Algeria Agribusiness Report Q2 2011

Report Summary

BMI View: Despite recent civil unrest in Algeria and neighbouring countries, we expect 2011 to be another highly productive year for Algeria's agricultural sector. Although falling far short of the bumper 2010 grain harvest, sufficient rainfall levels ensured that grain production remained strong for the year, while the same is expected for the dairy sector. Healthy production also reflects ongoing government initiatives aimed at boosting production levels.

After growing to reach 3.56mn tonnes in 2009/10, wheat production fell slightly in the 2010/11 agricultural year to 3.10mn tonnes; the lower yield reflects a return to more normal levels of production and a loss of crop due to poor weather.

We predict that wheat imports will continue growing, contributing to a net trade balance of - 6.34mn tonnes in 2010/11, up by 9.8% year-on-year (y-o-y). The growth in imports reflects the tendency for wheat consumption levels to outpace domestic production.

After expanding by an impressive 328.5% in 2009/10 to reach 2.40mn tonnes, barley production fell to 1.50mn tonnes in 2010/11. However, we have adjusted the net trade balance forecast for Algeria's barley sector, to reflect the country's newly acquired position as a net exporter of barley.

Healthy grain production will have positive knock-on effects in the dairy sector; we predict that Algeria will produce 1.57mn tonnes of milk in 2010/11, up by 4.5% y-o-y.

We anticipate a GDP per capita increase of 5.0% in 2010; a return to healthier GDP per capita growth, after a 2009 lull, will have positive implications for the consumption of grain and for dairy products such as milk, cheese and butter.

Our adjusted five-year forecast for butter consumption anticipates y-o-y growth of 6.5% in 2010/11; growth is now expected to increase steadily over the next five years. Industry Developments

In early 2010, Algeria announced that it had become a net exporter of barley for the first time in 40 years. We are cautious as to how long these large export volumes will be maintained, based on the assumption that Algeria will continue experiencing fluctuations in the amount of harvestable land from one year to the next; these fluctuations reflect the limited availability of water and irrigation, as well as the sector's continued dependence on unpredictable rainfalls.

A development that should have a positive impact on barley production levels over the next few years is the application of new drought-resistant and salt-tolerant varieties of barley. Meanwhile, as part of its wider effort to boost agricultural output and reduce the country's dependency on food imports, the Algerian government has been supporting initiatives aimed at improving irrigation. In March 2010, the government was reported to be working with the International Atomic Energy Agency (IAEA) on a water management project in western Algeria. The project involves the use of nuclear technology to reduce salinity-induced land degradation through developing appropriate irrigation, drainage, soil and crop management practices.

In our view, new irrigation and water management techniques have the potential to increase grain harvest yields and improve their reliability. However, the impact of such techniques remains long term. In the short term, Algeria's grain harvests and the availability of pasture land will continue to be vulnerable to unpredictable rainfalls. This unpredictability will continue to be one of the biggest factors influencing our view of the industry's short-term supply prospects. Meanwhile, our position on the agricultural sector's short-term demand prospects continues to be underpinned by the ongoing expansion of Algeria's GDP per capita. As long as GDP per capita continues to grow, the consumption of grain and dairy products will progress at a steady pace.