The Meat Processing Opportunity in Iraq
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THE MEAT PROCESSING OPPORTUNITY IN IRAQ 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 Baghdad 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 Syria 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 (Beef+ 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 Iraqis 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 grains 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 grain 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 stock 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