Afghan Wheat and Flour Market

Afghan Wheat and Flour

Market

Author: Nisar Ahmad Hassan

Afghanistan Investment Support Agency

2

Afghan Wheat and Flour Market

Acknowledgments: The completion of this research paper would have not been possible had it not been for the constant and unconditional support and guidance of the following people: CEO of Afghanistan Investment Support Agency, Mr. Wafiullah Iftikhar for his unconditional support to the Research Planning & Policy Directorate. Shah Faisal Marjan, Director Research Planning & Policy for constant guidance and inputs throughout this paper. Ahmad Nawaz, Siddiqullah Mujaddidi and Dr. Shamsulhaq Stanikzai, Managers at the Research Planning & Policy Directorate. I owe a big part of this research paper to the Research Planning & Policy Directorate’s colleagues who not only helped with the data collection, but throughout the writing of this paper. Specially Dr. Fazal Rabi Ahmadzai, Mohammad Hanif Rustam, Hikmatullah Mahmodi, Mirwais Ahmadzai, Waheedullah Azizi and Sayed Mahboobullah Rabbani. All the respondents who patiently answered the questions and giving their precious insight regarding the situation of wheat and flour market of Afghanistan. All the friends and well wishers inside AISA and outside, who kept on providing me with their ideas and information regarding this paper and supported me. I am forever greatly indebted to each one of the above people.

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The views expressed in this paper are those of the author and do not necessarily

reflect the official position of AISA (Afghanistan Investment Support Agency) any

content in this paper to be reproduced with the consent of AISA.

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Contents

EXECUTIVE SUMMERY ..................................................................................................................... 5

INTRODUCTION ................................................................................................................................. 6

RESEARCH METHODOLOGY AND APPROACH ............................................................................... 7

CHAPTER 1 AFGHAN WHEAT MARKET ........................................................................................ 8

1.1 AFGHANISTAN AS AN AGRICULTURE COUNTRY ................................................................... 9

1.2 AFGHAN WHEAT MARKET .................................................................................................... 10

1.3 THE WHEAT PROCESS: CULTIVATION TO HARVESTING ..................................................... 12

1.4 AFGHAN MILLING .................................................................................................................. 13

1.5 MAIN MILLS ........................................................................................................................... 14

CHAPTER 2 REGIONAL OVERVIEW ............................................................................................. 15

2.1 GEO-ECONOMICAL OVERVIEW OF CENTRAL ASIAN REGION ............................................ 16

2.2 REGIONAL WHEAT PRODUCERS ........................................................................................... 16

2.3 REGIONAL WHEAT TRADE ROUTES ..................................................................................... 17

CHAPTER 3 MARKET ANALYSIS ................................................................................................. 18

3.1 MARKET ANALYSIS ............................................................................................................... 19

3.2 DEMAND AND SUPPLY ........................................................................................................... 20

3.3 PRODUCTION .................................................................................................................. 20

3.4 DEMAND ......................................................................................................................... 21

3.5 SHORTFALL AND IMPORTS ............................................................................................ 21

3.6 VALUE OF IMPORTED WHEAT ....................................................................................... 22

3.7 SWOT ANALYSIS .................................................................................................................. 23

3.8 INVESTMENT OPPORTUNITIES ............................................................................................... 25

CHAPTER 4 RECOMMENDATIONS & CONCLUSION .................................................................... 27

4.1 RECOMMENDATIONS.............................................................................................................. 28

4.2 CONCLUSION .......................................................................................................................... 30

REFERENCES ................................................................................................................................. 31

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Executive Summery

Wheat is the main crop and staple food of Afghanistan with annual per capita consumption of wheat and its products larger than any other country in the region. However, it is also a fact that Afghanistan is one of the biggest wheat importers of the world. A very small portion of domestically produced wheat is sold in the market; most of it is consumed for the household purposes by farmers themselves or shared with the landlord as part of deal usually in practice in Afghanistan.

Normally wheat grain is traded heavily around the globe, mainly because of the restrictive measure on wheat flour transactions and taxes. However, in Afghanistan, where milling is the largest official agro industry, wheat flour is imported. Afghanistan stands in sharp contrast to the international norm in its ratio of wheat grain to wheat flour imports.

The research shows that milling industry in Afghanistan, in the past few decades, has dilapidated to the point that there are hardly any proper mills, apart from few that could be counted on fingers. Small-scale Asiabs and Zirandas, (small scale water mills) that run on water, diesel, and electricity coup with the majority of the wheat needed in the country. These small-scaled mills can make 1-3 tons of flour a day and not more. For household consumption by farmers and other living in the rural areas of the country, the hand revolving stone grinding method is still in practice.

Based on official statistics acquired, the demand for wheat in Afghanistan last year was 6.6 million tons, while the production only 5.1 million tons. The remaining 1.5 million ton was imported from neighboring countries, mainly Pakistan and Kazakhstan. There are several reasons for this shortfall in the local production. Our study highlights some of the main reasons which include lack of water, drought in the last two decades, improper irrigation system, lack of proper distribution channel, lack or negligence of government, electricity problems, etc.

The paper recommends few key points in order to deal with the current situation of wheat and

flour industry. Government must first of all make sure farmers are provided with proper and best

quality seeds, and fertilizers are properly tested before they are provided to farmers and that too

at discounted prices. As electricity is expensive, subsidy on electricity should be provided to the

mills. Additionally, government policies must provide relief to farmers and wheat and flour

industry as a whole by giving importance to this industry. Import of grains to the country should

be monitored so that illegal entry of grains is stopped and made sure wheat grains are provided

on time. As water shortage is one of the main concerns, construction of Khawrin Dams “mud

dams” is an easy and cost effective method of water storage. Lastly, Afghanistan is one of the

less dense countries; better management of the unused land must be made sure.

