THE MEAT PROCESSING OPPORTUNITY IN

January, 2011

This publication was produced for review by the United Satets Agency for International Development. It was prepared by Franco Scotti, Competitiveness Manager for Inma Agribusiness program a consortium led by the The Louis Berger Group, Inc.

THE MEAT PROCESSING OPPORTUNITY IN IRAQ

DISCLAIMER

The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government.

TABLE OF CONTENTS

Background...... - 1 -

Table 1: Middle East Meat Consumption...... - 1 -

Table 2: Wholesale Price for Meat in 2007 - 2010 ...... - 1 -

Rationale Behind the Meat Processing Opportunity ...... - 2 -

Proposed Intervention ...... - 3 -

Attachment 1...... - 5 -

Meat Processing Plant Equipment: Total $45,000...... - 5 -

Background

The market for red meat in Iraq can be considered an untapped opportunity both from the demand and supply standpoint.

The overall per capita consumption of meat in Iraq remains low when compared to neighboring countries such as and Egypt that have a lower income per capita than Iraq. Table 1: Middle East Meat Consumption

Consumption 1 Iraq GCC Jordan Syria Egypt kg/person year Red Meat (+ 6.5 12.0 12.7 10.8 18.2 Mutton) Chicken 12.5 38.0 23.5 19.0 7.8 Total Meat 19.0 50.0 36.2 29.8 26.0 Source: COSIT, FAO and The World Bank, 2007

In particular, Iraq has a very low consumption per capita of red meat estimated at 6.5kg in 2007 equally divided between beef and mutton. In 2007 consumed an estimated 3.0kg/per capita of beef, 2.5kg fresh plus another 0.5kg of frozen, and approximately 3.0kg of mutton, all fresh. The main reason for this low level of consumption was undoubtedly the high price of red meat in the Iraqi market. The situation has become worse as the price of red meat has skyrocketed since 2007 fueled by the high price of in the international market and by the chronic shortage of quality forage in the country. The consumption of red meat may also suffer from indirect competition of fresh and frozen chicken of which prices per kg have decreased significantly between 2007 and 2010 as illustrated in he table below. Table 2: Wholesale Price for Meat in Baghdad 2007 - 2010 Price ID/kg 2007 2010 ∆ Price Beef 5,800 14,500 +150% Mutton 7,500 13,500 +100% Frozen Chicken 3,500 3,000 -14% Chicken Live 4,200 3,900 -7% Source: Anka, 2007 – 2010 Similarly to what is observed in neighboring gulf countries, Iraq meat consumption pattern seems polarized between chicken (high consumption, relatively low price) and mutton (consumed for special events, high price) with beef consumption squeezed in the middle. It is currently more difficult to quantify the growth potential for beef. On the other hand it is evident that future consumption of red meat in Iraq will depend on the capability to expand domestic supply thus making red meat more affordable. Currently meat production in Iraq is inhibited by the inefficient pastoral grazing feeding system, limited number of confined feeding operations, the scarcity of quality forage, and the high cost of grains. These high prices are a result of the absence of high yields of feed crops, such as corn and corn silage in the country. Such crops produce lower cost animal feeds.

In the second quarter of 2009, the USAID-funded Inma Agribusiness Program in Iraq launched a multi- faceted financial and technical assistance activity designed to streamline the performance of the national red meat value chain. The objective was to establish viable agribusinesses that efficiently finish cattle and sheep for slaughter, thereby increasing the amount and quality of red meat entering Iraqi consumer markets while also reducing unit costs of production.

1 Cooperation Council for the Arab States of the Gulf, Members are; Bahrain, Kuwait, Omar, Qatar, Saudi Arabia, and the United Arab Emirates.

