Lebanese agro-industrialists discuss challenges and opportunities in times of crisis – Executive

Posted: April 11, 2020 at 6:45 pm


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Gibran Khalil Gibrans poem Pity the Nation, published in 1933, could almost have been written about lockdown in modern day Lebanon. Most prophetic is the line pity the nation that eats a bread it does not harvest. Lebanon is indeed far from harvesting its own bread, given that we import 85 percent of our food needs and that even what we produce locally is reliant on imported items, be it in the packaging or raw material.

Amidst the ongoing economic crisis, now compounded with coronavirus crisis, prices on a wide range of imported and locally produced food items (based on individual and collective observations)including basics like potatoes, pasta, and riceare on an increasing trajectory, while consumers purchasing power is simultaneously decreasing.

Back in November 2019, the World Bank warned that, if the economic situation continued to worsen, 50 percent of Lebanese could be living below the poverty line. With the situation showing no signs of improvement anytime soon, a growing number of Lebanese are worrying about how to feed their families and collectively we have all been reminded of the importance of well-developed agriculture and agro-industry sectors. Unfortunately, the agriculture sector in Lebanon is underdeveloped and contributes a mere 5 percent to GDP, with an additional 5 percent coming from agro-industry, according to the UNs Food and Agriculture Organization (FAO).

It is this reality that is facing local stakeholders in food production who tell Executive, via telephone interviews, about the challenges of operating under the existing crisis and how the agriculture and agro-industry sectors can be supported in order for Lebanon to meet more of its food demands locally, and so decrease its dependency on imports.

Lebanons compounded crises have created new challenges for local food production sectors and brought them to the forefront of public debates on social media and news programs. However, agriculture and agro-industry had been struggling long before Lebanons economic woes accelerated in the last quarter of 2019. Before we talk about the crisis, we have to know that the agro-production sector was facing many problems even before the economic crisis, says Marc Antoine Bou Nassif, founder of LAtelier du Miel, a honey production company that has been in operation since 2012.

One of the problems facing agro-industry, according to Bou Nassif, is a lack of government imposed regulations and control over food production, which creates a chaotic local market and regulatory barriers to exporting Lebanese products in external markets (he gives Executive the example of not being able to export honey to European markets because a test for a certain enzyme is not available in Lebanese government labs).

The regional export market is another area where the food production industry has been suffering since the onset of the war in Syria in 2012 and the subsequent closure of land borders (the impact of which was felt starting 2015), says Mazen Khoury, production manager at Khoury Dairy. Because of the longer routes refrigerated trucks had to take to reach Iraq, in the example Khoury gave, the cost of transport increased from 10 percent of overall production cost to 40 percent. The regional market, according to him, is still suffering from many of the same factors today.

Indicative of a weakening economy, and another detrimental factor to local agro-industrialists according to Khoury, was the closure of regional (in 2017) and local (in 2018) supermarket chains. These closures in addition to the smaller markets who were also struggling with paying back the credit they owed us caused us an estimated annual loss of $500,000, he says.

It is in this fertile ground of challenges that buds of Lebanons ongoing economic crisis made their first appearance. As the agro-industrialists interviewed for this article explain, Lebanons food production industry is a value-added one, in the sense that almost all raw materials are imported, paid for with foreign currency, and are used in Lebanon to make the final product.

Food producers were faced with a severe cash flow problem when, after the banks reopened on November 1, 2019 (following almost two weeks of closure), their credit lines were cut and access to their dollar accounts severely restricted. Its like somebody opened a new company on November 1 and they have zero cash flow, says Youssef Fares, general manager of olive production company Olive Trade, which owns Lebanese olive oil brand Zejd. Our only cash flow is the stock we have at hand and so we are trying to sell that and use the money to buy our supplies, because the money we have in the bank has no meaning anymore. This is the big problem. Fares tells Executive that he only imports the bottles and containers for his olive oil because Lebanese glass production factory Soliver shut down in 2017.

The increased parallel foreign exchange (FX) rate coupled with the restrictive banking policies led to both financial and access related difficulties across the sector. Speaking for Biomass, a company which produces an organic line of fresh produce, dairy products, and pantry items, its executive manager Mario Massoud says: Most of the organic raw material we use in farming [from the seeds and animal feed to the greenhouses and equipment] is imported. This has dramatically increased in cost and became more scarce, making it more costly to operate than before October 2019, because of the halting of the credit lines and the issues with the FX exchange. He says that buying from local agricultural distributors is also costly since their prices have increased as well (the price of organic seeds has increased threefold, for example) and they ask to be paid in cash dollars.

Khoury also tells Executive about the increased costs from local suppliers, saying that even the price of the milk they use as raw materialwhich they buy from the local farms they control to supplement their own supplyhas increased from LL900 per liter to LL1,350 (which was the amount set by the Ministry of Agriculture on March 4 to support farmers, who have had pay the increased cost of imported cattle feed). Khoury says their cost of production has increased by roughly 50 percent because of these factors.