Investment opportunities exist in building storage facilities, deep wells, building new and

modern mills, mechanizing the wheat process from cultivation to harvesting and establishing

proper research centers for better seed and wheat verities.

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Introduction

Wheat is one of the oldest grains, used for the household usage for a long time. Once considered a religious symbol, it was part of sacred rituals in many cultures. Originally, wheat grain was consumed raw as it was full of nutrition. Also, those people did not have the means or knowledge of using it in other form than raw. They would store wheat grains and keep it dried, and in winters would consume the raw grains as a mean of food.

The consumption and cultivation of wheat is more than any other grain in the world and cultivated on more land than other vegetables and grains. Today, the largest commercial producers of wheat include the Russian Federation, the United States, China, India, France and Canada. It is estimated that presently approximately one-third of the world's people depend upon wheat for nourishment.

Wheat can be grown on both irrigated lands as well as rain fed lands. This means water is very important for the cultivation of wheat around the world. There two main seasons for wheat cultivation; spring and autumn.

There are several wheat verities around the world, the most common ones are: hard red winter, hard red spring, soft red winter, durum (hard) and Common white wheat. The hard wheat(s) grown around the world are the ones with the most amount of Gluten in them; they are the wheat(s) that are generally used for making bread and all purpose flour. The soft wheat(s) are mostly used in the bakeries for making pastries, cakes, muffins, biscuits and other bakery related products.

Wheat plants grow several side shoots called tillers from a crown which is below the ground level. Each one of these tillers grows an elongated stem which then grows and bears a flowering head at its top. The length of these tillers vary greatly between different wheat types, some of the types are short (less than 20cm) while others are extremely tall (over 1m). Modern wheat is generally from 80cm to 1m tall in length.

Wheat Kernel is the main seed or grain of wheat that is the beginning part of the wheat process as seed or the end product as grain. A Kernel is divided into three main parts Barn, Endosperm and Germ. Most of wheat’s important nutrients are located in the bran and the germ. The outer layer of Kernel that can be also consumed, but often removed at the time of flouring the wheat, is called Husk. Husk can be consumed, but must be removed before the Kernel can be consumed.

Wheat farmers have to face different kinds of wheat disease. Some are Bacterial; others are fungal while there are viral diseases as well. But the most devastating of the wheat diseases is rust diseases. There are three main types of rust diseases; Stem Rust, Yellow Rust and Leaf Rust.

This paper contains different chapters that in detail discus several aspects of wheat and flour industry of Afghanistan. An overview of Afghan wheat market is followed by regional overview, and market analysis. At the end conclusion is derived with some recommendations to boost the industry.

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Research methodology and Approach:

For the preparation of this report Kabul and Herat provinces are surveyed based on their regional power centers, economic, political and social importance but also due to lack of research on the east and west.

This survey draws upon approximately 30 interviews conducted in Kabul and Herat province from November through January 2014. The majority of these were structured interviews with key informants including;

1. Farmers 2. Mills, Traders, Zranda (small mills)

Data collection and surveys took place with the help of primary and secondary data.

For the aim of primary data, both qualitative as well as quantitative methods were put to service by not simply questionnaires being replied, but one on one interview also took place.

A wide array of secondary data and analysis was drawn upon, including official statistics, news articles, field reports, historical materials and grey literature. Utilizing the already available data was observed and taken advantage of. It is worth mentioning that given the type of the research it was, main focus was on secondary data.

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Chapter 1

Afghanistan Wheat Market

9


Afghanistan as an Agriculture Country

Afghanistan is a landlocked country located in the central Asia. It shares borders with different countries; in north Afghanistan is bordered with Turkmenistan with a border of 744km, Uzbekistan (137km), and Tajikistan with a border of 1206 kilometers. The country is bordered in the north-east with China with a border of 83 kilometers. Afghanistan shares its biggest border with Pakistan in the east and south with a length of 2430 combined. On the west Afghanistan is bordered with Iran (936km).

Primarily depending on agriculture, Afghanistan has total land area of 65223 thousand hectares. Majority of the country depends on agriculture and in order to fulfill its agricultural needs, Afghanistan has to heavily rely on neighbors for constant supply of grains. The land distribution of Afghanistan can be observed in the table below. Out of 65223 thousand hectares only 9610 thousand hectares is dedicated for agriculture.

Thousand Hectares

Land Use

2013-14

2012-13

2011-12

Total land area (1+2+3) 65223 65223 65223

1: Permanent pasture 30000 30000 30000

2: All other land 25613 25613 25613

3: Agricultural area (a+b+c+d) 9610 9610 9610

a - Forests and woodland

b-Fallow land

c-Irrigated crops area

d- Cultivated rain fed area

Permanent crops

1700 1700 1700

4229 4337 4710

2092 2072 2044

1524 1501 1156

125 120 119

Data: CSO (Central Statistics Organization)

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Permanent pastures occupy roughly half of the total land, while other land makes another huge chunk of the total land area of the country. The figure below shows 45% of total land dedicated to agriculture is follow. This 45% cannot be used for agriculturalis the land that is used for different kinds of cultivations. Forests and woodlands make 18% of the remaining 55%.

Afghan Wheat Market

Wheat is the main crop and staple food of Afghanistan with consumption of wheat and its products larger than any other country in the region.

Per Capita Wheat Consumption

Countries Per Capita Wheat Consumption KG/Year

Afghanistan 170

Pakistan 106

Iran 160

Uzbekistan 164

Asia Regions 66

45%

Permanent pastures occupy roughly half of the total land, while other land makes another huge chunk of the total land area of the country. The figure below shows 45% of total land dedicated to agriculture is follow. This 45% cannot be used for agricultural activities. The remaining 55% is the land that is used for different kinds of cultivations. Forests and woodlands make 18% of


Wheat is the main crop and staple food of Afghanistan with consumption of wheat and its products larger than any other country in the region.

