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Near East and North Africa

REGIONAL OVERVIEW

 

General economic performance

The overall economic slowdown in North Africa and the Near East was mainly a reflection of poorer performances in the largest economies of the region.
 Economic growth in the Near East and North Africa region as a whole decelerated, from 4.8 percent in 1996 to 3.5 percent in 1997.25  The overall slowdown was mainly a reflection of poorer performances in the largest economies of the region, with Egypt being a major exception.

 Thus, GDP growth in Turkey slowed from 7.1 percent in 1996 to an estimated 5.7 percent in 1997, and a further slowdown is projected for 1998 as the government attempts to restrain an overheated economy, reduce the rate of inflation (which in 1997 remained in the range of 80 to 90 percent per annum), and bring fiscal balances under control. In the Islamic Republic of Iran, the rate of real GDP expansion slowed from 5.1 percent in 1996 to 3.2 percent in 1997, mainly as a result of weak revenues from oil and gas exports. The poor economic performances in 1997 of two of the major North African economies, Algeria and Morocco, were largely the result of poor weather conditions negatively affecting agricultural production. In Algeria drought severely curtailed agricultural production, contributing to the slowdown in economic growth to only 1.3 percent in 1997, from 3.8 percent the previous year. The economic impact was even more pronounced in Morocco, where a sharp decline in agricultural output in 1997 translated into an estimated 2.2 percent contraction in GDP. Generally, the performance of the Moroccan economy in recent years has been persistently marred by sharp weather-induced oscillations in agricultural production. The Egyptian economy, on the other hand, in 1997 witnessed a further strengthening of economic growth which increased for the fifth consecutive year to a rate of 5 percent. The continued economic recovery bears testimony to the success of the economic stabilization and reform policies pursued by the Egyptian Government since 1991, which brought about a reduction in inflation, improved external and fiscal balances and a stabilization of the currency.
 

FIGURE 33
NEAR EAST AND NORTH AFRICA
 

 Prospects for 1998 are for a further deceleration in GDP growth owing, in particular, to the likelihood of continued weak international oil prices which would restrain economic activity in the oil-exporting economies of the region. IMF projects GDP growth for the region to be about 3.5 percent, which would be the second lowest yearly rate of the 1990s, after the crisis year 1994. Lower rates of growth are expected for Turkey as a result of expected tighter fiscal policies to restrain demand and reduce the budget deficit, and Iran, which will suffer the impact of depressed oil prices, as will the other oil-exporting countries. On the other hand, higher rates of growth are projected in Algeria and Morocco, reflecting to a large extent a recovery from the weather-induced poor performances in 1997. In Egypt, growth is expected to remain vigorous at around 5 percent, the same as in 1997. Prospects for 1999 are for some acceleration in GDP growth, which should reach 4.4 percent in the region as a whole.
 

Agricultural performance

Agricultural  production in the North Africa and Near East region declined by an estimated 4 percent in 1997, after a 10 percent expansion in crop and livestock production the year before.
Following the highly favourable performance of 1996, which saw crop and livestock production in the region expand by almost 10 percent, 1997 recorded a decline in agricultural production, currently estimated at almost 4 percent.

 Most severe was the setback in northern Africa, where unfavourable climatic conditions caused agricultural production to fall by about 15 percent in both Algeria and Morocco and 3 percent in Tunisia. In all three countries, cereal production in particular has fluctuated widely according to weather conditions in recent years. Drought caused cereal production to fall in Algeria from 4.9 million tonnes in 1996 to less than 0.9 million tonnes in 1997, the lowest level since 1966; and in Tunisia from 2.9 million tonnes in 1996 to around 1.1 million tonnes in 1997. Similarly, in Morocco insufficient rainfall in the beginning of the year led to a cereal harvest in 1997 of only 4.1 million tonnes compared with 10.1 million tonnes in 1996, but still above the even more disastrous harvest of only 1.8 million tonnes in 1995.

 Crop and livestock production in 1997 also contracted in Turkey in spite of a slightly increased cereal harvest, as declines in production were recorded for livestock and a number of other food and non-food crops, including cotton, oilcrops (particularly olives), fruits and vegetables. Agricultural production is also estimated to have declined somewhat in Iran, and more markedly in the Syrian Arab Republic as cereals, and food crops in general, suffered from unfavourable weather conditions. On the other hand, the Syrian cotton crop reached a new record, reflecting a significant increase in planted area. In Iraq, estimated agricultural production declined in 1997, following the increase in 1996, with cereal production down by about 25 percent. Per caput agricultural production in Iraq continues to linger at levels well below those of the 1980s.

 In Egypt, agricultural production in 1997 remained at the same level as the preceding year, following two consecutive years of strong expansion at 8 percent per year. Although production in Saudi Arabia expanded for the second consecutive year, it only recovered very partially from the decline of over 20 percent recorded in 1995. In particular cereal production declined sharply from its peak level of 5 million tonnes in 1994, to about 2.4 million tonnes in 1997, following reductions in government producer price support. In terms of value of output, such reduction has been only partially compensated by an expansion of production of fruit and vegetables.
As regards prospects for 1998, improved climatic conditions in Algeria, Morocco and Tunisia are expected to result in a significant increase in cereal crops relative to the disastrous shortfalls of 1997. Crop prospects also appear promising in Turkey and Saudi Arabia, while in Iraq the outlook appears more uncertain owing to inadequate rainfall conditions and persistent shortages of inputs.