Another major consequence of the economic crisis, according to Nadine Khoury, CEO of Robinson Agri, is that the halting of credit lines means the company can no longer extend credit to farmers, who are dependent on that support. The problem with the agriculture sector is that banks do not give loans to individual farmersyou need land or assets as collateral, when most farmers rent the landso what usually happens is that private sector agriculture companies lend to most farmers, she explains. The economic crisis cut off our credit limits in the banks so we were no longer able to lend to these farmers and started asking for payments in cash. Robinsons Khoury explains that since the spreading of COVID-19 and increased fear about possible food shortages and limited imports during the crisis, several NGOs, in collaboration with agriculture companies, have launched campaigns to support small growers and sustain the agricultural sector. These interventions could help in alleviating the hard times we are going through, although they are not enough on their own, she says.

The coronavirus has largely made matters worse for Lebanons food producersalthough some have seen sales pick up with Lebanese in lockdown looking for healthier options.

Local sales of Taqa, a Tripoli-based wholesale bakery that produces healthy snacks, had decreased by 35 percent since the start of the economic crisis in October 2019, but Soumaya Merhi, founder of BreadBasket sal, which owns Taqa, says they have stabilized since the beginning of 2020 with the start of the coronavirus lockdown. We have experienced a positive shift in our product sales because people are looking for healthy products to consume at home, she says.

Massoud has also noticed this increased demand on health-conscious products since news of the coronavirus hit Lebanon, although he says it is too soon for him to quantify it. Also, people are now experimenting with cooking in their homes like never before, he says. For farmers and sellers of fruits and vegetables or healthy foods, this is opening a bigger market for them [as those looking to prepare healthier meals at home source fresh produce]. According to Massoud, demand for Biomass products has increased tremendously in the past month, both regionally and locally, to an extent that he is worried they wont be able to keep up in the supply side (these observations are based on feedback at points of sale, when asked for a percentage increase he told Executive no figures had been finalized yet). If we want to increase the production of lettuce, tomatoes, and cucumbers, we should have done so three months ago, he says. We are starting to do this now and expect the augmented harvest in August. We expect the demand to remain high because people are now more aware of the benefits of eating healthy, fresh, and organic foods.

Those Executive spoke with have attributed the desire to cook at home and eat more healthily as behind consumer decisions they have witnessed during the lockdown period, though caution it is too early to determine the longevity of these trends or their impacts on their businesses long term. Increased interest in eating healthy and home cooked meals aside, the coronavirus crisis has caused disruptions to the food production business. Besides making imported goods even scarcer and costlier to secure, Massoud says coronavirus has had a negative impact on their exports. We used to export via air freight with Middle East Airlines but today the airport is closed, he says. We do have a few cargo planes, such as DHL, but they are not enough and so everyone is fighting for cargo space in air freights. Because of the corona[virus] lockdown, export is kind of limited or more expensive.

A big percentage of Zejds clients are in the hospitality sector, from caterers to restaurants and hotels, according to Fares. With hospitality outlets across the country shut down because of the coronavirus pandemic, Zejds local market demand is down to almost zero. While Khoury admits that agro-industry is faring better under the coronavirus lockdown than other sectors that have been completely shut down, he tells Executive that despite it being too early for exact numbers he has noted a drop in consumption of dairy products that he attributes both to a decrease in consumer purchasing power and to people being more conscious of food waste (buying only the quantities they need and avoiding wasting food).

Food producers struggles with the increased cost of production, and the other operational pressures they are dealing with, makes it increasingly difficult for them to sustain their businesses without increasing their prices. Producers are in full knowledge, however, that most consumers are struggling financially and cannot afford excessive price hikes, and so tell Executive they are trying to maintain a balance between managing their costs without pricing out their customers.

Most of the agro-industrialists interviewed mentioned relying on their export markets to introduce fresh money into their local accounts, which, in turn, are used to pay their suppliers. With the high conversion rates, its almost impossible for you to continue without guaranteeing fresh money so, for me, its become essential to keep my good books with my export partners in order to sustain my purchasing power, says Merhi, who imports 20 percent of her raw material and now exports almost 50 percent of her production to Qatar, Canada, and very recently to Saudi Arabia.

Merhi says she has been able to keep Taqas price as is not only by relying on exports but also through producing less quantities, trying to access raw material locally when possible, negotiating the best possible deals with her suppliers, and creating synergies with local producers who use similar ingredients as her.

