With over a third of Algeria’s non-oil added value coming from its agribusiness sector, a recently published survey of the country’s food-processing market made for some interesting reading. The survey underlined the sector’s shortcomings in terms of development strategy, despite a number of positive aspects.

Conducted by Tiers Consult, an Algiers-based consultancy, the report rightly emphasises the sector’s importance for Algeria, and examines the development of the country’s key food-processing sub-sectors in relation to the country’s needs. With over $8bn in added value in 2003 - 2004 figures are only available for the public sector, which makes up a decreasing and mostly inefficient part of the sector - Algeria’s agribusiness sector contributes an impressive 38.5% to the country’s non-oil added value.

The sector also holds 1.4m permanent jobs - almost 23% of the employed workforce - excluding the buoyant informal sector and seasonal jobs. It has undergone rapid growth in the last few years, with surging production capacities in a number of segments - some 900 new companies were created in the sector in 2003 alone. Investment data shows that between 1993 and 2003, the Algerian investment agency (ANDI) and the country’s banks have handled over 7000 investment files relating to this sector. Not all of these went through successfully of course, but the figure does give some idea of the interest private investors have had in food processing.

While the sector - as with most of the Algerian economy - was almost entirely state-owned until 1990, the privatisation of state-owned enterprises (SOEs) and business creations have made the private sector the dominant force in food processing, which today boasts around 7000 private companies, among which 95% are small- and medium-sized enterprises (SMEs), mostly family businesses.

However, some of these have been able to become large companies able to compete on the international market.

The best example is arguably the Cevital group. Created in 1997 by Kabylian businessman Issad Rebrab, Cevital’s initial goal was to produce enough refined sugar and cooking oil to satisfy the needs of the Algerian market, which once had to import large quantities of these products. The company thus invested in state-of-the-art production facilities, including a sugar refinery with a 600,000 tonnes per annum capacity and an oil processing plan with a 570,000 tonnes per annum capacity.

The business turned out to be highly profitable, as Algeria’s high import duties and transportation costs gave Cevital a decisive competitive edge. Rebrab also invested in a margarine processing facility which can produce up to 180,000 tonnes.

These achievements have allowed Algeria to stop importing these products, thus strengthening the country’s trade balance, and Cevital has even started to export its excess production to the region.

With $520m in revenues in 2004 and pre-tax profits of $190m, Cevital contributed $100m to the state’s fiscal revenues in 2004, and injects $1m in salaries each month into the city of Bejaia in Kabylia, a region long neglected by the central administration’s economic development plans. It also makes up a major part of the port of Bejaia’s traffic, and generates sorely needed indirect employment.

With its modern production and management methods, Cevital’s performance is evidence that Algerian business can be as efficient as European, with an impressive payroll-to-revenue ratio of less than 3%.

Cevital is now planning to extend its Bejaia complex by setting up an oilseed trituration plant with a capacity of 2.5m tonnes per annum, with a large part of this output poised for export, as well as a cattle-cake plant. The group’s objective is to export 50% of its raw oil output and two-thirds of its cattle-cake production.

The group is also gearing up for an expansion of its sugar refining capacity from 600,000 to 1.6m tonnes per annum - thus creating the world’s largest sugar refining complex. This is in order to establish Cevital as a world leader in the sugar market, as the EU is expected to decrease its refined sugar output by 5m tonnes in 2006 due to the suppression of agricultural subsidies in the World Trade Organisation (WTO) framework.

Cevital even plans to use the cattle cake its new plant will produce and to invest in cattle and milk production equipment in order to increase Algeria’s milk production from the current 2bn litres per annum to 3bn, thus matching national consumption. Algeria imported $600m worth of milk products and derivatives in 2004.

With this project, the Bejaia group could generate foreign exchange worth 75% of Algeria’s non-oil exports, which totalled a trifling $788m in 2004. This figure must be compared to Algeria’s food imports, which alone amounted to $3.6bn in 2004, up 34.5% over 2003, according to the custom’s statistical office. Food products make up 20% of Algeria’s imports, while the country used to be a net exporter of cereals, fruit, olive oil and wine.

The Cevital group is also planning to set up a fruit juice factory, using oranges and grapefruit grown in its own 10,000-ha farm in the Algerian south, while the bulk of local producers rely almost exclusively on imported concentrate.

However, this points out to the main weakness of Algeria’s agribusiness sector, a point underscored by Tiers Consult’s survey. Most producers have focused on processing imported raw products such as raw sugar and oil, or on fruit and tomato concentrate, instead of capitalising on their homeland’s agricultural potential. Indeed, Algeria has a significant potential for the production of fruit, including oranges and other citrus fruit, tomatoes and olives, as well as some kinds of vegetables, such as artichokes.

This shortcoming might undermine the sector’s competitiveness in the medium term, with the advent of free trade expected to reduce the national industry’s competitive edge, and the informal sector ready to flood the Algerian market with illegally imported products at unbeatable prices.

The main reason for the lack of development of industries processing local products is to be found in the agricultural sector, which has been neglected by the state’s development planners for too long, while agricultural land has often been diverted or even misappropriated by speculators. As a result, industrial farming is little developed and food processors have to rely on imports to feed their businesses.

With its agricultural potential, financial nerve, low labour costs and ready regional market, Algeria has what it takes to become a major producer of processed foods in the region. However, achieving this will require more than just private initiative. Political will, thoughtful planning and incentive policies are now needed to develop Algeria’s once-flourishing agricultural base and develop synergies with the agribusiness sector.

- Sources : Emerging Markets Economic Briefings par Oxford Business Group - 17.06.2005
- Site of Cevital SPA