 In a longer perspective, most countries have recorded sizeable expansions in agricultural production over the past decade, the major exceptions being Iraq, where agriculture has been severely depressed by market, investment and input constraints linked to the economic embargo, and Saudi Arabia, as a consequence of sharp reductions in farm subsidies. For Algeria and Morocco, where agricultural output is subject to wide seasonal fluctuations, a clear trend is not easily discernible.

 When translated into per caput terms, agricultural performances in the region over the last decade appear less clearly positive. Among the larger countries, only Iran and Egypt have achieved clear and relatively consistent gains in per caput production, while in Turkey per caput production has been somewhat reduced overall. In the case of the Syrian Arab Republic, per caput agricultural production did tend to increase since 1990, but not enough to compensate for the significant declines recorded throughout the 1980s. Trends are, again, unclear in the widely unstable Maghreb agricultural sectors, but some upward movement in per caput production appears to have taken place in Tunisia.
 

Water resource management

Severe drought-induced damage in several North African countries in 1997 underscored the crucial importance of water resource management for the region.
The severe damage caused by drought in several countries in northern Africa in 1997 underscored, once again, the crucial importance of water resource management for the countries of the region. In Morocco, where irrigated land accounts for 13 percent of total arable land and land under permanent crops, the drought in 1997 was only the latest of a series of regular similar occurrences. In order to reduce the excessive dependence on rainfed agriculture, the Government of Morocco has established a policy unit specifically charged with addressing this issue. At the same time, the government is pushing ahead with its policy of expanding irrigated areas through an ambitious programme of dam construction. Core objectives of the programme include an expansion of agricultural exports through irrigation and an increase in power supplies. Algeria, where irrigated areas cover only 7 percent of arable land and land under permanent crops, is also pursuing a programme of dam constructions, and works have been resumed on a major dam project which had been abandoned in 1993. In Tunisia, the national water policy foresees the construction of a number of large and smaller dams, but the potential for further expansion of the irrigated area is limited. Other countries where efforts are being made at expanding irrigated areas are Turkey, notably with its South East Anatolia project, and the Syrian Arab Republic.

 In Jordan, the Jordan Valley Authority is focusing its efforts on water conservation and improved irrigation efficiency to increase water availability to agriculture. Examples of problems derived from water use can be found in the Syrian Arab Republic, where the unrestricted drilling of wells in the past affected the underground water levels in some areas, and Yemen, where the water table is falling rapidly. In Saudi Arabia, cereal production has been based on non-renewable underground aquifers. In recent years, the government has been deliberately attempting to shift production away from water-intensive cereal production to more water-efficient types of horticultural production.

 By far the most ambitious water management scheme in the region is, however, Egypt’s South Valley project which was announced in 1997. The scheme aims at expanding both agricultural and populated areas of the country by diverting water from Lake Nasser. When completed, the scheme is planned to be able to settle 6 million people and irrigate about 0.5 million ha. The Egyptian Government announced that the total cost of the scheme up until 2017 would be 300 billion Egyptian pounds (close to $90 billion). The first phase of the project involves the construction of an irrigation canal of the length of 67 km to reclaim an area of 34 000 ha, to be extended subsequently.
 

Policy developments

Recent progress in economic and agricultural reform has been uneven and several governments have reintroduced or reinforced intervention practices.
 Most countries of the region pursued market liberalization and deregulation policies in the course of 1997 and early 1998. However, progress in economic and agricultural reform was uneven and in several cases governments reintroduced or reinforced intervention practices. Recent examples of market-oriented reform in agriculture include the decision in Algeria to transform the national cereal monopoly into a regulatory body for the cereal sector, and the abolition in Jordan of retail price controls for locally produced fruits and vegetables. In Algeria, the government has also indicated its intention to push for a fully privatized agriculture. In Egypt, Law 96, approved by Parliament in 1992, was scheduled to take full effect in 1997. The law liberalized rent of agricultural land, which had remained virtually unchanged since 1952, laying down a five-year grace period for landowners and tenants to arrive at a settlement and providing a compensation package for farmers who accepted a settlement before the expiry of the grace period. The law affected an estimated 700 000 to 800 000 tenant farmers and the share of rented land in 1992 was estimated at 24 percent. In Morocco, in the context of the government’s privatization programme, which is among the most advanced in the region, renewed efforts were made to sell off part of the sugar industry. Among companies slated for privatization in 1997 were two of the countries’ major wine production and distribution companies. In the Syrian Arab Republic, the government is continuing its efforts of the last few years to encourage private-sector investment in the cotton spinning industry, which had previously been reserved for public sector activity.


 

BOX 14
EU- MEDITERRANEAN PARTNERSHIP


Since 1995, a number of countries in the region have been involved in developing a EU-Mediterranean partnership, leading to the establishment of a free trade area between the EU and the Mediterranean countries. The process was launched at a Conference in Barcelona in November 1995 with participation of the EU and the Mediterranean countries, except the Libyan Arab Jamahiriya, and is planned to lead to the creation of a free trade area by 2010. The first agreements reached between the EU and the Mediterranean countries associated in the process aim at securing a better integration of the countries into the world market through an economic and financial partnership.
The envisaged free trade area would imply:

• free trade in all manufactured goods between the EU and the countries associated in the process;

• reciprocal preferential access for agricultural goods of interest to the partners;

• free trade among the Mediterranean countries themselves.