Per Capita Wheat Consumption KG/Year

Source: FAOSTAT; for Afghanistan NRVA 2005

16%

21%

18%

Agricultural Area

RainFed Area

Irrigated Crops Area

Forests and Woodland

Fallow Land

Permanent pastures occupy roughly half of the total land, while other land makes another huge chunk of the total land area of the country. The figure below shows 45% of total land dedicated

activities. The remaining 55% is the land that is used for different kinds of cultivations. Forests and woodlands make 18% of


Wheat is the main crop and staple food of Afghanistan with consumption of wheat and its

Source: FAOSTAT; for Afghanistan NRVA 2005

RainFed Area

Irrigated Crops Area

Forests and Woodland

Fallow Land

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However, it is also a fact that Afghanistan is one of the biggest wheat importers of the world along with Uzbekistan and Iraq. A very small portion of domestically produced wheat is sold in the market; most of it is consumed for the household purposes by farmers themselves or shared with the landlord as part of deal usually in practice in Afghanistan.

Additionally, demand for local wheat is limited due to the small number of industrial mills. Most of the flour produced in Afghanistan is produced by the small mills located in rural and urban areas, which produces low-quality flour.

It is quite evident in Afghanistan that majority of wheat sellers sell not wheat, rather wheat flour. This is mainly due to the insufficient amount of wheat grown in the country. The provinces of Mazar-e-Sharif and Herat hardly have any contribution from the locally grown wheat, or very little.

Another main hardship in the functioning of the wheat markets in Afghanistan is the non standard state of storage infrastructure, especially for wholesalers where wheat bags are stored under a shed and is not taken proper care of it. Consequently the wheat at hand is far less than the losses during the storage process. Only a few traders or sellers have the financial means and storage capacity to keep wheat for more than just a couple of months.

Afghanistan as a nation has an unfortunate ratio of wheat imported compared to flour imported. More than 70% of the wheat related imports are flour rather than solid wheat. Afghanistan relies heavily on the processed good rather than the raw. One of the main reasons for this is the non availability of mills in the country or very limited.

Pakistani flour is widely consumed due to the fact that Afghan consumers like the quality of its products. Kazakhstan is the largest exporter of wheat in the region and in recent years a dominant flour exporter worldwide, is the other major supplier, although it does not share a border with Afghanistan, it comes from different routes and means. Kazakh wheat and flour comes to Afghanistan through Tajikistan, Uzbekistan, and Turkmenistan.

During the growing period of wheat there is limited rainfall in Afghanistan, this lead to formers relying mainly on the irrigation process. The main water supply for the country is the annual winter snows that make the biggest chunk of the water run through the agriculture fields. The heavily relying on the snow melted water determines the crop of wheat and any other crop in the country.

Looking back at the bright days of afghan wheat market, we see the period in the late 1970s and early 1980 when the country was producing sufficient amount of wheat. This production remained stable till late 1980s; unfortunately the arrival of the 1990s decade and the internal conflicts brought with it the bad news of reduced and deteriorated state of crops, mainly wheat.

The wheat production, like the country’s situation, stabled in the post Taliban era. The domestic political and social conditions had a far better impact on the wheat production as the harvest and production started growing.

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The Wheat Process: Cultivation to Harvesting

In Afghanistan wheat is cultivated in spring and fall. The amount of labor hours needed for ploughing is 5 to 6 hours and cost of labor for ploughing the land is 300 to 500 Afghanis. Seed required for one hectare is 175 kilograms and per kilogram cost of seed is 28 – 35 Afghanis. Land is irrigated 5 to 7 times per season and fertilizer used per hectare is one sack of urea and one sack of DAP (Dai Ammonium Phosphate).

Wheat crop must be saved from the rusts and other diseases, for this purpose, pesticides are used. Keeping the need of the pesticides in mind the amount is used within a season. Normally 5 to 15 sacks of pesticides are used in a hectare. It takes 5 to 10 men to cut the wheat once it is done. Since modern machinery is still not used much, cutting is mostly done by hands or threshers. The cut wheat which costs around 18 Afghanis per kilogram is sold for 20 to 21 Afghanis.

The table below shows the labor, seed, fertilizer, pesticides and other needs from cultivation of wheat seed till harvesting.

Labor for

Ploughing Seed Fertilizers Pesticides

Labor for

Harvesting

End

Product

Cost

End

Product

Sale

Quantity 5 175 KG per hectare

1 sack Urea

1 sack DAP

5 -15 sacks

5 – 10 1 Kilogram

1 Kilogram

Cost 300-500 Afghanis per Person

28 – 35 Afghanis

Urea=1300

Afghanis

DAP=2600

Afghanis

12000 – 20000 Afghanis

7300 Afghanis

18 Afghanis

20 – 21 Afghanis

Source: Survey Data

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Afghan Milling

Normally wheat grain is traded heavily around the globe, mainly because of the restrictive measure on wheat flour transactions and taxes. However, in Afghanistan, where Milling is the largest official agro industry, wheat is not enough to fulfill the country’s demand and so instof importing wheat grains to run the mills properly, wheat flour is imported. Afghanistan stands in sharp contrast to the international norm in its ratio of wheat grain to wheat flour imports.

The table below shows the amount of wheat grain ratio to thfrom Pakistan. This clearly shows that 74% of imported wheat that enters to the country is in the processed form. While wheat grains only make up to 26% of the total imports from Pakistan.

Composition of Afghan wheat imports (2009/10

Milling industry in Afghanistan, in the past few decades, has dilapidatare hardly any proper mills, apart from a few that could be counted on fingers. SmallAsiabs and Zirandas, (Small Scale water mills)

with the majority of the wheat needed in tanywhere from 1-3 tons of flour a day and not more. For household consumption by farmers and other living in the rural areas of the country, the hand revolving stone grinding method is still in practice.

