Algeria’s barley consumption is estimated at 2 million tonnes and 2.05 million tonnes, respectively.
The new agriculture sector plan partly builds on the achievements of Algeria’s Public Investment Programme of 2015-19 that was aimed at enhancing the country’s output of key crops, stimulating rural development and attracting higher levels of private and foreign direct investment.
In the drive to ramp up grain production, Algeria is laying emphasis on improved irrigation, expansion of land under cultivation, enhancing yields per hectare and reduction of the country’s food import bill, especially for wheat, corn and oilseeds that dominate the list of imported food products.
The US Department of Agriculture (USDA) estimates wheat production, largely driven by weather patterns, for the 2019-20 marketing year at 3.95 million tonnes, with a large share channeled to meet the country’s bread and couscous needs. The output is a mere 0.3% increase from 3.94 million tonnes the previous 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 will 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 trend means 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, although the figure could possibly decline to 10.7 million tonnes, according to the USDA.
Algeria, which is the main export market for EU wheat, is therefore only able to meet between 34% and 36% of its wheat requirements and must import at least 5 million tonnes, with the possibility of increasing the volumes to nearly 8 million tonnes sourced mainly from France, Germany, Poland, Canada, Mexico, the United States and the United Kingdom.
New agricultural sector strategy
In a bid to reverse current cereal trade trends, Algeria has created the Office for Development of Agriculture in Saharan Lands via executive order N20-265 of September 2020 to, among other tasks, transform into high yielding cereal farms the land in southern Algeria.
Earlier in July 2020, the government said the new agriculture sector strategy would support growth and productivity of key agriculture sectors to ensure “food security, increase domestic production, reduce imports of some expensive commodities by encouraging investments locally to develop the strategic agricultural sectors,” according to the USDA.
In fact, Algeria’s agriculture minister told the country’s Senate Agriculture Committee the new strategy aims to “significantly reduce imports by $2.5 billion of some expensive agricultural commodities, including grains, milk powder, sugar, and vegetable oils.”
For bread (common) wheat, the government has a target of reducing the import bill by $400 million and for corn, by $17.6 million among other imported agricultural commodities.
Algeria also is wooing both domestic and international agricultural entrepreneurs into producing more bread wheat “to reduce imports by 60%.”
Some of the main proposals in the new agriculture development roadmap are government plans to “provide technical support to farmers to help raise yields, develop fertilization, combat damage affecting the harvests and develop irrigation to cope with drought conditions.”
With the modernization of the wheat irrigation systems, productivity is expected to rise from the current 2 tonnes per hectare to between 5 and 6 tonnes per hectare, eventually producing about 7 million tonnes of wheat per year by 2024, according to a report by United Nations’ Food and Agriculture Organization (FAO). The wheat yields per hectare will depend on whether the irrigation is supplementary or full, the FAO said.
However, Algeria is still facing wheat shortages due to below-average annual production, with the FAO saying the country is likely to report a slightly below‑average output of 2.5 million tonnes.
“Total cereal production in 2021 is estimated at 3.5 million tonnes, below the five‑year average and about 38% less than the previous year,” due to inadequate rains and drought conditions in major production areas.
Meanwhile, the US Grains Council (USGC) said Algeria’s corn imports “continued to grow mainly due to the growth in large commercial feed mills.”
However, the amount of imported barley varies depending on the weather patterns that largely dictate local production with the 2019-20 marketing year reporting imports of 430,000 tonnes, an increase from the 300,000 tonnes reported the previous year.
Although there were no imports of corn co-products, “primarily due to import duties,” the United States, a key grain supplier, faced a marketing challenge in the North African country due to “concerns around US corn quality” according to the US Department of Trade.
Algeria has in the past imposed a few restrictions on imports, especially corn, with the government imposing a 5% import duty on imported corn and soybean meal (SBM). The government charges 0% VAT for corn and 19% for SBM, while soybean imports attract a 0% import duty and a 9% VAT, a measure meant to “protect the local soybean crushing industry.”
Distiller’s dried grains with solubles (DDGS) imports also attract a 30% import duty and 9% VAT, and 19% on corn gluten feed (CGF), which the USGC said “discourages the use of corn co-products.”
Despite Algeria’s determination to be self-sufficient in food production, a fast-growing urban population, raging political wrangles and volatile global oil and gas prices likely will keep the country in the list of net grain importers for the foreseeable future.