 

 In spite of the trend towards liberalization, state intervention in agricultural markets is still widespread in the region and, as mentioned earlier, the recent past has also seen some important cases of reversal of the trend. For example, in November 1997, Lebanon introduced import restrictions on a series of agricultural and processed food products with a view to reducing the food import bill, protecting domestic agriculture and stimulating production. The restrictions include a total ban for a number of products, new import duties for a series of others and a list of products that can only be imported in coordination with the Ministry of Agriculture. In Turkey, there has been a reversal of the policies of the early 1990s towards reduced government intervention in agricultural markets. The reversal, in particular with a return to more generous price support policies, began in the marketing year 1995/96. Thus, after major government cereal procurement in 1996, even larger quantities were procured in 1997. In addition, support prices in the 1997/98 marketing year were increased significantly for a number of crops.

Relations with Europe are of fundamental importance for a number of countries in the North Africa and Near East region.
 For a number of the countries in the region economic relations with the European countries, and in particular the EU, are of fundamental importance, not least for the agricultural sector. In this context, 1997 saw some further progress with negotiations concluded between Jordan and the EU on an association agreement within the framework of the so-called Barcelona process (see Box 14), making Jordan the fifth country to conclude an agreement after Morocco, Tunisia, Egypt and Israel. For Morocco, relationships with the EU are important also in the area of fisheries. The latest fisheries agreement between Morocco and the EU had been reached in 1996, granting access to Moroccan waters for the EU fisheries fleet for four years, against compensation, but with a gradual scaling down of allowed catch. The Moroccan Government has now indicated its intention not to renew the agreement on its expiry in 1999. Instead the government has announced ambitious plans for the development of the national fisheries industry with, inter alia, the expansion of port facilities and reliance on joint ventures with foreign companies.
 

Islamic Republic of Iran

Macroeconomic context

 Iran’s economic situation and policy orientation over the last two decades have been profoundly affected by two major events: the 1979 revolution and the country’s adoption of Islamic rules for economic and social policy management; and the eight-year war with Iraq, which entailed severe human and material losses, a critical dislocation of the economy and a protracted period of recovery and reconstruction. Other events that also had a major negative impact on the country’s economy over the same period were the 1986 oil price depression, which resulted in a significant fall in the country’s revenues at a time when its economy was already in recession, and the trade restrictions imposed by the United States.26 However, Iran has since then staged a significant economic recovery, as seen below. In addition, with the presidential election and the Islamic Summit held in Teheran in 1997, there are growing signs that the country has entered an era of reduced economic and diplomatic isolation.

 Iran is now a lower middle-income country, with a GDP of $82 billion and per caput GDP of $1 300 (1996 figures). Its population is about 61 million, having doubled in 20 years (average population growth was as high as 3.2 percent between 1977 and 1986; with active family planning efforts, it fell to its current level of about 1.6 percent). GDP growth was estimated at 4.2 percent in 1995/96, and 5.2 percent in 1996/97,27the highest in five years, mainly owing to high crude oil prices in 1996. Subsequent oil price reductions are expected to slow down growth in 1997/98.
 

MAP 8
ISLAMIC REPUBLIC OF IRAN
 

 Oil production in 1996 was 3.7 million barrels per day, contributing 16 percent of the country’s GDP and some 80 percent of its export revenue. New offshore gas fields are being brought on-line and gas is increasing in importance. The government aims at reducing economic dependence on the hydrocarbons sector, and vulnerability to oil price movements, by promoting other sectors, in particular agriculture.
 

FIGURE 34
IRAN: DOMESTIC SUPPLY AND UTILISATION OF CEREALS
 

 After the revolution and the war with Iraq, which had led to emergency policies, the government adopted an economic model combining the objectives of self-reliance with those of liberalization and private sector promotion. A First Five-Year Plan (1989/90 to1993/94) for reconstruction was launched, which aimed at increasing production and self-sufficiency for all strategic products, raising productivity in key economic sectors and promoting the non-oil export sector. Economic liberalization was pushed forth in the context of a national structural adjustment programme which included correcting price distortions, floating the foreign exchange rate and promoting the private sector. During this period, Iran’s economy expanded at strong growth rates, and the Plan’s ambitious quantitative objectives were achieved to a large extent.

 A Second Plan was introduced for the period 1994/95 to 1999/2000 setting, like its predecessor, ambitious growth objectives. The new Plan confirms the commitment to market liberalization (further privatization and less state involvement in market operations), and the shift of emphasis from oil to non-oil sectors. On the external front, the Plan provides for the adoption of a managed unified floating rate, streamlining of customs procedures and the setting of tariffs at levels that protect domestic producers while maintaining international comparative advantage. In the financial sector, the plan aims at keeping monetary growth at non-inflationary rates, with a series of measures regarding incentives for savings and rationalizing bank interest rates, issuing treasury bills, and stimulating private sector participation. Finally, the plan aims at reforming the tax system and its administration, introducing a value-added tax system and eliminating subsidies (while creating safety nets and targeted assistance for vulnerable groups).

Despite improvements from the critical situation of the early 1990s, external indebtedness and debt servicing remain serious economic problems for Iran.
 External indebtedness and debt servicing remain serious economic problems, despite improvements from the critical situation of the early 1990s. Following important renegotiations in 1993, short-term debts were converted to medium- and long-term obligations. The government committed itself to an ambitious debt-servicing schedule, with payments exceeding $5 billion in some years. This effort led to budgetary austerity and pressure to halt or reverse liberalization. Indeed, the exchange rate was fixed again, and imports heavily regulated, with negative repercussions on the domestic industry. The import bill has been held down to an austerity level of about $13 billon in 1995/96, down from $26 billion in 1991/92.