THE MEAT PROCESSING OPPORTUNITY IN IRAQ USAID-Inma - 1 -

Six months after inauguration of the activity initial analytical results suggest that one of the most limiting constraints that feedlots are currently facing is the insufficient numbers of feeder cattle and lambs, of acceptable uniformity in age and size available for purchase in markets near the individual feedlots. At first glance it would appear that the national cattle breeding of 1.5 million head and the sheep breeding stock of almost 7.0 million head should supply sufficient feeder animals. However, in actuality, a number of factors intervene to reduce availability:

• Much of the breeding stock (breeding animals and offspring) are owned by traditional small producers. These animals represent a store of wealth to their owners. These traditional producers often do not sell in response to market prices, but rather when they need cash for emergencies or special occasions, or when they must reduce numbers because of grazing or fodder scarcity. Seasonality of grazing and fodder availability likely is an important determinant to increasing livestock numbers in many production regions of Iraq.

• Iraqis strong preference for eating tender suckling lambs, usually with weight around 30 kg as opposed to older and heavier sheep indicates that they may not prefer to purchase and eat lamb fattened to a heavier weight in a feed lot.

• The national cattle breeding stock is skewed toward old heavy milking cows that provide a quality of fresh meat little appreciated by consumers, difficult to sell. Rationale Behind the Meat Processing Opportunity Processed meat products account for only 4% of the total red meat consumption2 in Iraq. The meat processing sector is still quite underdeveloped in Iraq when compared to neighboring countries where processed meat account for more than 30% of the entire red meat consumption. A preliminary market assessment conducted by USAID-Inma livestock technical team concluded there may be potential for the development of the meat processing industry in Iraq taking into consideration the strength of this sector in neighboring countries with similar consumption habits and the strong acceptance in the country for meat based products such as sausages that can be prepared of the grill. While consumer acceptance of sausages and other processed meat products needs be tested, there are good reasons to believe that the development of this industry in Iraq could positively impact meat consumption and the sustainability of the meat industry in Iraq in several ways:

• An enlarged offer of processed meat products will create a demand for old cows and sheep with otherwise limited or no market value because of consumer preference for young lamb and tender beef. This demand will leverage the supply of meat in Iraq and make it more affordable to the consumers;

• Processed meat products will create value along the meat supply chain using low value byproducts such as fat and trimmings that are otherwise largely wasted;

• New processed meat products will represent an affordable alternative to expensive traditional fresh meat cuts currently sold in the market. The launch of new processed meat products will diversify an otherwise poorly segmented offer of meat products in the country boosting meat consumption and favoring the adoption of a more nutritious protein rich diet;

• Some of the possible Iraq processed meat products such as all beef sausages, for instance, will face little competition from imports as most international sausage suppliers use pork meat in their formulation making them unsuitable for the Iraqi market. Innovative processed meat products produced in Iraq have the potential to create not only a domestic demand but also an export opportunity.

2 Source: Iraqi Households Expenditure Survey COSIT and The World Bank, 2007.

THE MEAT PROCESSING OPPORTUNITY IN IRAQ USAID-Inma - 2 -

Proposed Intervention As shown in the recent study “Viability of USAID-Inma Demonstration Feedlots in Iraq” USAID-Inma supported feedlots all have positive cash flow 3 balances despite low capacity utilization and are economically viable.

However the analysis showed feedlots can achieve financial competitiveness or financial sustainability 4 only by pursuing vertical integration incorporating other value-adding activities along the red meat value chain. In particular the value chain analysis highlighted, as a best opportunity, a possible “downstream” integration into retail.

The Shavin feedlot, based in Dahuk, has recently pioneered “downstream stream” integration into retail with the opening, in November 2010, of the Blann Butcher Shop, selling lamb, beef and chicken retail cuts.

