Farming in Morocco

7/29/2019 Farming in Morocco

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Strictly Confidential

Morocco: Agriculture Opportunity

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Conclusion:

Location: Atlantic Coast (with proximity to Tangier port)

Produce: Citrus Fruit, Tomatoes, Olives and Grapes

Positives: Strong Government support

Concerns: Regulatory environment, EU Sanctions, Labor conditions


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Morocco Geographic Overview

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In rainfall regions of the northeast (Nov-Apr), barley, wheat and other cereals can be produced withoutirrigation. On the Atlantic coast, where there are extensive plains, olives, citrus fruits and wine grapes are

grown, largely with water supplied by artesian wells

Mostfavorableregion

Atlan(cOcean

MediterraneanSea

Algeria


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Favorable Regions for Farming

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Unfavorable

Eastern

Mountai

n

Favorable


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Investment Themes

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Significant Opportunity to invest in agriculture in Morocco Investment in agriculture is characterized by insufficient use of production factors e.g. 4x less fertilizer use per hectare

compared to France and 11x less mechanization compared to Spain Inadequate participation of the banking system only 18% agriculturists benefit from the allocation of loans Poorly developed agro-industrial infrastructure

Advantageous geographical location: proximity to the European market The agriculture sector is poorly organized and is weakened by the traditional system of management of

farms resulting in demand for more professionally managed farms

Inefficient irrigation systems: opportunity to run farms in a more efficient manner Excessive parceling of property is a major constraint in the development of agriculture 70% farms are

smaller than 5 hectares

In addition to the export market, domestic market can constitute significant opportunities due to populationgrowth and improvement in the quality of life

Improved citrus export logistics with the opening in 2011 of a new shipping line between the port of Agadirand the port of St. Petersburg in Russia, the leading export destination market. In addition, a new shipping

line between the port of Tangier and port of Jabel-Ali in the UAE became operational in early 2012. This

shipping line should help increase the competitive position of Moroccos citrus exports in the Arab GulfStates markets


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Morocco Green Plan

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Make agriculture a lever for growth during the next 10-15 years Increase the agriculture contribution to 174 billion MDH by 2020 Increase amount of exports Invest 10 billion MDH (~$1.2 billion) annually

Encourage aggregation amongst small farms Ensure growth through 2 strategies:

Pillar I Development of high value-added/high productivity agriculture. Focuses on projects that generally depend onprivate financing and produce milk, red and white meat, cereals in favorable non-irrigated zone. Farms are located inhigh potential agriculture zones

Pillar II Upgrading of the small farmer fabrics. Focuses on development of smaller farms and is based on experimentsundertaken in other countries. The objective is to improve farmers revenues by improving production in unfavorablezones

Promote private investment Ensure government participation Sustainable Moroccan agriculture: conversion of nearly 1 million hectares of cereal crops to fruit treeplantations to protect agricultural spaces Set-up framework for public-private partnerships


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Regulatory Environment

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The Government is supportive of encouraging agriculture growth in the region and has launched variousprograms like Green Morocco Plan, Fruit tree productivity project

Treaties with EU region and Algeria to boost exports through increase in customs quota increase,enlargement of the list of products that can be exported

Morocco has the provision of most favored nation in case of granting a benefit to a third world country Since Moroccan exports primarily concentrate on the European market, production is mainly determined by

the legal and private requirements of EU buyers

Application of tariffs on Moroccan product to protect EU producers like Spain & Portugal Export schedule designed to limit telescoping periods of EU production Entry price fixed for most products Use of certain fertilizers prohibited

Morocco's subsidy system began heading towards crisis in early 2011, when the government started sharplyraising its spending on subsidies to buy social peace as uprisings engulfed other countries in the region.