 Iran has made important progress in health, education and population control during the last decade. However, many socio-economic problems remain unsolved. It is estimated that 17 percent of the population live below the poverty line (12.2 and 26 percent in urban and rural areas, respectively, according to a UNDP source). Government statistics indicate that 10 to 14 percent of the workforce is unemployed, a conservative figure that understates the structural labour surplus in the national economy. Despite efforts to reduce subsidies, their weight in the national budget remains considerable.

 Iran is not a member of WTO, and its eventual entry into the organization has been the object of debate. Such a move would mean substantial reforms, in particular in the country’s protectionist food pricing policy.

 Stabilization efforts have considerably reduced consumer price inflation which, however, has remained high. During the First Plan period (1990/91 to 1994/95), inflation averaged 24 percent per year. After peaking at 50 percent in 1995/96, it decelerated to 23 percent in the year ending March 1997. Latest estimates point to an 18 percent inflation rate for the first five months of the 1997/98 Iranian year.

The government was forced to abandon its unified floating rate policy in 1995, owing to difficulties in its implementation, and to reintroduce, on a provisional basis, a double fixed exchange rate.28 The Central Bank remains a keen advocate of a unified floating exchange rate, a goal whose achievement was hoped for 1999, but which will likely require some more years.
 

The agricultural sector

Agriculture is a major economic sector in Iran, with great potential for development and, as such, is seen as a key strategic policy area. It contributes more than 25 percent of GDP and one-third of total employment. It also contributes substantial export earnings – $900 million in 1996, i.e. one-third of total non-oil exports.
Iran’s population is largely free from food insecurity, with daily energy supplies in the range of 2 900 kcal per caput and about 80 percent of food requirements covered by national production.Iran’s population is largely free from food insecurity, with daily energy supplies in the range of 2 900 kcal per caput and about 80 percent of food requirements covered by national production.
 Iran’s population can be considered largely free from food insecurity. Energy supplies are in the range of 2 900 kcal per caput per day.29 About 80 percent of the national food requirements are covered by national production, and 90 percent of agro-industry needs are covered by domestic supplies.

 Agricultural policies over the last two decades have sought to strengthen agricultural activity in order to achieve higher levels of food self-sufficiency and more diversified sources of foreign exchange – thus reducing vulnerability to oil price fluctuations. These general objectives, contained in past development Plans, are also those of the Third Plan and the 25-year strategy under preparation. A central stated goal is to feed 100 million inhabitants with domestically produced food by 2023 (Iranian Islamic Year 1400).

Natural resources for agriculture: a high potential. The total country area is 1.65 million km2. Roughly 51 million ha are considered as being potentially arable, of which only 36 percent is cultivated. Iran has a great diversity of climatic conditions, ranging from arid (central plain and southern coast) to semi-arid and Mediterranean (western and northern provinces) and very humid (Caspian Sea). The country’s biodiversity is rich, with a total number of plant species estimated to be larger than that of the whole of Europe. Forests cover 11.4 million ha, despite having suffered severe deforestation (more than 5 million ha have been lost since 1960), while rangelands, pasture, mountains and desert occupy 90 million ha (54.6 percent of the national territory). Fisheries are a relatively marginal economic area, but have a strong export tradition and potential, based on the combined resources of the Caspian Sea (caviar), the Oman sea and the Persian Gulf.

 The 51 million ha of arable land are largely dominated by non-cultivated pasture (32.5 million ha). About 8.8 million ha are irrigated30 under traditional and modern schemes, while rainfed cultivated areas cover 9.7 million ha. Iranian soils are not considered to be very fertile overall. The soils of the plains and valleys where the major farming areas are located are affected by varying degrees of salinity and/or waterlogging, and those of the plateaus have low organic matter. Only the Caspian basin soils have rather high organic matter contents.

About two-thirds of usable surface water resources are used for agriculture, while groundwater resources are being used at their maximum safe level.
 About two-thirds of the total usable surface water resources are used for agricultural irrigation and other uses, while groundwater resources are being used at their maximum safe level, with recent problems of lowering water tables. The efficiency of irrigation water use is low, in the range 30 percent,31  representing a major bottleneck for the enhancement of production and productivity.

Agricultural policies: ambitious objectives but environmental challenges. Two separate ministries are in charge of the agriculture sector: the Ministry of Agriculture is responsible for the crop subsector (approximately 57 percent of agricultural output); and the Ministry of Jihad-e-Sazandeghi is responsible for livestock (40.8 percent), forestry (1.5 percent) and fisheries (0.5 percent), as well as for rural development and watershed management. The government has actively supported the rural sector and agricultural production since 1979. Two key aspects of this strategy have been ensuring guaranteed prices to the producers for selected crops and products; and a strong effort towards rural development benefiting thousands of villages, as reviewed below.
The growth in food production during the past decade has exceeded that of population, enabling significant gains in domestic consumption per caput and, in general, meeting the objectives of the First Plan. Average yields have also increased considerably during the past decade.
The country has achieved steady increases in self-sufficiency ratios, estimated in 1997 at about 80 percent for wheat, 90 percent for animal protein and 100 percent for poultry products, milk and cheese. Guaranteed, and remunerative, producer prices for major commodities have been the essential policy tool behind such performances.32
 