Challenges faced by Afghan mill owners vary from unsustainable flow of wheat produced within the country to flour imported instead of grains. The imported wheat grain that is imported in low quantity also is not sure to reach as neighboring countries face harves

74%

traded heavily around the globe, mainly because of the restrictive measure on wheat flour transactions and taxes. However, in Afghanistan, where Milling is the largest official agro industry, wheat is not enough to fulfill the country’s demand and so instof importing wheat grains to run the mills properly, wheat flour is imported. Afghanistan stands in sharp contrast to the international norm in its ratio of wheat grain to wheat flour imports.

The table below shows the amount of wheat grain ratio to the amount of wheat flour imported from Pakistan. This clearly shows that 74% of imported wheat that enters to the country is in the processed form. While wheat grains only make up to 26% of the total imports from Pakistan.

imports (2009/10 - 2010/11 average)

Data: International Grain Council

Milling industry in Afghanistan, in the past few decades, has dilapidated to the point that there are hardly any proper mills, apart from a few that could be counted on fingers. Small

Zirandas, (Small Scale water mills) that run on water, diesel, and electricity coup with the majority of the wheat needed in the country. These small-scaled mills can make

3 tons of flour a day and not more. For household consumption by farmers and other living in the rural areas of the country, the hand revolving stone grinding method is still in

nges faced by Afghan mill owners vary from unsustainable flow of wheat produced within the country to flour imported instead of grains. The imported wheat grain that is imported in low quantity also is not sure to reach as neighboring countries face harvest, climatic and other issues.

26%

Imported Wheat

traded heavily around the globe, mainly because of the restrictive measure on wheat flour transactions and taxes. However, in Afghanistan, where Milling is the largest official agro industry, wheat is not enough to fulfill the country’s demand and so instead of importing wheat grains to run the mills properly, wheat flour is imported. Afghanistan stands in sharp contrast to the international norm in its ratio of wheat grain to wheat flour imports.

e amount of wheat flour imported from Pakistan. This clearly shows that 74% of imported wheat that enters to the country is in the processed form. While wheat grains only make up to 26% of the total imports from Pakistan.

Data: International Grain Council

ed to the point that there are hardly any proper mills, apart from a few that could be counted on fingers. Small-scale

that run on water, diesel, and electricity coup scaled mills can make

3 tons of flour a day and not more. For household consumption by farmers and other living in the rural areas of the country, the hand revolving stone grinding method is still in

nges faced by Afghan mill owners vary from unsustainable flow of wheat produced within the country to flour imported instead of grains. The imported wheat grain that is imported in low

t, climatic and other issues.

Wheat Grains

Wheat Flour

14


Although the Afghan Government several times set tariffs on flour and wheat imports to support domestic production and stop the milling industry go into further decline, the efforts have not brought any substantial improvements as smuggling can bring a dent in the industry.

Main Mills

There are about five public and eight commercial mills working in Afghanistan that can capture only a small fraction of the flour production market. Some of the main mills and silos in Afghanistan that are producing flour for domestic use are listed below.

No. Mill Location Capacity Storage

Capacity

1 Kabul Silo Kabul 150 MT/day 50000 MT

2 Kabul

Sooratzada

Flour mill

Industrial Area on the Jalalabad road

160 MT/day 3500 MT

3 Baghlan

Silo

Baghlan 80–120MT/day 40,000MT

4 Kunduz

Flour Mill

Kunduz 100 MT/day

5 Mazar Silo

Mazar-e-Sharif 60MT/day 40,000 MT

6 Jamal Flour

Mill

Mazar-e-Sharif 50MT/day 2,000 MT grains

700 MT flour

7 Sakhawat

Mill

Kabul 60MT/day 2000MT

8 Herat Silo

Herat The milling machine is yet to be installed.

20,000MT

9 Arya Flour

Mills

Herat 160MT/day 80,000MT

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Chapter 2

Regional Overview

16


Geo-Economical overview of Central Asian Region

Central Asia is a region that is not a densely populated area. With the exception of Pakistan that is largely populated, other countries are populated with few regions being populated, others less populated.

Afghanistan has population of around 30 million people, good enough to make it the second-most populated country in the region, followed by Uzbekistan, with about 29 million people inhabitants. Kazakhstan, Tajikistan, Turkmenistan, and Kyrgyzstan, have small populations when compared to the three mentioned countries.

Kazakhstan is the wealthiest country in the region with per-capita gross national product (GNP) of more than $10,000 as of 2009. Uzbekistan and Pakistan have much lower GNPs of $2,910 and $2,680, respectively. These two countries are classified as lower-middle income economies. Kyrgyzstan, Tajikistan, and Afghanistan are all low-income countries, according to World Bank classifications.

Regional Wheat Producers

Wheat is grown in all the countries under different conditions. Some countries have rain, for instance Pakistan, so the process is in the large scale. A country like Afghanistan, with little rain, has low production. This, keeping in mind the poor procedures and the lack of government support.

Majority of the wheat grown in the Kazakhstan is rain-fed spring wheat. Because of the dry climate, northern Kazakhstan produces good quality hard wheat; however, the constant droughts that happen cause low yield. The less rain in summer is main cause of low yields in the country and the winter harvest adds very little.

In Pakistan, Punjab typically accounts for majority of domestic output. Sindh province also produces a significant quantity of wheat. Wheat is mostly grown on irrigated land, with rain-fed wheat accounting for less than one-fifth of total production.

The northeast of Uzbekistan, northern regions of Tajikistan, western and southern areas of Kyrgyzstan, Amu and Syr Darya River areas in south and east of Uzbekistan and southern Tajikistan are areas that wheat has good production in.