This turned out expensive and has resulted in high government debt and interest rates (4%+)

Government reforms are now needed to prevent heavy government borrowing from destabilizing theeconomy. As a result, the Governments 20% hike in subsidized petrol prices has resulted in increasing the

harvest and transportation costs of the produce. This coupled with a cold winter has pushed the prices ofvegetables and fruits higher

High production costs could render the output uncompetitive in the export markets Further, as the Govt works on easing subsidies (could happen as early as June) there is a significant risk of

inflation going up (current rate 2%). This could result in increase in output prices and could affect exports


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Appendix

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Agriculture in Morocco

Morocco farming contributes about 19% of the GDP and is characterized by small farms More than 40% of arable land is used for cereal crops. 7% is devoted to plantation crops like almonds,

olives, grapes, dates and citrus. 3% of the land is employed for pulse cultivation. Agriculture in Morocco

also involves harvesting of industrial crops like sugarcane, cotton and sugar beets

More than 40% of farmable area is currently unfarmed Only 1 million hectares of a total of 8.7 million hectares of cultivated land are irrigated. About 90% of the

land, mostly comprised of small land holdings, is dependent on rainwater. A small fraction of the cultivated

land is comprised of modern export-oriented farms that produce 80% of Morocco's citrus and wine

production, 33% of its vegetable output, and 15% of its cereals production. The irrigated farms, concentrated in the Gharb plain around Fez and Meknes, the Doukkala plain around

Casablanca, and the Beni Mellal and Berkane areas, also produce tomatoes, potatoes, and beet and cane

sugar, as well as oil and olive oil for export.

Fruit and Vegetable production: The major export crops of the Kingdom of Morocco are vegetables and citrus fruits. Other export crops are

barley, wheat, sugar beets, tomatoes, sugarcane, olives, oranges, potatoes, peanuts, sunflower and garbanzos.

More than 17 varieties of citrus fruits are grown in different parts of the country, although oranges andclementine dominate exports

Tomatoes constitute the majority of exports under the vegetable category. Other vegetables grown includegreen peppers, water melons, cucumbers, zucchini and aubergines

Other fruits produced in significant quantities include grapes, dates and olives


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Citrus Fruit Production in Morocco

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Morocco is the 4th largest fresh citrus exporting country in the world and the 2nd largest exporter ofclementine

European Union markets are the main destination of Moroccan export. However, in the last few years, therewas a significant diversification towards Russia and Canada

Export split: EU (52%), Eastern European countries (36%), Canada & U.S. (9%) and Others (3%) Moroccos citrus exports are mostly dominated by small citrus and oranges. About 80% of exports consist

of Clementine, Maroc Late, Nour and orange varieties

The Souss region (Agadir and Taroudent) accounts for nearly half of Moroccos citrus production, andabout 80% of its total citrus exports. This region continues to face critical water shortages which impede

plans for future expansion of the citrus areas

Water scarcity in the Souss-Massa region and the appeal of exports encouraged many leading citrusproducers to consider the Gharb area as an alternative region to expand citrus production

The Gharb region in the northern part of Morocco (Kenitra and Sidi Kacem) appears to have high potentialfor production growth. The expansion of citrus production in the Gharb area, however, has been constrained

by aging orchards, limited number of citrus varieties, and the lack of new investment. Issues: Sanitary conditions (gummosis and virus diseases), aging (over 55% of plantations are more than 30

years old and 8 to 10% have over 40 years of age) and drought conditions in different producing areas

during the last decade have affected produce


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Tomato Production in Morocco

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Tomatoes are the second most important horticultural export product of the country. Nearly 90% of thetomatoes produced are exported

The Moroccan tomato sector has a dual structure. Production for the domestic and export markets is usuallyseparated. While tomatoes for the export market are always produced in technically highly advanced

production systems in plastic greenhouses, tomatoes for the national market mainly stem from open field

production

While open-field production for the domestic market takes place all over the country, the production ofgreenhouse tomatoes is mainly located in a regional cluster in the south Atlantic coastal strip in the region

of Souss Massa. About 74% of total production originates there

Around 30% of tomato producers are small-scale farmers who cultivate less than 5 ha. Their productionarea represents only about 10-15% of the total production area for early tomatoes. The majority of the

producers cultivate an area between 5-20 ha. Farms belonging to this group cultivate around 50% of the

total tomato area. Only 10-15% of the farms are larger than 20 ha, but they represent around 40% of the

early tomato area

Issues: exporters work in aggregating much of the quota within a small group of producers. The alreadyvery limited number of non-integrated producers products for the export market will disappear within few

years. However, this trend could of course change if the EU were ready to abandon its entry price system.