TABLE 8

Production, imports and consumption of some major commodities, 1985 and 1995

 
 
Wheat
All cereals
 Oil crops
Vegetables
Fruits
(million tonnes)
Productions
 
 
 
 
 
1985 
6
10.2
0.36
4.2
8.6
1995
11.2
16.3
0.55
6.3
13.4
 
Imports
 
 
 
 
 
1985
5.2
7.8
-
-
-
1995
3.1
5.8
-
-
-
 
(kg/caput/year)
Consumption
 
 
 
 
 
1989
166
197
-
66.3
130
1995
173 
211
79.6 
164 

 Despite sizeable reductions in the import component of food consumption, agricultural imports have represented a major, and growing, share of total exports and imports. The agricultural imports share in total merchandise imports was about 15 percent over 1989-91, decreasing in the following years before increasing to reach 27.2 percent in 1995. The value of these agricultural imports absorbed 16.7 percent of the total value of exports in 1989-91, increasing to 18.9 percent in 1995.

Wheat is the core commodity of the Iranian food and agriculture system.
 Wheat is the core commodity of the food and agriculture system, providing 40 percent of the energy and 45 percent of the total protein supply. In order to boost production of this commodity, in the 1980s, the government launched a comprehensive national wheat programme, which included guaranteed purchase prices, input subsidies, research and extension services, as well as consumers’ subsidies on flour and bread. Indirect government support was also provided through subsidized prices for energy, transport and machinery services, and credit. As a result, production almost doubled from 6 million tonnes in 1989 to 11.2 million tonnes in 1996. At the same time, average yields in irrigated areas made significant progress, from 2 tonnes to more than 3 tonnes/ha. Similar increases in productivity and production have also been achieved for rice, barley and potato,33 while the area of perennial crops has continued to expand, reaching now more than 2.7 million ha and consolidating the country’s export tradition for pistachio, grapes, dates, apples and citrus.
Fruit production has grown by 239 percent over the past decade, with citrus production increasing by 769 percent.
 After a period of moderate growth in the 1970s, production of fruits and vegetables received high attention and increased rapidly. Fruit production growth during the past decade was estimated at 239 percent, including 769 percent for citrus and 294 percent for tree nuts. Horticulture production now covers 1.6 million ha, i.e. 10 percent of cultivated land, of which 1.2 million ha are devoted to fruit trees. Heavy post-harvest losses in fruits and vegetables continue to be a critical issue, linked to a large extent to the poor functioning and management of the marketing systems. Apparent consumption, at about 210 kg per caput, is roughly equivalent to European levels.

 As regards livestock products, production of meat and dairy products has increased during the First Plan by 4.1 percent annually. Iran has achieved 90 percent self-sufficiency in protein availability from animal resources and 100 percent self-sufficiency in milk and cheese. Forestry output has increased from 1.9 million m3 in 1990 to 2.2 million m3 in 1997. Production of fisheries has expanded from 315 000 tonnes in 1990 to 389 000 tonnes in 1995, while the number of fishers is estimated to have increased threefold and the number of vessels twofold, since 1986.

 Significant rural development achievements. The rural development efforts carried out by the Ministry of Jihad e Sazandegi, in partnership with the rural population, over the last decade have benefited some 15 000 villages, where living conditions have been significantly improved. Over the last ten years, 2.2 million ha of marginal lands have been put under cultivation, and 13 billion m3 of additional irrigation water have been controlled and managed. In addition, 51 000 km of graveled rural roads and 11 600 km of asphalt rural roads were built; electricity was brought into 13 700 villages, 17 500 villages were provided with drinking-water supply systems and 15 000 with full sanitary systems; and rural education and agricultural extension for men and women were actively developed.

 The sustainability challenge. Progress in food and agricultural production has been accompanied by increasing pressure on natural resources. Deforestation and erosion have reached alarming proportions. Rangeland has had to support a 50 percent increase in the number of grazing animals over the last 30 years, and because of overgrazing only 16 percent of rangeland is now considered to be in good condition. Millions of hectares were lost both to overgrazing and to ploughing for expansion of rainfed agriculture. Based on estimates for 1986-1992, the pace of deforestation is in the region of 200 000 ha per year. Some 45 percent of arable land is classified as water-eroded and 60 percent as wind-eroded; average soil loss from arable land is estimated at some 20 tonnes per hectare per year. Increasing demand for underground water irrigation has developed through the multiplication of wells and pumping stations, resulting in a critical lowering of the water tables. On the other hand, progress in productivity has been achieved to a large extent through guaranteed prices and massive use of subsidized inputs, a process involving market distortions and heavy treasury costs. Thus, a fundamental issue confronting the government is the economic and environmental sustainability of agricultural performances in the years ahead.

 Since the formulation of the Second Plan, efforts have started to reduce the degradation of natural resources, through reforestation, soil protection and fighting desertification projects. Measures for the conservation of biodiversity are being implemented, limited so far to the protected areas (8 million ha, i.e. 5 percent of the territory). Water management enhancement is a major concern and a top priority. Subsidies on pesticides have been removed, pesticide use has been drastically reduced (by about 75 percent) over the last five years, and farmers are increasingly adopting integrated pest management practices. However, much remains to be done to control natural resource degradation effectively.