In Afghanistan wheat is produced mainly in the north. The provinces of Baghlan, Takhar, and Kunduz tend to have the largest wheat surpluses because of the availability of water for irrigation. In good times of rainfall, provinces of Samangan, Sar-e Pul, Faryab, Badghis, and Herat, where the wheat crop is more rain-fed, also has productions. In Afghanistan and Tajikistan, where agriculture is not modernized compared to other countries and farmers do not have access to improved methods, the consequences of inadequate moisture can be severe.

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Regional Wheat Trade Routes

Kazakhstan is the biggest wheat exporter of the region as it exports to surrounding regions. Outside the neighboring countries, Afghanistan is a major destination for Kazakh wheat. Kazakhstan exports wheat to Iran as well. And though Kazakhstan’s wheat buyers vary, it mainly exports to neighboring Central Asian countries.

As Afghanistan, Kyrgyzstan and Tajikistan are mountainous, the trade routes are not easy to pass or establish. Being land lock countries, these three countries face many challenges in having access to the rest of the world, an access that could have been very easy, had they have sea shores. The nearest sea ports are Bandar Abbas in Iran and Karachi in Pakistan on the Arabian Sea. Political tension among majority of these countries and tension in the borders, cause more troubles in finding proper trade routes or making easy trade happen.

Wheat is transported from Kazakhstan to southern Central Asia, in Tajikistan and Afghanistan in particular. Wheat is transported southward by rail, through Astana and Karaganda to Shymkent in southern Kazakhstan, near the Kyrgyz border and then to Tashkent, Uzbekistan or westward to the Caspian Sea, Ukraine, Russia, or the Black Sea. From the south of Kazakhstan, wheat can also be shipped eastward to China, through Druzhba, and to Kyrgyzstan in the direction of Bishkek. This wheat travels to Mazar-e Sharif, Afghanistan through Hairatan, about 90 km south of Mazar-e-Sharif, from Uzbekistan.

The secondary route that brings wheat is from Turkmenistan, a rail way, is through Towraghondi to Herat. The wheat is not from Turkmenistan, but it is just a route. That rail line functions well and there are numerous storage facilities in Towraghondi where they are used to store wheat.

Pakistan has a large export capacity, when harvest is good. It traditionally exports to Afghanistan, as well as to the Middle East, East Africa, and East Asia. Wheat flour enters Afghanistan through two main points from Pakistan. The first one is through Chaman from Quetta to Kandahar and Spin Boldak in South of Afghanistan. The second point is from Peshawar to Kabul through Torkham, on the Pakistani side, and Jalalabad in Afghanistan. It is the mills working in the border side of Pakistan that make sure this flow is continued through Torkham.

Agents of Afghan importers that are based in Uzbekistan, Kazakhstan, and Pakistan, work to search market information and identify supply sources, negotiate transactions, and organize means for transportation and monitoring it.

When market need is analyzed, these agents of importers put order on behalf of the importers to the suppliers, who then make sure that order is met and transportation means are then found. The time between an order and delivery of the order vary, but are relatively quick and well thought off, however, the process through Tajikistan is lengthier.

18


Chapter 3

Market Analysis

19


Market Analysis

Wheat is the biggest cultivated cereal and overall largest cultivated agricultural product. In 2014, wheat was cultivated on 2,552,922 hectares.

Cultivated Land under Cereal (Thousand Hectares)

Data: CSO (Central Statistic Organization)

For centuries wheat is considered the primary source of food and nourishment in Afghanistan. The crop went through good and bad times in recent history. The consumption of wheat is larger than any other crop. The era of the mid 1980s was the brightest in the country where wheat was produced in sufficient quantity to suffice the local need, however, during the social and political turmoil of the 1990s and constant droughts destroyed much of the crops.

In the year 2014, the production of wheat was 5.17 million tons with the biggest contribution coming from Nangarhar, Baghlan, Ghazni, Takhar, Badakhshan, Kunduz, Balkh, Helmand and Herat provinces. Out of the produced wheat, 79% was used for food. The remaining 21% was mostly loses with only 6% used as a seed and stored.

2552

205 278142

2512

205 280141

0

500

1000

1500

2000

2500

3000

Wheat Rice Barley Maize

2014

2013

20


Demand and Supply

Production:

Wheat grown within Afghanistan showed great growth in the year 2012year. The growth was close to 1.7 million tons. However, the growth in the next year compared to 2012-2013 year was less than 200,000 tons. The fthe last three years.

Wheat Produced within Afghanistan (Million Tons)

15%

Wheat Grains Destribution

5.16

0

1

2

3

4

5

6


Wheat grown within Afghanistan showed great growth in the year 2012-2013 from the previous year. The growth was close to 1.7 million tons. However, the growth in the next year compared

2013 year was less than 200,000 tons. The figure below shows the production levels in

Wheat Produced within Afghanistan (Million Tons)


6%

79%

%

Wheat Grains Destribution

16 5.05

3.38

Wheat Production

2013-2014

2012-2013

2011-2012


2013 from the previous year. The growth was close to 1.7 million tons. However, the growth in the next year compared

igure below shows the production levels in

CSO (Central Statistic Organization)

Seed Provision

Food Use

Losses

2014

2013

2012

21


Demand:

Demand for wheat increased in Afghanistan in the last three years. The demand in 2011year was 4 million tons, next year it increased to 5.9 million tons. Last year the demand was 6.6 million tons. This demand is often met with the help of imported wheat from neighboring countries. The figure below shows the demand of wheat in the last three years in Afghanistan.

