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World Bank Document ReportNo. 7419-AL Algeria Agriculture:A New Opportunityfor Growth Public Disclosure Authorized April5, 1990 AgricultureOperations Division CountryDepartment II Europe,Middle Eastand North Africa RegionalOffice FOR OFFICIAL USE ONLY Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Documentof the WorldBank This documenthas a restricteddistribution and may be usedby recipients only in the performanceof their official dut;es.Its contents may not otherwise be disclosedwithout World Bankauthorization. CURRENCY AND EQUIVALENT UNITS Currency Unit Algerian Dinar (DA) US$1.00 DA 7.5 (1989 average) DA 1.00 US$0.13 (1989 average) FISCAL YEAR January 1 - December 31 GLOSSARY OF ABBREVIATIONS APF - Accession A la Propri6t6 Fonciere BADR - Banque de l'Agricultureet du D6veloppementRural CCLS - Cooperativesdes Cer6ales et des Legumes Secs DAS - bomaines Agricoles Socialistes EAC/EAI - ExploitationsAgricoles Collectives/ ExploitationsAgricoles Individuelles EEC - European Economic Community INRAA - InstitutNational de la Recherche Agronomiqued'Alg6rie LSI - Large Scale Irrigation ME - Minist6re de 1'Equipement OER - Official Exchange Rate OAIC - Office Alg6rien Inter-professionneldes C6r6ales O&M - Operation and Maintenance OPI - Offices des P6rimetresd'Irrigation. SER - Shadow Exchange Rate SSI - Small Scale Irrigation UNDP - United Nations DevelopmentProgram FOR OFfICLALUSE ONLY ALGERIA AGRICULTURE:A NEW OPPORTUNXTY FOR GROWTH Table of Contents Page Number EXECUTIVE-SUMMARY ..... i PART I. ALGERIAN AGRICULTURE: THE PAST IN PERSPECTIVEAND POTENTIAL FOR GK3WTH I. BACKGROUND ..... 1 A. General Economic Framework . 1 B. AgriculturalOverview . 2 II. PAST AGRICUTURAL PERFORMANCE . 8 A. Introduction ..... 8 B. Level of Food Self-Sufficiency . 9 C. Yields ............. ..... 10 D. The Dual Nature of the Agricultural Sector . .11 III. SOURCES OF PAST GROWTH.14 A. Overview . .14 B. Changes in Area Cultivated . 15 C. Yield Changes................ 16 D. Growth in Production . .18 IV. SOURCESOF FUTURE GROWTH . .19 A. Introduction .19 B. Lower Case Scenario . 20 C. Sources of Future Growth . 21 D. Quantifying Future Growth Rates . 25 E. Projections of Algeria's Food Gap . 27 F. Conclusions on FuturA Growth Rates . 31 This report was written by Laurie Effron and NicholasKrafft collectingdata from a number of missions to Algeria. Susan Simonelli and Katherine Kotellos (consultants)assisted with data compilation and analysis. Philippe Ardouin- Dumazet (FAO/CP - livestock specialist) and Loretta Sonn (FAO/CP - economist) wrote selected technical background papers. This document has a restricted distributionand may be used by recipientsonly in the performance of their officialduties. Its contents may not otherwise be disclosedwithout WorldBank authorization. AGRICULTURE:A NEW OPPORTUNITY FOR GROWTH Table of Contents (continuedl Page Number PART II. KEY ACTIONS: MAKING THE AGRARIAN REFORM WORK V. THE LARGER SETTING: MACROECONOMICREFORMS . 32 VI. TRANSFORMATIONOF THE AGRICULTURALSECTOR . 33 A. Introduction . 33 B. The Reform.. ............. 33 C. EACs: Will They Perform? . 35 D. Making the Tools Available . 39 VII. REFORMING THE INSTITUTIONS . 40 A. Introduction . 40 B. Improv:ingthe Crop Extension and Research Services . 41 C. Improving Input Supplies and Delivery . 43 D. Liberalizingthe Marketing Systems . 46 E. A New Role for the Ministry of Agriculture . 47 F. Livestock-RelatedIssues . 49 VIII. PRIVATE AND PUBLIC INVESTMENTS: PRIORITIES FOR THE FUTURE . 51 A. Introduction . 51 B. Expanding Private Investmentthrough Credit . 51 C. The Future Role of Public Investment . 53 TX. INTRODUCINGAN EFFECTIVE PRICE AND INCENTIVE FRAMEWORK. 64 A. Introduction . 64 B. Crop Prices . 65 C. Input Pricing . 66 D. Livestock Pricing . 66 E. Comparison with World Market Prices . 67 F. The Need to Rethink Future AgriculturalPricing Policy . 69 G. IncreasingIncentives for Agricutural Exports . 71 H. Consumer and Producer Prices and Subsidies . 72 I. Impact of Macroeconomic Policy on Agriculture . 75 X. CONCLUSION . .76 List of Working Papers and Annexes . .78 StatisticalAppendix . .79 Map No. IBRD 21310 EXECUTIVESUMMARY PART I: ALGERIANAGRI JLTURE: THEiPAST IN PERSPEC'CIVE AND POTENTIALFOR GROWTH Background.Past Performanceand Sourcesof Past Growth 1. The Governmentof Algeriahas undertakena series of fundamentaland far-reachingreforms, aiming to increasethe economy'sefficiency through better use of existingcapacity and placinggreater reliance on the growingprivate sector. The new orientationfocuses on: (a) developingthe instrumentsof macroeconomicmanagement including monetary and fiscal policy; (b) greater autonomyand flexibilityof publicenterprises; (c) reformingthe agricultural sector;(d) restructuringthe financialsystem; and (e) liberalizingtrade, price and incentive regimes. The reforms have been most fundamentalin the agriculturalsector where Governmentdismantled the state farm sector and replacedit with about 27,000private farms (groupsand individuals). 