 Current government policies emphasize sustainability of agricultural development and better management of natural resources to be achieved, in particular, by securing the participation of resource users and farmers. The institutional framework for environmental protection is provided by the Third Plan, a National Strategy for the Environment and Sustainable Development, and the Organization for the Preservation of the Environment.

Prices and subsidies. The mechanisms for decision-making regarding subsidies are complex, involving a number of bodies and institutions. The Supreme Council for Economic Affairs, under the President’s Office, is the highest authority with regard to economic affairs. Its decisions on guaranteed producer prices and overall subsidies are taken on the basis of proposals prepared by the Planning and Budget Organization and its Bureau for Agricultural Affairs and Rural Development, in coordination with the Office for Protection of Consumers’ and Producers’ Rights and the Ministry of Agriculture. They are then submitted to Parliament, which rejects, approves or modifies them prior to their incorporation in the annual budget.

Subsidies first gained importance during the war with Iraq.
 Subsidies originally gained importance during the war with Iraq, which required exceptional efforts to secure minimum equitative food supplies and living standards. Subsequently, the government maintained an important subsidy programme in favour of both consumers and producers of agricultural products. Producers benefited from guaranteed prices for their products, based on estimates of average national production costs, which secured significant farm profit margins. In the meantime, consumer food prices were kept broadly constant in real terms. The 1993 budget put the cost of subsidizing basic goods at 2.4 trillion rials, equivalent to 9.4 percent of estimated government revenues and 2.5 percent of projected GDP.34

 At present, consumer food subsidies are granted for bread, sugar, milk, cheese, meat, tea, vegetable oil and rice; and producer subsidies for improved seeds and a number of farm inputs. Other sectors such as petrol and electricity also benefit from government subsidies.35
 

TABLE 9

Guaranteed producer prices, 1991/92 to 1997/98

 
 
1991/92
1992/93
 1993/94
1994/95
1995/96
1996/97
1997/98
(rials/kg)
Wheat
130 
150 
225 
 260
330
410
480
Rice
500
550
715
900
950
1 180
1 400
Barley
115
115
173
210
255
317
387
Sugarbeet
26
27
52
62
78
97
125
Potatoes
78
78
117
135
140
174
210

Source: Government of the Islamic Republic of Iran, Ministry of Agriculture.
 

 All food subsidies, including the ones previously earmarked for essential goods and food items, were expected to be eliminated in the first years of the Second Plan so that, in the last two years, no subsidy payment would be effected whatever.36 However, food subsidies were maintained for a reduced number of key items, and in certain periods some were even reinstated at their high 1992 levels by the Parliament. Some measures towards their reduction have been taken again in recent years. Registered food subsidies represented about 1.8 percent of the 1997 budget.37 They increased by 22 percent in 1995/96 and by a further 12.7 percent in 1996/97, at current prices.

 At the core of the problem is wheat, the marketing of which is almost entirely controlled by the state and which accounts for 70 percent of food subsidies. In 1995/96, the producer was paid 330 rials per kg of wheat, while the wheat flour consumer price was 62 rials per kg.38 In addition to this price difference, the state was paying all the intermediate additional costs – marketing, transport, processing, storage, losses, administration, etc. For the other main commodities, there are two different markets: the subsidized rations; and the free market.

 Measures are gradually being taken to reduce the high producer-consumer price difference on subsidized food products. Consumer prices were allowed to increase significantly in 1996/97: wheat from 62 to 93 rials per kg, rice from 100 to 300 rials per kg, sugar from 27 to 100 rials per kg, edible oils from 60 to 300 rials per kg, red meat from 750 to 1 000 rials per kg and cheese from 450 to 1 000 rials per kg.39
 

TABLE 10

Quantities and prices of major subsidized food items

 
 
Subsidized quantities
Prices
1995/96
1996/97
1995/96
1996/97
('000 tonnes)
(rials/kg)
Wheat flour
9 300 
9 400
62
93
Rice
280
297
100
300
Sugar
340
346
27
100
Edible oils
222
223
60
300
Red meet
53
54
750
1 000
Chees
15
24
450
1 000
Total
10 210
10 344
 
 

Source: Organization for the Protection of Consumers and Producers, cited by IMF.
 

A negative effect of subsidies has been the indiscriminate use of pesticides and fertilizers, which have become major causes of environmental degradation.
 One negative effect of subsidies has been the indiscriminate use of cheap pesticides and fertilizers, which have become important causes of environmental degradation.40 The expansion of cultivated areas stimulated by guaranteed prices has also caused deforestation, rangeland degradation and soil erosion. More recently, the increasing burden on the budget, the administrative dysfunction and the market distortions generated by subsidies (as well as the accumulated delays in the Plan’s implementation) have increased the government’s concern for their elimination. The equity issue is also at stake; subsidies are not socially targeted, although official figures indicate per caput levels of food subsidy that are more or less equal for rural and urban areas.

 Consumer prices remain a highly sensitive issue, especially for the most vulnerable groups. Although the Second Plan’s objective was to curtail subsidies drastically, political concern over sharp food price increases has so far slowed down the process; instead of being reduced, food subsidies have tended to stabilize in real terms, growing at a rate parallel to that of inflation. Current plans are to accelerate the process by reducing further the list of items concerned. The policy sequence is first to reduce the subsidies on production inputs, then to proceed with the reduction of the producer-consumer price gap. Most likely, guaranteed prices and consumers’ subsidies will be maintained for an unforeseeable period, at least for key products such as wheat. Indeed, a complete elimination of subsidies would mean the abandonment of guaranteed prices and food self-sufficiency objectives.