Wheat Demand in Afghanistan (Million Tons)

Shortfall and Imports:

The annual shortfall for wheat in Afghanistan in the year 2014 was close to 1.5 million tons. In spite of being an agricultural country, Afghanistan witnesses shortfall each year when it comes to fulfilling the local demand. Since the country still has to shrug off the after effects of droughts, political turmoil and proper plan to fulfill the demand, it

Afghanistan imports wheat from its neighboring countries namely Pakistan and Kazakhstan. Although Kazakhstan does not share a border with Afghanistan, the wheat comes through Uzbekistan and Tajikistan. Iran also contributes in wheat shBut the main countries that export wheat to Afghanistan are the aforementioned two countries. The figure below shows the annual shortfall in the last three years and wheat imported by Afghanistan. The 2013-2014 year shortfall of 0.86 million tons. The year 2011

0

Wheat Demand

Demand for wheat increased in Afghanistan in the last three years. The demand in 2011year was 4 million tons, next year it increased to 5.9 million tons. Last year the demand was 6.6

mand is often met with the help of imported wheat from neighboring countries. The figure below shows the demand of wheat in the last three years in Afghanistan.

Wheat Demand in Afghanistan (Million Tons)


The annual shortfall for wheat in Afghanistan in the year 2014 was close to 1.5 million tons. In e of being an agricultural country, Afghanistan witnesses shortfall each year when it comes to

fulfilling the local demand. Since the country still has to shrug off the after effects of droughts, political turmoil and proper plan to fulfill the demand, it has to import wheat.

Afghanistan imports wheat from its neighboring countries namely Pakistan and Kazakhstan. Although Kazakhstan does not share a border with Afghanistan, the wheat comes through Uzbekistan and Tajikistan. Iran also contributes in wheat shortfall as other neighboring countries. But the main countries that export wheat to Afghanistan are the aforementioned two countries. The figure below shows the annual shortfall in the last three years and wheat imported by

2014 year had shortfall of around 1.5 million tons, the year before had shortfall of 0.86 million tons. The year 2011-2012 had wheat shortfall of 0.68 million tons.

1 2 3 4 5 6 7

6.64

5.91

4.07

Demand for wheat increased in Afghanistan in the last three years. The demand in 2011-2012 year was 4 million tons, next year it increased to 5.9 million tons. Last year the demand was 6.6

mand is often met with the help of imported wheat from neighboring countries. The figure below shows the demand of wheat in the last three years in Afghanistan.


The annual shortfall for wheat in Afghanistan in the year 2014 was close to 1.5 million tons. In e of being an agricultural country, Afghanistan witnesses shortfall each year when it comes to

fulfilling the local demand. Since the country still has to shrug off the after effects of droughts,

Afghanistan imports wheat from its neighboring countries namely Pakistan and Kazakhstan. Although Kazakhstan does not share a border with Afghanistan, the wheat comes through

ortfall as other neighboring countries. But the main countries that export wheat to Afghanistan are the aforementioned two countries. The figure below shows the annual shortfall in the last three years and wheat imported by

had shortfall of around 1.5 million tons, the year before had 2012 had wheat shortfall of 0.68 million tons.

2011-2012

2012-2013

2013-2014

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Demand, Local Production, Shortfall (Million Tons)

Value of Imported Wheat:

The wheat imported by Afghanistan from neighboring dollars. The wheat imported last year valued at 479 million dollars. The wheat imported in 2012 -2013 cost close to 267 million dollars. The huge increase in the imported wheat’s expenditures of both years is due to the increase in the demand and little growth in local productions between the two years. The figure below shows value of imported wheat in millions.

0

1

2

3

4

5

6

7

2013 - 2014

6.64

5.16

1.47

0

100

200

300

400

500

Demand, Local Production, Shortfall (Million Tons)


Value of Imported Wheat:

The wheat imported by Afghanistan from neighboring countries costs in hundreds of millions of dollars. The wheat imported last year valued at 479 million dollars. The wheat imported in 2012 2013 cost close to 267 million dollars. The huge increase in the imported wheat’s expenditures

to the increase in the demand and little growth in local productions between the two years. The figure below shows value of imported wheat in millions.

Data: CSO (Central Statistic Organization

2012 - 20132011 - 2012

5.91

4.07

5.05

3.38

0.866

0.684

Demand

Local Production

Shortfall

Value of Imported Wheat

479

266220


countries costs in hundreds of millions of dollars. The wheat imported last year valued at 479 million dollars. The wheat imported in 2012 2013 cost close to 267 million dollars. The huge increase in the imported wheat’s expenditures

to the increase in the demand and little growth in local productions between


Demand

Local Production

Shortfall

2013-2014

2012-2013

2011-2012

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SWOT Analysis

Strength

• The biggest strength, when it comes to wheat is the fact that it is not only the major crop of the world, but in Afghanistan up to 80% of crops comprise of wheat.

• Afghanistan is one of the less dense countries in the world, this mean more land available for harvesting wheat.

• The climate of Afghanistan is suitable for wheat harvesting.

• Afghanistan has all four seasons, as wheat is harvested in two seasons, in Afghanistan farmers harvest wheat in both spring and fall seasons.

• It is the staple food of the country so it is always an important agricultural output of Afghanistan.

• Without any scientific researches or engineering facilities, the process is running in the country.

• As agriculture is the main industry (sector) of Afghanistan, harvesting comes naturally to the people of this country.

Weakness

• The decades long war beginning in the 1970s had a profound effect on the agricultural activities in the country.

• Constant droughts that Afghanistan had to suffer in the last two decades dented the wheat harvesting and other crops.

• Lack of proper irrigation system has constantly posed challenges for the harvest of wheat.

• Majority of mills present in the country had to endure the political hardships and are in dire situation.

• The milling process in the country is not modern. Few mills that have acquired the modern technologies in the post-Taliban period are the only ones that have the modern technologies.

• The equipment used in most of the mills is not standard or not working properly.

• Afghanistan has to majorly rely on the imported wheat from neighboring countries.

• The lack of proper chain for importing wheat from neighboring countries causes hardships for the milling process on daily basis.

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Opportunity

• The major opportunity lies in the form of flour mills that exist in the country. In spite of wars and internal conflicts most of the mills are still running.

• With a little care from the government, the milling industry can stand on its feet.

