By Alexander Kremer, senior sector economist January 2007 - Is agriculture making its full potential contribution to the nation? That is the question that the Tunisian Government is asking as it prepares for the 11th and 12th Plan periods (2007-16). The Tunisian agricultural sector is entering unknown territory, with higher incomes, lower poverty rates, changing consumer preferences, evolving market structure and trade agreements creating a whole new set of challenges and possibilities.
Decision-makers are therefore asking whether the solutions of the past are still relevant. So, in 2004, for the first time in 20 years, the Government asked the World Bank and the French Development Agency (AFD) to review the agricultural sector. At first sight, agriculture’s historic performance looks strong. Allowing for droughts, it has grown at the same rate as the economy as a whole. Yields per hectare grew by 2.8% between 1989 and 2003, thanks to improved farmer skills, the expansion of irrigation and more intensive application of modern inputs. Agriculture provided a quarter of all new jobs in the 1990s, employing twice as much labour per unit of output as the economy overall. But there is plenty of evidence that agriculture is not making its full potential contribution to the economy: The growth in the supply of farm labour - 20% during 1993-2002 – has camouflaged the fact that there has been no trend increase in labour productivity. Agriculture’s success has imposed costs upon the rest of society: subsidies, high food prices and a reduced growth rate. Two-fifths of agriculture’s growth is actually a net loss to the economy because it comes from commodities in which Tunisia is uncompetitive: beef and milk. Where Tunisia is competitive, in fruit and vegetables, the results have been disappointing. Between 1980 and 2000 the value of exports fell by 0.3% per year, and EU import quotas are under-utilised.
Performance is inversly correlated with competitiveness: | Products | % of output in 1986-90 | Share of growth from 1986-90 to 2001-05 | Competitive | Hard wheat (50%), treecrops, horticulture (Exc. Potatoes), small ruminants, fisheries, other products (50%) | 73 | 60 | Non-competitive | Soft wheat, non-wheat cereals, potatoes, beef, milk, other products (50%) | 27 | 40 |
Source : Ministry of Agricultural and Hydraulic resources So how to realise agriculture’s full potential? It will be important to address a fundamental problem: that high trade protection encourages Tunisian farmers to concentrate on products – like soft wheat, milk, potatoes and beef – which cost more to produce than to import. This means a net economic loss for the nation. Tunisian experts have estimated that this economic loss comes in the form of a 4% cost-of-living increase on average for the consumer and taxpayer, and a 0.8% reduction in GDP overall. In fact, it costs four times Tunisia’s average national income per head to keep one person employed in cereals production by means of trade protection. So an immediate but gradual liberalisation of cereals imports would be one way to increase agriculture’s net contribution to the nation. Managing the social impact of cereals liberalisation would be essential. Countries like Turkey and Mexico have shown how well-targeted monetary transfers can be a more equitable and fiscally-efficient alternative to farm price support. There are other examples of interventions by the Tunisian Government that have unintended harmful side-effects upon agriculture’s competitiveness. The centralised administration of the cereals sector costs the taxpayer USD 145 million per year and discourages the development of private markets, but without concentrating resources on the worst-off farmers. Moreover, removing de facto price controls, ad hoc government imports and the regulation of retail margins would help to encourage quality production and modern marketing systems. For example, the explosive growth of olive oil exports since 1994 is proof that Tunisian agriculture can respond to liberalisation. 
The same goes for professional organisations and agricultural support services. The study concluded that they could be motors of sectoral productivity growth if they were driven by the private sector’s priorities. Government could therefore boost agricultural supply chains by reforming the management of extension and research, by institutionalising consultations with producers and by redefining governance arrangements with producer groupings so as to put private operators really in the driving seat. An ongoing pilot programme financed by the World Bank under the Agricultural Services Support Project - in which interprofessional groupings identify research projects to be carried out by government researchers – is a step in the right direction. Conclusion : Tunisia’s climate, geography and spirit of enterprise have endowed the agricultural sector with the prerequisites for competitiveness. Its potential, however, remains unrealised. With the creation of private sector jobs a top priority, this is the right time to consider how reforms could unleash the forces of growth. |
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