Algeria Agribusiness Report Q1 2009

Algeria is the second largest of Africa's countries with a total land area of 2.38m sq km. The country has seen buoyant national income in recent years due to solid oil revenues, although the improvement in agricultural capacity has been negligible. Primarily, poor topographical conditions mean that the majority of land is unsuitable for cultivation (only 3% of land is arable), while pervasive drought has lead to vastly inadequate irrigational capabilities. Add in rapid population growth and you have the elements integral to Algeria becoming one of the world's most import dependent countries. In the Algeria Agriculture report Q109, we look at these issues in the context of fostering a greatly improved agricultural sector with less reliance on foreign food production.

Earlier in the year, the Algerian president, Abdelaziz Bouteflika, announced that the country should focus on efforts to relieve dependence on oil revenues and to achieve a greater deal of food self-sufficiency by stimulating greater agricultural production. These efforts include improving irrigational capacity while improving fertiliser use and developing hardier seed types more conducive to the country's arid climate.

Although almost 14% of the population is involved in agricultural production, the industry, having previously been a major sector, now contributes a paltry 8% to GDP.

The paradox for Algeria is that while agricultural production is virtually non-existent, the food processing sector is relatively strong with over 50% of the industrial sector being comprised of food production. The presence of European giants such as Danone and Arla has contributed to a burgeoning consumer interest in high-value dairy products, which we forecast to continue throughout our forecast period. The Agricultural Minister, Rachid Benaissa, has talked about the importance of integrating the agricultural and food industries to create a symbiotic relationship which would help to alleviate some of the pressure on the food import bill.

Although the government has been vociferous in its appeals for agricultural reforms, the overwhelming opinion is of a state too busy basking in the glow of high oil revenues to seriously set about the task of improving productivity. Indeed, a large percentage of arable land is state-owned - diminishing the incentives for title-less tenants to improve productivity - while the financial sector reforms that would enable farmers to procure suitable inputs have been slow to get off the ground.

With the world entering a period of indefinite economic slowdown - and oil prices subsiding - the potential for Algeria to suffer a substantial loss of revenues may seriously impact on the state's abilities to continue buying vast amounts of grains (mainly wheat) and subsidising staple food products. The current climate represents an opportune moment for the government to be more proactive in its attempts to stimulate agricultural productivity, in order to foster a more diverse economic production base and bring a larger percentage of citizens into employment, thus widening the tax base and putting more cash up for further investment.