Middle East and North Africa Region: An Important Driver of World Agricultural Trade
The Middle East and North Africa (MENA) region accounts for a significant and growing portion of worldwide food and feed imports. Despite the violence and political uncertainty hanging over parts of the region, the MENA’s growing populations and rising incomes are driving higher demand for major food and feed grains, soybeans, cotton, and meats. This demand cannot be fulfilled by domestic production alone given the region’s climatic and geographic constraints, thus creating a large need for food imports. The United States has historically played an important role in meeting this region’s food needs, but recently, new exporters from South America, Europe, and Asia have emerged to compete for the MENA region’s market share, exploiting various production and transport cost advantages. For certain commodities, the effects of this new competition have translated into fewer U.S. shipments to the MENA and a smaller share of the region’s market.
Introduction
Over the next 10 years, growth in worldwide demand for crops and animal products is expected to occur primarily in developing and emerging economies. With expanding populations, rapid urbanization, and rising incomes, diets in low- and middle-income countries are gaining calories not only from increased consumption of staple grains and oilseeds, but also from diversification toward beef and poultry (Trostle and Seeley, 2013). Rising consumption in many of these countries, however, is outpacing their ability to produce, with consequences for production and trade by agricultural exporters such as the United States. Among the most important destinations for agricultural exports is the Middle East and North Africa (MENA) region.
Like other parts of the developing world, the MENA region has experienced strong population and income growth, which has contributed to rising food consumption and shifting dietary preferences. But growing demand, coupled with a climate-constrained production potential, has forced the region to rely increasingly on food imports, raising its trade profile. Figure 2 shows that wheat, rice, corn, and poultry imports into the MENA region account for a sizable share of total world imports for these commodities.
Apart from these long-run trends, more recent events have added complexity to the MENA region’s food demand and import profile. The food price crises that struck markets around the world in 2007-8 and again in 2010-11 contributed to worldwide political instability, and the MENA region was no exception. (Trostle, 2008; Arezki and Brückner, 2011; USDA, 2011). Rising agricultural commodity prices, occurring in tandem with dramatic changes in governance, stretched the ability of some MENA governments to subsidize basic staples, jeopardizing the food security of their poorest citizens (Cha, 2011; Ciezadlo, 2011; Hanley, 2011).
The MENA region’s combination of growing demand, weak agricultural production, and, in some cases, unstable governments and civil conflict, increases its vulnerability to economic shocks and volatility in global food markets. As a key food supplier to the MENA region, the United States
can play an important role in meeting the region’s food needs, supplying not only traditional crop commodities but also high-value products such as meat and poultry (Westcott and Trostle, 2012). Broader policy initiatives have paralleled these opportunities, including Free Trade Agreements (FTAs) signed with five MENA countries that facilitate more open trade and investment (Freund and Portugal-Perez, 2013).3
This report examines some of the features of the MENA region’s agricultural economy, its contribution to the projected growth of global agricultural trade, and the resulting prospects for U.S. agricultural exports to the region. The report assesses production, consumption, and trade developments for major agricultural commodities and identifies which markets are likely to matter most to U.S. exporters.
Overview of the MENA Region
Although there are many cultural commonalities among the countries that compose the MENA region, considerable variation exists among their populations, agricultural production, incomes, import patterns, and political governance (see Box, “Analyzing a Diverse Region”). To illustrate this diversity, the overview will highlight some individual countries. Other parts of the analysis, however, follow the regional aggregations used in the USDA’s International Long-Term Projections (USDA, 2015). The individual countries, chosen primarily for their market size and their influence on trade, are Egypt, Morocco, Iran, Iraq, Saudi Arabia, and Turkey. The remaining countries are aggregated into two broad groups: Other Middle East (OME) and Other North Africa (ONA).
Population and Economy
The MENA region is economically diverse, encompassing the oil-rich states of the Persian Gulf
as well as relatively resource-scarce countries such as Egypt, Morocco, and Yemen (World Bank, 2014a). The region’s population, now nearly 500 million, grew an average 2.1 percent annually from 2004 to 2013, faster than the world average of 1.2 percent per year and one of the fastest rates in the world. The three most populous countries, Egypt, Turkey, and Iran, are home to more than 50 percent of the region’s people. The population is 73-percent urbanized, a share that is projected to exceed 75 percent by 2023 (World Bank, 2014c).