USAID-Inma livestock specialists consider there is an untapped opportunity in the market to stretch this feedlot “downstream” integration even further with the establishment of a mini facility for the production of processed meat products integrated with the butcher shop. A meat processing facility will add value to some of the by-products of the butcher shop and transform utility (low quality) cows and sheep into value added meat products marketable at a competitive price. USAID-Inma meat processing specialist estimates that a meat processing facility integrated with the butcher shop has a potential to process a minimum of 200 kg/day transforming raw material (fat, trimmings, meat, , casings) worth between ID 5,000 to ID 7,000 /kg ($4.3 to $6.0/kg) into added value processed meat products to be sold at a price between ID 10,000 to ID 12,000/kg ($8.5 to $10.3/kg). The minimum recommended investment for the establishment of a small meat processing facility with capacity up to one ton a day is estimated at $50,000 (attachment 1).

Processed meat products produced in the facility cover a wide spectrum of possibilities ranging from sausages, toppings for , meatballs and hamburger patties. USAID-Inma meat processing expert considers the initial effort should concentrate on fresh sausage such as bulk sausage, bulk Italian sausage, Italian sausage in link form, and German and/or Polish fresh brats. In addition to these traditional products, a range of local tasting sausages could be developed utilizing spices typical of the Iraqi . The development of sausage that does not need refrigeration has been discarded for the short term due to the complexity of the process and the highly technical skills required for the production process to be safe. In addition the long curing process for sausages that do not require refrigeration requires operating capital to be tied up for too long for a start up operation. The USAID-Inma meat processing expert considers that the establishment of a small meat processing facility integrated with the Blann butcher shop in Dahuk represents a unique opportunity to test the potential of processed meat products in the Iraqi market. The proposed USAID-Inma program intervention could include:

• The provision of technical assistance for the identification, in the international market, of the machinery required for a mini meat processing facility;

• The provision of necessary technical assistance in the formulation of recipes for the products to be developed following the feed-back of small consumer tests conducted in the Blann butcher shop;

3 Annualized cash flow, especially at start-up of a productive enterprise, is the basic measure of short-term “operating viability", i.e., on average, does annual operating income equal or exceed annual operating costs. The level of positive cash flow determines longer term economic viability and competitiveness. 4 To be competitive (financially sustainable), the enterprise must generate sufficient positive cash flow after covering all operating costs and replacement charges to provide a competitive return to long term capital investment. For purposes of this analysis, it is assumed that competitiveness (financial sustainability) requires a 10% return on replacement investment.

THE MEAT PROCESSING OPPORTUNITY IN IRAQ USAID-Inma - 3 -

• The provision of required technical assistance for the production of products that will emerge as “winners” from the consumer test;

• The possible provision of financial support, through a grant for the establishment of the mini meat processing facility in accordance with recognized international certification requirements (ISO quality standards). The intervention has the following objectives:

• To test the potential for processed meat products in the Iraqi market;

• To identify competitive meat processing equipment in the international market;

• To identify a competitive range of products, out of a range of several possibilities, in accordance with tested consumers preferences;

• To develop a final formulation for the products identified in consumers tests.

• To train and support the meat processing facility personnel in the processing best practices in accordance with internationally recognized quality standards.

THE MEAT PROCESSING OPPORTUNITY IN IRAQ USAID-Inma - 4 -

Attachment 1

Meat Processing Plant Equipment: Total $45,000

Items Number Needed Estimated Investment $

Stainless steel tables 4 1,000

Large grinder/mixer 1 5,000

3 Compartment sink 1 1,500

1 Compartment hand sink 1 500

Piston style stuffer 1 6,000

Double chamber vacuum packer 1 8,000

Stainless steel stuffing table 1 600

Boning table with white boards 2 600

Meat saw 1 3,500

Labeling scale 2 3,000

Splitting saw 1 1,500

Meat slicer 1 3,000

Meat scale / printer 2 2,500

Boning knife, Serrated knife, Sharpening steels, Scabbards, Meat set 2,100 hooks, Trimming hooks, Knife sterilizer

Meat tubs 40 400

Meat cuber / tenderizer 1 3,500

Stainless sausage trucks 3 600

Wrapping machine 1 300

Medium size hot water sprayer 1 1,400

THE MEAT PROCESSING OPPORTUNITY IN IRAQ USAID-Inma - 5 -