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Grape Production in Morocco

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Table grapes are a key crop for export from Morocco to Northern Europe, United States and China Viniculture in Morocco spans over an area of 49,000 hectares of vineyards yielding an annual production of

310,000 tonnes of grapes, including 172,000 tonnes of table grapes. Ranks 30 th worldwide

71% of the area dedicated to the production of table grapes is in the regions of Doukala, Al Haouz,Benslimane, Rabat-Sal, Khemisset and Essaouira, while the wine grape vineyards are to be found in the

regions of El Hajeb, Khemisset, Meknes, Gharb and Melouis

Viticulture under the green Morocco plan target to boost agricultural production. Vineyards to generatenot less than 196 million dirhams annually

A budget of almost 150 million dirhams will be allocated for the wine industry as part of the Green Morocco Plan The Benslimane region to be the first to benefit from the budget allocation with the implementation of several

development projects in the regions wine sector. Benslimane has more than 3,700 hectares dedicated to the cultivationof grapes, or 7% of the total of land used for grape production in Morocco

Wine: Morocco ranks far below the top three wine-producing countries (Spain, France and Italy) andproduces about 10.5 million gallons annually. Additionally, Morocco being a Muslim dominated society

(alcohol consumption is prohibited in Muslims), domestic demand could be limited

Issues: Heavily regulated. Additionally, loss of land used for viticulture sees a steady decline in the areaplanted with vines. E.g. vineyards in Benslimane have shrunk drastically in recent years, from 3,846hectares in 2002 to 2,510 hectares in 2011, a decrease of 8.7%


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Olive Production in Morocco

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Morocco is the worlds second largest producer of table olives and 6 th largest olive oil producer. CurrentlyMorocco produces 60,000 tons of table olives and 17,000 tons of olive oil every year

Olive oil production has been increasing globally at about 4% per annum during the last decade Under the EU treaty the quota of 52,000 tonnes of oil has been abolished and Morocco can now freely

export its entire production

Spain is the world leader of olive oil producer at 1.6 million tonnes compared to Moroccos about 135,000 tonnes Production regions: Marrakech, Casablanca, Meknes and Fez. Marrakech specializes in table olives, while

Meknes and Fez produce more olive oil. Morocco is planning to plant additional 700,000 hectares of olive trees expecting that in few years oil

produced by the new plantation will be in direct competition with Andalusia production. Also labor

conditions are very different - in Morocco, an employee's salary is 6-8 euros ($8 to $10) a day for eight-nine

hours' work. But in Spain the cost is 60 euros a day for six hours of work

Issues: falling prices of Spanish olive oil coupled with high unemployment rates in Andalusia could resultin EU sanctions wrt to quota, putting pressure on Moroccan exports to EU. However, this risk is mitigated

to the extent Morocco looks for new markets. It is already exporting to China and U.S.


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Wheat & Barley in Morocco

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Wheat planted area is estimated at 3.17 million HA 2.18 million HA of soft wheat and ~1.0 million HA ofdurum wheat, while barley area is estimated at 1.78 million HA

Moroccos per capita consumption of wheat, estimated at 258 kg annually, is among the highest in the world.Additionally, Morocco is one of the worlds major wheat importers

2011-12 production fell to 4 MT (compared to 6.3 MT in the previous year) due to rain delays andsevere winter

40% of 2011-12 consumption came from imports (mainly from France, US share was 8%) Barley is consumed mostly as animal feed in Morocco, with total consumption estimated at 3 million tons p.a

Due to poor pasture conditions, livestock producers increased demand for barley. Barley prices in somelocal markets soared to an unprecedented level of 5,000 MDH (about $600) per MT Common (soft) wheat is a politically and socially sensitive commodity in Morocco. The government devised

a mechanism by which bread wheat prices have been successfully maintained at low levels and the

government treasury has supported the difference in the costs. The Moroccan Government continues to

subsidize more than one million MT of soft wheat flour (3,500 MDH/MT). The distribution of flour is subject

to heavy government control.

However, the Government is not involved in the marketing and pricing of Durum wheat

Government has been supporting cereal production by providing certified planting seeds to farmers at40-60% subsidy of their actual costs

Issues: In 2011, a significant part of the wheat crop suffered deterioration in quality due to widespread kernelgermination as a result of excessive grain moisture content during harvest. Much of the sub-quality wheatharvest, reportedly 10-15% was unfit for human consumption. Further, the heavily subsidized wheat would

make it difficult to grow wheat for imports or to increase prices

Farming in Morocco

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