Land tenure and agrarian reform. Iran has undergone two agrarian reforms, before and after the Islamic revolution, that have deeply transformed land tenure and production systems.

 Before the 1962-1972 reform, most land and villages were owned by landlords and worked by tenants. Peasants without landownership, but holding cultivation rights under sharecropping or fixed short-term rental contracts, numbered about 2 million. They were frequently organized in traditional collective groupings called boneh (production teams, collective infrastructure maintenance, commons exploitation, etc.). Another 2 million peasants were landless labourers without cultivation rights. By the end of the reform (carried out in three phases covering ten years), some 1.8 million farmers had acquired formal land property. Small peasant family farming had become the dominant production structure in the country, with 83 percent of all farm holdings covering less than 10 ha. The reform also promoted the emergence of new social groups and forms of landownership, including rich peasants and profit-oriented private capitalist farms (13 percent of rural households and 40 percent of land), agro-entrepreneurship with international capital, state agricultural companies based on giant agribusiness schemes, farm corporations and production cooperatives. However, the reform left about 1.9 million landless peasant labourers without access to ownership, as it had focused attention on farmers who already had cultivation rights. As a result, an increased socio-economic stratification occurred within rural areas and urban migration, which the reform was intended to prevent, continued unabated (an estimated 2 million persons left the rural areas between 1962 and 1965).

 In March 1980, the Islamic Revolutionary Council passed legislation mandating redistribution of large landholdings. The initial revolutionary Agrarian Reform Law had classified the land that could be considered for confiscation and redistribution under three categories, each with its own specific regulations. Confiscated lands under the first two categories,41 made up of rangeland and other natural resources and wide latifundia, were to be placed under state administration for possible distribution or allocation of cultivation rights. The third category concerned lands covering areas that were more than three times the size of average local subsistence farms (if the average farm size in a given region was 5 ha, properties larger than 15 ha were eligible for confiscation). The implementation of reform for the two first categories did not encounter any major difficulties, but strong reactions and polemics emerged about the third one (falling under Article J of the Agrarian Law). Some religious authorities opposed it on the grounds that it did not conform with Islamic principles. The Islamic concept of “restricted but legitimized land property” was invoked as a principle for preventing excessive confiscation (while accumulation of richness had to be prevented, personal property had to be guaranteed as a legitimate incentive to production). As a result, the implementation of the Law’s Article J was suspended. This suspension is still valid and the Council of Guardians, citing the “sanctity of property under Islamic Law”, opposed some new and more radical reforms proposed by the Parliament in 1986.

 Seven member committees, originally a separate revolutionary body but, since 1984, a part of the Ministry of Agriculture – including representatives from peasants and from the Islamic court – were responsible, inter alia, for handling and transferring the land that was eligible for confiscation and distribution. These committees were also in charge of promoting a new cooperative system called moshaa and for dealing with rural development affairs related to the Agrarian Reform. Confiscated land was given to landless peasants, but also to small farmers with a land area smaller than the average for their district and to the graduates of agricultural schools. Surface allocations varied from 1 to 15 ha depending on the region. In the period up to 1991, a total of about 1.2 million ha was redistributed among approximately 230 000 farmers’ households.42 The basis for redistribution was the allocation of cultivation rights, rather than true individual ownership of the soil. These rights were not transferable, and land must be returned if not cultivated. Simultaneously, the government promoted and supported among farmers the creation of the new medium-sized cooperatives, or moshaa. They averaged from 20 to 60 ha, being made up of five to 15 peasant families, and were based on the principle of collective farming (ownership of the farm was divided among a group of farmers on the basis of equal shares, but boundaries within the farm were not delineated). About 13 000 moshaa were established, grouping some 100 000 peasant families. They were conceived as a means for promoting economies of scale and to channel state support services, such as credit, technical assistance, subsidized tractor and machinery services and water pumping facilities. They remain today a significant sector of peasantry, but their collective mode of farming has evolved towards individual farming practices. It is now estimated that about 80 percent of lands formerly under moshaa are informally divided among the members for individual farming, or split among two or three households for joint cultivation.

Iran’s land tenure panorama is now dominated by small peasant household farms, with 96 percent of all holdings being owner-operated.
 Iran’s land tenure panorama is now dominated by small individual peasant household farms. Some 96 percent of all holdings are owner-operated. Eighty percent of the farms have less than 10 ha and 66 percent less than 5 ha. Farms that are larger than 10 ha constitute the “modern” sector, contributing an estimated 80 percent of the food commodities sold in markets. Article J land seizures in the post-revolutionary period led to uncertainty among medium or large landowners, preventing them from renting land and from investing in their properties. Another issue is land fragmentation; the average number of plots per farm is 15, with a median size of 2 ha. This situation generates constraints for productivity enhancement and for the provision of support services.

 Overall, many complex issues and ambiguities remain. The issue of equity and of access to landownership or cultivation rights for landless peasants has not been clarified from a legal viewpoint. Landownership beyond certain limits is still felt to be somewhat precarious by landlords. Land fragmentation is an obstacle to modernization, but land consolidation and agricultural and rural investment are hindered by uncertainties in the institutional land tenure framework and lack of transparency in land markets. These problems affect negatively the development performances and prospects of the whole agrifood sector.

