Algeria Agribusiness Report Q2 2010

Algeria's agricultural sector is looking far healthier in 2009/10 than in the previous year. Drought in 2008, saw the 2008/09 grain harvest fall by around 40% year-on-year (y-o-y). In the current agricultural year, the losses are estimated to have been more than recouped with record harvests of wheat and barley.

Wheat production is estimated to have grown 119.2% y-o-y to 3.51mn tonnes while barley production is estimated to have expanded even more rapidly, jumping 257.2% y-o-y to 2.00mn tonnes. The healthy crops will see a large reduction in wheat imports and Algeria will be self-sufficient in barley.

The large increase in production will be welcome news for the Algerian government which has been aiming to boost agricultural output in a bid to cut the country's whopping food import bill. The increases in production came on the back of both improved yields and large increases in the area harvested. The government has introduced a range of new policies to encourage farmers to increase grain production.

The support price for grains has risen rapidly in the past couple of years and the government has also cut the cost of inputs such as fertilizer and pesticide. While the government will be sure to attribute the agricultural successes in 2009/10 to its new policies, to what extent they contributed to the rise in production is as yet unclear. The major factor in boosting productivity was the improved rains.

The measures mentioned above will help boost production in the short term. However, for Algeria's grain production to see sustained production growth, work needs to be done on improving the structural factors holding back the sector. Chief among these is the limited amount of irrigated crop land. Only around 2% of Algeria's grain area is irrigated. This makes grain production extremely dependent on the weather with average yields often varying by more than 50% from year to year depending on rainfall. Another factor restricting growth in production is poor access to credit. Many Algerian smallholders lack clear title to their land so cannot use it as security on loans. The government has promised to increase the amount of soft credit available to farmers. Yet we worry that many farmers will be unable to navigate the masses of bureaucratic red tape needed to be cleared to access these funds. Without access to credit, farmers are unable to invest in improving efficiency or enlarging their land holdings to benefit from greater scale.

Algeria's dairy sector is beset with similar problems. Algeria is one of the world's top five importers of dairy products as the local dairy sector is unable to meet domestic demand. A lack of pasture means dairy producers are reliant on feed crops. The difficulty of accessing credit works against farmers improving the genetic stock of their herds to give higher milk yields. As with grain, the government is now hoping to boost dairy production. The government has said it will construct irrigated pasture for dairy farming, though we worry that this may prove prohibitively expensive.