The MENA region’s income is rising, reaching a per capita average of over $7,600 in 2013, with around 2.6 percent annual growth over the past 10 years.4 But this average growth rate obscures considerable variation within the region. In 2013, the United Arab Emirates (UAE) reported the highest per capita income at $59,885, while the lowest was in Yemen, at $1,135. In 2013, the region’s total GDP accounted for about 5.2 percent of the world’s economy, with Turkey occupying the top spot, followed by Saudi Arabia and Iran (Table 1).
In general, the MENA’s most significant sources of foreign currency income are mineral exports (including oil), tourism, foreign direct investment, remittances, and foreign aid, with the largest economic actors in the region being governments and state-owned enterprises (Malik and Awadallah, 2013). While poverty in the region is not as acute as in other parts of the developing world, around 40 million people there still survive on less than $2 per day. In Egypt, poverty according to this measure afflicts 15 percent of the population, and for Yemen, it is nearly 50 percent (World Bank, 2014b).
With a growing population and limited economic diversification, unemployment in the region remains problematic (Akhtar, Bolle, and Nelsen, 2008). Like per capita incomes, unemployment rates in the region vary widely (Appendix Table 1). In Yemen and Tunisia, unemployment is nearly 18 percent, while in Kuwait and the UAE, the rate is less than 5 percent (ILO, 2013a). But these rates mask a burgeoning youth cohort of the population, which is projected to experience between 25 and 30 percent unemployment over the next 5 years (ILO, 2013b).
International Trade and MENA Policies
The MENA region exported about $1.4 trillion worth of goods and services and imported about $936 billion in 2012 (measured in 2012 f.o.b. and c.i.f. $US, respectively), accounting for just under 10 percent of total global trade that year (Table 2). Imports are comprised mainly of manu- factured goods, while fuels and mining products account for the bulk of the region’s exports. Agriculture’s share of the region’s total imports was around 15 percent, and its share of the exports was about 3 percent.
The European Union (EU-28) is by far the leading trading partner for MENA countries, particularly dominating the export and import markets of North African countries (Table 2). The United States, China, Japan, South Africa, Canada, and India are also major trading partners, while Eastern Europe and South Asia are becoming important competitors. In 2012, U.S. goods and services accounted for 8.3 percent of all the region’s imports. Meanwhile, U.S. purchases of MENA goods and services added up to 9.6 percent of total U.S. imports. Trade among MENA countries is relatively low, accounting for less than 10 percent of all the region’s exports (Malik and Awadallah, 2013).
Within the agriculture sector, the value of U.S. exports to the MENA region has increased substan- tially since 2007. In 2011/13, the average trade surplus with this region reached more than $8.7 billion, accounting for about 23 percent of the total U.S. agricultural trade surplus. The MENA is an important destination for a variety of U.S. agricultural products. The main U.S.-grown commodities include wheat, corn, soybeans, almonds and walnuts, and poultry. Major destinations include Egypt, Turkey, Saudi Arabia, Israel, Morocco, and Tunisia. In turn, the United States imports commodi- ties from the MENA, including horticulture products, sugar, oilseeds and tobacco products, from Turkey, Israel, Morocco, Tunisia, and Egypt.
Trade policy in the MENA region varies from country to country. High import tariffs on agricultural commodities are levied in Egypt, Morocco, and Turkey, while Gulf Arab countries impose rela- tively small duties on imports. Several factors may explain these differences, including a country’s ability to produce food domestically and the size of its agricultural sector. Figure 4, as an example, plots average agricultural tariffs for several MENA countries against the agricultural share of each country’s GDP. As the graph shows, countries with a larger fraction of economic activity based
in agriculture erect higher tariff barriers, likely a result of policymakers’ interests in protecting domestic farmers.
Apart from tariff barriers, the MENA also imposes a variety of non-tariff measures (NTM), including border controls and technical and sanitary and phytosanitary (SPS) regulations, that effectively limit foreign-produced goods from entering local markets. In an analysis of five MENA countries for which data were available, Augier et al. (2012) report that non-tariff measures were applied to 50 percent of all imports, a rate that is not exceptional in comparison with other countries around the world. Within the region, however, Morocco and Egypt stand out for the scope of products covered by NTMs and the tariff equivalents associated with importing them. For example, in Morocco, the ad valorem equivalent of NTMs applied to wheat is 108.5 percent and 375 percent to rice, mostly due to SPS regulations. (Augier et al., 2012).