• The supply chain of the wheat can be restored, as once; in the 1980s the industry had proper supply chain.

• With the proper supply chain infrastructure, the problem of supplying wheat to the mills in time can be resolved.

• A proper distribution channel must be introduced.

• The importance of imported wheat can never be neglected, while it does affect the sector inside the country, for the smooth running of the mills these imported goods must be properly taxed.

• With proper training, a new breed of professionals can take over the industry.

Threats

• The lack of interest from the government is a major threat to the wheat industry.

• The increased level of taxes by Pakistan on their exports cause major loss in acquiring adequate amount of wheat on time, importers not able to pay, try to import illegally.

• Electricity is another major issue in the country. The electricity in the country is mostly brought from neighboring countries and supply of this electricity to the mills properly in order to run them properly has not occurred till now.

• The electricity that reaches these mills is far too expensive and hard to cover the costs.

• Bribe is another major issue as the imported wheat is not only taxed, but bride to the authorities to have a safe transit to the desired destination is another issue.

• Security concern is another main threat to the sector.

• Rust diseases are another concern for wheat crops in Afghanistan as Yellow rust disease is a common and damaging disease in Afghanistan.

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Investment Opportunities

Wheat and flour sector of Afghanistan is in dire situation, there are massive investment opportunities, but government has to play an important role in making sure the investment is made in proper place. Some of the main investment opportunities are as following:

1. Fertilizers: fertilizers used to increase the outcome and improve quality of wheat in Afghanistan are increasingly imported. These fertilizers could be produced within Afghanistan given proper industry is established. This will not only improve the economic condition of the country by providing more job opportunities, but will stand the wheat sector by providing cheap fertilizers made specially keeping the geo-agriculture environment of the country.

2. Seeds: investment in production of best quality seed in Afghanistan is much needed. By establishing best quality seed production firms, Afghanistan will not have to rely on imported seeds. Along with production of seed, research must be done on producing best quality seed. Genetically modified seeds are experimented with around the world. These seeds could be produced and experimented with within the country for better and bigger outcome of wheat.

3. Mechanizing the wheat process: currently the wheat cultivation and harvesting process is the same old hand used method. This method should be modernized. Bringing new and advance machinery for ploughing the soil is needed. Seeding the earth could be better and faster by bringing the modern machinery. It is not only effective, but less time consuming as well. Further, harvesting process could be much faster by relying on modern machinery. The investment opportunity is in importing these machines and manufacturing them within the country.

4. More Mills: Afghanistan currently heavily relies on grinding wheat through water mills, stone grinding and small mills. There are mills but with the exception of a few newly build, majority of them are partly damaged. Not only these mills could be put back to proper work, but also building new mills would result in more productivity. Privatizing mills is another option. Government could play an important role in building these mills or attracting investors to invest in the current on new mills.

5. Modernizing Mills: the mills currently working in Afghanistan are mostly run by outdated or old technologies. There are newly built mills in Kabul as well as other prominent provinces that have acquired the modern technologies. But milling industry as a whole needs a facelift in the form of bringing in new and modern technologies. These new and modern technologies will result in much bigger productivity.

6. Irrigation System: irrigated wheat makes majority of the wheat produced within Afghanistan. But the irrigation system as a whole is dented due to not only political upheaval, but partly due to the old methods of irrigation system. As previously explained new dams are needed to water the wheat grown within the country. Water storage is another investment opportunity that could be very productive. These water storage dams could be in the form of properly built dams as well as Khawrin Dams. Apart from dams, water from mountains of Afghanistan goes wasted or to other countries. Building canals that could be turned to provinces with lower wheat outcome could turn this water back.

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These canals could provide the needed water to the less productive provinces and wheat outcome could be increased.

7. Deep Wells: deep wells could be created in order to extract the water running meters down the earth. These wells would need electricity to run and extract water in large quantity, but dams could provide not only water to wheat field, but produce electricity too.

8. Storage Facilities: storage facilities are another major investment opportunity. Storage facilities could be found in the border near Herat province that stores wheat and flour that enters the country from neighboring countries. Same storage facilities could be built in the other border areas as well. Storage facilities with proper wheat and flour storing capacity are needed with country at every stop. These storage facilities must be equipped with modern technologies and machinery in order to store wheat and flour for the longest time. This wheat and flour could be later on used when famine occurs or when mills need to store wheat or flour before grinding and distributing to the market.

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Chapter 4

Recommendations

&

Conclusion

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Recommendations

As an agriculture economy, Afghanistan relies heavily on its crops. Wheat being the main crop of the country needs more attention in order to cut the deficit of the country and stop the imports as much as possible.

Given wheat is important to the people of Afghanistan for daily nutrition, early warning should be provided for the importers. They should be aware of how much wheat is needed. It is a common practice that wheat is imported more than required, and since the quality of imported wheat is better than the local wheat, appreciation for the imported wheat is bigger. This puts the local wheat production and use in turmoil. A proper monitoring on the borders will determine the adequate supply of wheat. This monitoring will also stop the illegal entry of wheat to the country.

Electricity problem is one of the main problems. This problem can only be solved if proper supply of electricity is made sure to the mills. Majority of mills surveyed, shared electricity as their main concern. This concern can be only resolved with proper and cheap supply of wheat to the mills.

Majority of surveyed mills and importers as well as farmers were not satisfied with the involvement of government. According to their response, government, instead of solving problems more often cause problems. With the involvement of government in the imported goods some of the problems can be resolved. For instance:

1. Government must make sure farmers are provided with proper and best quality seeds. 2. Government must make sure fertilizers are properly tested before they are provided to

farmers and that too at discounted prices. 3. Government must provide subsidy on electricity to the mills. 4. Government must have proper negotiations with the exporting countries in order to lower

the taxes on the imported flour and must high taxes on imported wheat. This will make the mills use local wheat more.