Water resources and irrigation. Iran’s average precipitation does not exceed 250 mm per year, and most of the territory receives less than 100 mm of rain. The use of water resources is dominated by irrigation; agricultural uses, domestic water supply and industrial uses are estimated at 95, 4 and 1 percent of total national water consumption, respectively. However, only 36 percent of arable land is cultivated, water constraints being the main limiting factor to both expanding cultivated areas and improving yields.

 The total surface water resources are estimated at 105 billion m3 of which 6.4 billion m3 come from neighbouring countries and ghanats (the traditional Iranian underground aqueduct system) and 5.4 billion m3 from springs. Economically and technically usable surface water amounts annually to some 63 billion m3, of which about 40 billion m3 are used.

 Total groundwater resources are estimated at about 46.6 billion m3, of which the available net amount for consumption is around 37 billion m3. Excessive exploitation, caused by the multiplication of pumping stations and wells, has led to the lowering of water tables all over the country. This alarming situation has required restrictions and regulations at local levels and recharging the underground resources has become a general concern.

About one-third of Iran’s total arable land is irrigated under modern or traditional systems.
  Water resources are unevenly spread; 30 percent of surface water resources are concentrated in one province (Khouzestan), while many other populated provinces fully exploit their scarce available resources. Seasonal and annual river flow regimes are also very irregular and safe yield from surface water requires the building of storage facilities. As of end-1995, 31 large dams had been put into operation and a further 15 are to be completed in the coming years.
 
PICTURE 11
Fixing sand dunes to prevent erosion
Soil fixation with drought-resistant plants can help protect irrigation systems and waterways from the damaging effects of erosion and siltation.
 

 Of the total arable land, about one-third (8.8 million ha) is being irrigated under modern or traditional systems. The current overall average irrigation water use efficiency is around 30 percent (the world average is in the region of 45 percent); of the 14 600 m3 of water consumed on average per irrigated hectare, only 4 600 m3 is effectively used by the cultivated crops. Increasing efficiency of water use is thus a major challenge faced by Iran and is a top priority of the Second Five-Year Plan. The three ministries involved in water management for agriculture (Ministry of Agriculture, Ministry of Jihad-e-Sazandeghi and Ministry of Energy and Water) are coordinating efforts in the formulation of a 20-year programme to reach the objective of 40 to 45 percent efficiency.

 Two parallel issues need to be addressed: the technical problem of irrigation efficiency; and that of irrigation management, related to the empowerment of water users’ associations and to cropping intensification.

 On the technical aspect, important efforts are currently under way to promote the use of pressurized irrigation systems, for which the country has acquired good engineering capacities and self-reliance. Modern pressurized irrigation schemes based on sprinklers, drip and micro-irrigation are being developed (sprinkler irrigation has an efficiency of 70 to 75 percent, while drip and micro-irrigation reaches 90 percent efficiency on average in existing Iranian systems).  At present, 250 000 ha are equipped with these systems. The goal is to increase this area by 100 000 ha annually, in order to reach 1 million ha. The national industry, principally within the private sector, is already fully operational in producing the required pressurized irrigation equipment.

 As regards improvement of irrigation management, efforts focus in particular on the empowerment of water users’ associations, and their involvement in resources management. It is estimated that about 600 000 ha of irrigated land are consolidated with good users’ participation and organization. For the 1.2 million ha under modern irrigation schemes, regulations are being prepared for improved water use and lowering water losses. One of the options to improve the performance in modern irrigation systems is to transfer the responsibility for organization and management to water users.
 

Concluding remarks

 Iran has achieved remarkable progress in agricultural and rural development and food security over the past decades. Large sections of the rural and farm sectors have benefited from improved living conditions and remunerative prices for their products. This has enabled important gains in food and agricultural production and progress towards self-sufficiency. However, these positive results have been achieved at high financial and environmental costs.

 Iran now faces the difficult challenges of maintaining a dynamic and competitive agricultural sector while ensuring economic and environmental sustainability.

Iran’s strategic planning for food and agriculture remains firmly based on the principle of self-sufficiency.
 Liberalization, the path chosen for enhancing economic sustainability and efficiency, entails a switch from old protective policies and an elimination of subsidies. The political will for such a switch has been clearly stated, but the reaction of both producers and consumers is a delicate issue to handle, especially in the current austerity context. The issue of maintaining or eliminating farm subsidies is also linked to that of self-sufficiency. The time may come when the opportunity cost and economic soundness of high farm subsidization are examined, along with the concept of self-sufficiency as the best guarantee of food security. But the current policy setting does not consider such options. The country’s strategic planning for food and agriculture remains firmly based on the self-sufficiency principle. Underlying such a principle are considerations of food security, in a context of uncertain international political and trading relations and of large oil and gas reserves that provide financial backing for autonomy policies.

 Another key challenge is that of agriculture export promotion, an issue closely related to privatization and investment. The process of handing over to the private sector the productive and marketing functions formerly assumed by the state is advancing gradually. However, despite ample scope for developing a large range of agricultural and agro-based industrial products, for which the country possesses actual or potential comparative advantage, investment is not yet forthcoming to any adequate extent. For many investors, the trading environment, infrastructures and services in Iran do not provide adequate guarantees of sure and adequate returns. Complex administratve procedures, deficiencies in marketing systems, uncertain land tenure patterns and the complex currency exchange system are all limiting factors to agro-based export development.
 

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