Despite these impediments to trade, most countries in the region are members of the World Trade Organization (WTO) and are bound by its rules governing certain tariff and non-tariff measures. In addition, the United States has signed Free Trade Agreements (FTAs) with Jordan, Israel, Bahrain, Morocco, and Oman, often providing for further reductions in tariffs for U.S. products, including agricultural ones.
Factors Driving Agricultural Production, Demand, and Imports
Natural Constraints on Production
For most of the MENA region, geography and climate combine to impose severe constraints on agriculture production. Vast deserts stretch across North Africa to the Arabian Peninsula, leaving little arable land for most of the region’s population. Growing populations, in fact, have reduced per capita arable land availability to 0.19 hectares, one of the world’s lowest rates (FAO, 2014). Exceptions exist, of course, with the area covering the historic Fertile Crescent—which includes Turkey, Lebanon, parts of Syria and Jordan, and the Nile River Delta—offering sufficient moisture to sustain productive agriculture.
Precipitation levels in the region are among the world’s lowest (FAO, 2011). North Africa’s annual rainfall averages about 96 millimeters, while the Middle East’s is about 217 millimeters, values approximately one-sixth and one-third, respectively, of the rainfall levels in North America (FAO, 2011).5 Rain-fed agriculture in the MENA is supplemented with irrigation systems on about 30 percent of arable land, though the vast majority of this is concentrated in Iran, Egypt, and Iraq.
While production has grown over the past decade, cereal yields across the MENA region average around 1.9 tons per hectare, well below the 3.7 tons per hectare world average (FAO, 2014). Gaps between world and regional average yields for all crops combined are estimated at 60 percent in North Africa and 49 percent in the Middle East (FAO, 2011), suggesting considerable room for growth through improved inputs. Moreover, highly variable rainfall in areas that rely on rain-fed agriculture contribute to large swings in year-to-year yields. In Morocco, for example, wheat yields have averaged about 1.5 metric tons per hectare (MT/ha) since 2000, though depending on the rain- fall in any given year, this value could jump or fall by nearly 50 percent.
Food Variety Demands Rising with Population and Income
Food demand is increasing in the MENA region for two key reasons: population growth and rising incomes. Growing populations present additional consumption demand for commodities across the board. Rising incomes imply not only greater calorie consumption, but also a greater diver- sification of diets (FAO, WFP, and IFAD, 2012). Over the past 50 years, the composition of the MENA region’s diet has changed significantly. While overall calorie consumption rose from 1961 to 2007 (the most recent year of comprehensive FAO estimates of calorie intake), the percent of calories derived from cereals declined, while the shares derived from meats, dairy, and vegetable oils increased (Golzarand et al., 2012). Despite the relative decline of cereals in the MENA diet, however, wheat remains the dominant staple grain, accounting for up to one-third of the calories consumed in the region (World Bank, 2009).
The most dramatic change in the MENA diet is the increasing consumption of meats, a feature commonly observed as incomes grow. Figure 5 illustrates this feature for poultry, the largest cate- gory of meats, showing how the region’s different income levels correlate strongly with per capita consumption. For the MENA region as a whole, average annual per capita meat consumption has more than doubled from around 12 kg in the 1990s to about 24 kg beginning in 2010, with projec- tions showing similar growth into the future (USDA, 2015). Over the 1990-2010 period, protein from animal products increased between 20 and 45 percent across the different countries in the region (FAO, 2014).
While the MENA countries import large volumes of animal products, domestic meat production, particularly poultry, has also grown significantly. Regional poultry production grew by nearly 5 percent annually from 2000 to 2011 (FAO, 2014), leading to a corresponding growth in demand for animal feeds, primarily corn and soybean meal.
Imports Rising with Income
Growing populations and unfavorable geography drive much of the region’s reliance on imports, but incomes also matter. That is, not only do higher incomes cause diets to diversify, they permit
a greater fraction of food purchases to originate from overseas. Since incomes within the MENA region vary tremendously, there are large differences in cross-country import demand (fig. 6). Higher incomes appear correlated with greater import shares of grains. Saudi Arabia, a high-income country, imports nearly 80 percent of its corn, wheat, and rice, while a lower middle income country like Egypt imports less than 40 percent. Outliers exist, thanks to the more favorable geography
and climate of certain countries—Turkey is a good example—but in general, imports and incomes appear to be positively linked.