5. Government policies must provide relief to the farmers and the wheat and flour industry as a whole by giving importance to this industry.

6. The entry of raw material to the country should be monitored and made sure raw material should be provided on time.

Majority of big mills in the country are working with partial damage to the machinery. These machines can be repaired or put to work properly only if they are given attention. Mills should be properly surveyed by government officials and after proper survey; their problems regarding machinery should be resolved.

These mills, once properly working, must be given target to attain on daily, weekly, monthly and yearly basis. These targets can also be given to farmers. This practice is common in the neighboring country where farmers are given target per hectare and their wheat is properly priced. This wheat cannot be sold in higher prices. Implementing this policy can provide relief to both farmers as well as mills.

The availability of proper rail line near Herat can be a huge help. Wheat coming from Uzbekistan and Kyrgyzstan can be brought better. The availability of storage capacity near the

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borders is another plus. Such proper storage facilities can be made near the borderlines where wheat enters the country through Pakistan. This will not only give longer life to the wheat and flour, but will provide proper and high quality wheat to the people of Afghanistan.

A proper organization that could benefit the wheat and flour industry in the country should be established. This organization can be monitored by government for the early warnings and should provide proper follow-ups on the wheat entering and produced in the country. This way better plan can be formed to increase the production within the country.

Since majority of wheat produced within the country is irrigated wheat and Afghanistan has in the past gone through several droughts, Khawrin Dams “mud dams” can be built. Water is essential for wheat and the shortage of water in Afghanistan is one of the main reasons for the reduced production. Providing proper irrigation system in the beginning or building proper dams could be expensive. Mud dams are one of the economically less expensive and effective ways of providing water in time. These dams could store water for a long time and when droughts occur, this water could provide the needed water.

Afghanistan is one of the less dense countries with the population of around 30 million. This means there plenty of land that is not used. Government could start a new policy of giving this land to farmers for free. Giving each farmer few hectares of land where farmer can build a home for himself, this could bring a huge change in the production of the wheat in the country. Giving these farmers a target with share policy would not only encourage more farmers to start cultivating wheat, but the production will increase many folds. These farmers could be placed in rain fed wheat-cultivating lands or in places where they could be provided with water in form of proper irrigation or Khawrin Dams.

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Conclusion

The purpose of this paper is to put some light on the excising wheat and flour market, production, problems, opportunities and recommendations on how to improve the productivity as well as tackle the inflow of massive import in the sector. In spite of being an agriculturally relied country and wheat being the major crop, still wheat demand is not met within the country.

In Afghanistan, wheat is cultivated in two seasons; in spring and fall. Wheat is cultivated on more land than any other crop and the production rose to more than 5 million tons in last year; however, the demand is more than 6 million tons. The shortfall is often solved with the contribution of the wheat imported from two of the biggest exporters of wheat in the region; Kazakhstan and Pakistan. The problem with Pakistani wheat is the imported material is often and largely refined (flour). The entry of flour instead of wheat grains because the biggest economic blow to the few running mills in the country. On the other hand the import of flour instead of wheat grain is good for the wheat production within the country, as mills have to grind locally produced grains as well.

One of the main factors of this import is the quality of afghan wheat. It is often sited that afghan wheat lacks the quality that is ensured by the imported wheat from other countries. The taste of imported wheat is also appreciated within Afghanistan. There are genetically modification methods where experiments can be done on wheat, this way better quality wheat can be produced within the country.

The output of irrigated wheat is much bigger than rain fed wheat. Afghanistan as a country has gone through droughts in recent memory, these areas where rain fed wheat is produced often are not productive enough or not at all. For this purpose the building of dams is a solution that can last forever and increase the productivity of this almost negligible quantity into many folds more. The irrigated lands are often left without water as well, this due to the outdated irrigation system. If worked, the irrigated wheat productivity can also increase exponentially.

Milling industry, in spite of being the biggest agro-industry of the country is dilapidated due to outdated machinery, lack of electricity, and lack of raw material (wheat grains). Currently there are thousands of water mills, small rotating mills or stone mills that provide the majority of the need of farmers’ households. There are some new and modern mills that have come into being in the last decade, unfortunately their number and output is far less than desired. With proper supply of electricity, production increase, and investment by privatization or government involvement in the mills, this industry could become backbone of Afghanistan economy.

The government must show willingness and involvement in the wheat and flour sector. With proper running of the few mills and with accurate production and distribution chain of wheat grains within the country, the sector can reach the same heights that it once touched in the 1980s. The imports of wheat grain and flour must be properly regulated in order to have a proper plan to increase the production in the country. Government must involve private investors in investing in the wheat and flour sector. With the involvement of private investors in genetically modifying the seed for better quality seeds, fertilizer production, pesticides for the rust diseases that often inflict the wheat crop and the making of new mills, the industry has the biggest potential.

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References

• Donley A. Analyzing Afghanistan’s wheat flour market [Online]. http://www.world-grain.com/News/News%20Home/Features/2014/3/Analyzing%20Afghanistans%20wheat%20flour%20market.aspx?cck=1 [January. 2015].

• Styles L. Afghanistan Milling Assessment. [Online]. http://dlca.logcluster.org/display/public/DLCA/2.7+Afghanistan+Milling+Assessment;jsessionid=BE48367BD3E79347FA7A6496DB221153 [December. 2015].

• Persaud S. Afghanistan’s Wheat Flour Market: Policies and Prospects. United States Department of Agriculture: WHS-13I-01. 2013.

• Afghanistan Statistical Yearbook 2013 - 2014, CSO.

• Persaud, S. Long-Term Growth Prospects for Wheat Production in Afghanistan. Outlook Report: WHS-11L-01. 2012.

• Food Security Response Analysis Support Team Afghanistan (RASTA). Wheat Markets and Wheat Availability in Afghanistan. European Commission Humanitarian Aid. 2012.

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