2. The longer term objectivesinvolve establishinga system in which enterprisesare autr ,mousand competitive,the bankingsystem acts as financial intermediaryin channelingresources to the most highlyprofitable activities, quantitativerestrictions are limited or removed, and price controls are restrictedto a few "scrategic"activities or goods. The reformsunderway in other sectorsw'Ll thus serveagriculture by allowinga more efficientdelivery system for inputs and agriculturalequipment, ensuring better after-sales serviceand supplyof spareparts, providing greater incentives for exports,and allowinga greaterflow of resourcesto the most productiveactivities. 3. Agricultureis, and will remain,a key sectorof the economy,accounting for 8% of GDP and 25% of employment.Mowever, food importsnow accountfor up to 20% of merchandiseimports and are growingrapidly. The growing"food gap" is a major issuefor Algeria. With soil and climaticconditions similar to its neighbors,Algeria probably has a comparativeadvantage in a number of major cerealsand some fruitsand vegetables. A drive to improveproductivity and increaseself-sufficiency of thesecrops can thereforebe justifiedon economic grounds. In addition,considerable potential exists for increasingagricultural exportsto expandand diversifythe exportbase. 4. The state farms,which accountedfor about60% of Algeria'sagricultural potential,were formedimmediately after Independencein 1962 on the best land in the country - - the narrow coastal strip in the north - - that had been operated by Europeans.'During the 1960s and 1970s,most of Government'sinvestments in agriculturewere directedtoward this sector.The privatesector comprising some Only 7.5 mn ha, or 3% of Algeria'sland area is suitable for agriculture.The best land was operatedby the state farm sector. The land south of the coastal strip, mainly operated by the traditionalprivate sector,has lower and more erratic rainfall; consequentlyit has a higherproportion under fallow. Overall,40- 45X of the 7.5 mn ha availablefor agricultureis left fallowin any year. - ii - 700,000-1,000,000farmers was, until the early 1980s, largelyneglected. During this period, Government also carried out numerous reforms of the state farm sector: an agrarian revolution which expropriated additional land from the private sector, the formation of a new "collective-farm"sector, the creation of Government-runcooperatives to handle inputs and output marketing, and the decentralization of decision-making. Despite these and other reforms, the majority of state farms had deficits that accumulatedfrom year to year and were kept operational only by a constant injection of Government funds to offset losses. Despite better resource endowment and access to inputs, the state farm sector performed only marginally better than the private sector in terms of yields of the major crops. Yields of private farmers were considerablyhigher than those of the state farms in pulses and most vegetables despite lower input use. 5. Since 1964, agriculture has grown at about 3% p.a. in constant 1986 prices, about equal to the growth rate of the population, and since 1979, at 5.5% p.a. which, by most indicators,is a good performance. While the important cereals sector has remained stagnant, the main soLrce of this growth over the past twenty years, and more especially in the last ten, has been the result of a shift into higher value, higher yielding vegetables and selected fruits and an increase in livestock production, particularly red meat and poultry. The increasedsupply of these commoditieshas been in response to increased producer prices resulting from the liberalizationof marketing and prices in the early 1980s, and has been largely demand driven. In spite of this high growth rate, with a population growth rate of 3.1% p.a. and a per capita income growth rate of 1.7% p.a. in real terms, the increase in agricultural production has been insufficientto prevent Algeria from becoming increasinglydependent on imports of basic foodstuffs: the self-sufficiencyratio for cereals has fallen from about 90% in 1962 to 25% in recent years and the value of food imports as a percentage of total imports has increasedfrom 11% in the 1970-72 period to over 20% in 19S8. The value of agriculturalexports has decreased continuouslysince 1970-72, falling steeply from abcut 12% of total exports to less than 1% (comparedto 16% in Morocco and 7% in Tunisia) in 1987, although this has been partly due to the sharp rise in the value of hydrocarbon exports. 6. Yields are low in
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