Khoury says that, despite a long resistance to doing so, those in the dairy production sub-industry could no longer absorb the compounding cost increases and so hiked their prices by 8 percent in January 2020, followed by another 8 percent increase in March. He explains that while Dairy Khourys prices have increased by 16 percent so far this year, their cost of production has increased by around 50 percent. Biomass also only recently, in early April, introduced an average price increase of 15 percent on some products, although they are trying to keep their prices in check by leveraging both their export markets and stocks and attempting to negotiate better deals with their suppliers, according to Massoud.

This increase in the price of food, in a time when a big percentage of Lebanese are losing their jobs or experienced reductions in their salaries, has scary implications. The potential problem is bigger than a factory closing or companies going bankrupt, says Khoury. Today, if people can no longer afford to feed their children, we will be facing a social problem where people might steal or commit crimes before they allow their family to go hungry. The problem started with an economic crisis and corona[virus] but it is heading to an even worse direction of a problem of famine.

Given this scenario of increased prices on imported foodstuffs (and the upward creeping prices of locally produced ones) it has become clear that if the Lebanese government wants to avoid the looming threat of hunger among the countrys population, then one of the immediate and more effective ways of doing so is through supporting local food producers. Today the crisis is an opportunity to solve the key problems facing beekeeping and agro-industry in general,Bou Nassif. It is forcing us to give importance to our local production since we can no longer import at the same rate as before. We also have to export agro-industry products to get fresh money into the country so thats another reason to support the sector. Supporting local food production, according to Merhi, also has the added benefit of employing Lebanese, decreasing dependency on imported foods, and therefore benefiting the local economy through generating a circular economy.

Both Fares and Robinsons Khoury tell Executive separately that the government should subsidize some of the food production industrys imports. A new strategy should be placed by the government who is the body responsible to provide real solutions to the current economic collapse, Khoury says. What is needed in the short is an immediate action plan to assist the agri input companies by subsidizing their import needs just like they are doing with fuels, grains, and medical supplies. We still only need $75 million till the end of 2020. She explains this figure is based on the cost estimations made by the association of the distributors of supplies for agricultural production in Lebanon, and was presented to Riad Salameh, the governor of Banque du Liban, Lebanons central bank, and the agriculture minister separately a couple of months ago. For Mazen Khoury, the short term measures the government can take in support of the sector are subsidizing the difference in the currency exchange or, if that is not possible, supporting agricultural businesses with exports so they can sustain themselves with the fresh money accounts.

While short-term measures such as subsidies are vital to offer immediate support to the sector, it is also important to keep the lessons learned during these crises in mind and foster long-term measures to develop the food production industry. The aim, according to those interviewed for the article, is not to have food production be the sole, or even the strongest contributor to GDPas there are too many obstacles in the way for that (see article on food sufficiency)but rather to develop it enough to at least meet local demand and be less dependent on imports. I hope now we understand that the economy should be built on a multitude of factors, such as a well-planned agriculture sector that can contribute 8 percent to GDP, good industry (including agro-industry) that is 20 to 25 percent GDP, and also services and tourism, says Atef Idriss, CEO of MENA Food Safety Associates. That way, if one sector is hit the other sectors can support it. We got to a time when our economy became too dependent on services and tourism and we spent a big portion of our budget to develop infrastructure, real estate, and tourism in urban areas, forgetting that we have citizens in rural communities such as areas of the Bekaa who can only live from their land, or in the south who want to export their olive oilone does not cancel the other. We need a minister of economy who can look at the big picture and develop an interconnected economic model for Lebanon.

The need for a long term vision and plan developed by the public sector that would guide the development of the food production industry was stressed by all those to whom Executive spoke. The plan would have, as its main pillar, the reduction of dependency on imports both for needed ingredients in the agro-industry and the supply chain materials for agriculture. For local consumption to [help improve Lebanons trade balance], it is important to produce locally and try as much as possible to meet local demand in some products, such as wheat or potatoes, through local production, Fares says. There needs to be a strategy to provide food for people at lower costs, so that means with reduced imports.

To Merhi, any plan to support the agro-industry sector through the production of raw material should follow through the production process until the end product. To invest in agro-industry, you need to have the supply chain buckled, she says. To simply plant something is not enough, you need to think of distribution, supply, and workers [employed] under good working conditions. She adds that, in order for this to succeed, it needs private sector initiative from individual companies with the support of the public sector, the latter of which she sees as having failed agro-industrialists to date.

We are living in unprecedented times globally, where nothing is certain and the future is obscure. In Lebanon, this is compounded by an ongoing economic and financial crisis. Lebanese are dealing with the very real worry of going hungry, having lost parts of their incomes or their jobs and seen prices of food increase. This should not be a time to panic and give in to despair, however, it should instead be the time for the government to take immediate measures to support local food production. Lebanese food producers were succeeding prior to these crises, despite all the obstacles in their pathsall they are asking for now is for some support to be able to feed the nation.

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Lebanese agro-industrialists discuss challenges and opportunities in times of crisis - Executive

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