Missed Opportunities amid Great Potential in the Agro Food Sector Promoting Dialogue among the Private Sector Nancy Ezzeddine About the author Nancy Ezzeddine, who is trained in economics and development, is an economic researcher at the Lebanese Center for Policy Studies (LCPS). Her work focuses on economic impacts and trends in Lebanon. Ezzeddine is co-authoring a study on the governance of Lebanon's oil and gas sector. She previously worked as a consultant for the Economic and Social Commission for Western Asia (ESCWA) studying a range of social, economic, and sustainable development topics. LCPS Policy Brief The Lebanese Center for Policy Studies March 2017 Number 23 Executive Summary Like many developing countries, the product space reveals that Lebanon has an important presence in the agro food sector. The products that dominate the sector’s production are generally low-complexity products and tend to be less central to the production of many other goods. However, despite the limited complexity of the sector, the country has been adding new products with higher complexity by employing new technologies and specialized human capital. Notably, agro food has been one of the first sectors to gear exports to new markets where Lebanon has a clear comparative advantage, by capitalizing on the growing popularity of Mediterranean cuisine in the West. Despite its several comparative advantages, the sector, which is mainly based on food production and processing, needs rehabilitation and support. A number of priorities are identified through this analysis including costs of production, safety, quality, and lasting shelf life. The study concludes that collaboration between the public and private sectors should focus on the fields of R&D to support innovation, market and marketing research to promote expansion, and training and funding to encourage compliance with international safety and quality standards. ا ل م ر ك ز ا ل ل ب ن ا ن ي ل ل د ر ا س ا تThis research has benefited from the support of the Center for International Private Enterprise (CIPE), under the project titled ‘Enhancing Democracy Through Public-Private Dialogue II’.
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March 2017 Number 23 LCPS Policy Brief...In 2015, Lebanon recorded a trade deficit of $15.12 billion with total imports of $18.08 billion and total exports of $2.95 billion (Ministry
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Missed Opportunitiesamid Great Potential inthe Agro Food SectorPromoting Dialogue among thePrivate SectorNancy Ezzeddine
About the authorNancy Ezzeddine, who is trainedin economics and development,is an economic researcher at theLebanese Center for Policy Studies (LCPS). Her work focuseson economic impacts and trendsin Lebanon. Ezzeddine is co-authoring a study on the governance of Lebanon's oil andgas sector. She previously workedas a consultant for the Economicand Social Commission for Western Asia (ESCWA) studying a range of social, economic, andsustainable development topics.
Executive SummaryLike many developing countries, the product space reveals thatLebanon has an important presence in the agro food sector. Theproducts that dominate the sector’s production are generally low-complexity products and tend to be less central to the production of many other goods. However, despite the limited complexity of the sector, the country has been adding new products with higher complexity by employing new technologiesand specialized human capital. Notably, agro food has been one ofthe first sectors to gear exports to new markets where Lebanon hasa clear comparative advantage, by capitalizing on the growing popularity of Mediterranean cuisine in the West.
Despite its several comparative advantages, the sector, which is mainly based on food production and processing, needs rehabilitation and support. A number of priorities are identifiedthrough this analysis including costs of production, safety, quality,and lasting shelf life. The study concludes that collaboration between the public and private sectors should focus on the fields of R&D to support innovation, market and marketing research topromote expansion, and training and funding to encourage compliance with international safety and quality standards.
تاساردلل ينانبللا زكرملا
This research has benefitedfrom the support of the Center for International Private Enterprise (CIPE),under the project titled ‘Enhancing Democracy ThroughPublic-Private Dialogue II’.
LCPS Policy Brief
IntroductionThe manufacturing sector does not carry sizeable weight in Lebanon's economyand the history of the industrial sector is one of many missed developmentopportunities. Lebanon perennially posts the worst trade deficit in the Levantregion excluding Palestine, due to the huge disparity between annual exportsand imports. In 2015, Lebanon recorded a trade deficit of $15.12 billion withtotal imports of $18.08 billion and total exports of $2.95 billion (Ministry ofIndustry). Today, industrial policy is restricted to a limited number of industrialfinancing schemes with subsidized interest rates, and several trade agreementswith the EU and Arab countries. Moreover, with sluggish growth, fingers arebeing pointed at the country’s ongoing electricity crisis and the war in Syria.The latter has had a clear effect, curtailing Lebanon’s sole land export routeto the region.
However, Lebanese industry has significant potential for growth anddevelopment should adequate policies be adopted. One avenue to formulateand implement such policies is through a sustainable mechanism of public-private dialogue (PPD) that increases accountability and transparency of thoseefforts and processes aimed at enhancing Lebanese industry. In this respect,the Lebanese Center for Policy Studies (LCPS) and the Association of LebaneseIndustrialists (ALI), with the support of the Center for International PrivateEnterprise (CIPE), have convened cluster-oriented working groups in order tosupport industrial associations and enterprises in realizing their leadershiprole in the PPD process and identified consensus policy priorities of theindustrial business community in Lebanon. The meetings provide a space fordialogue among private sector representatives to identify policy solutionsthrough a collaborative process coupled with sound economic research inaddressing key challenges facing the sector.1
Through its role as dialogue facilitator, LCPS introduced evidence-basedresearch to the PPD. Using the methodology of product space mapping, thediscussion encourages industrialists to move beyond narrow transactionalconcerns to broader issues and opportunities of policy change, export-orientedgrowth, and institutional reform. This allows dialogue participants to betterunderstand which and what mix of specific legal frameworks, regulatoryrules, labor training services, market access rules, and infrastructure cansignificantly promote different types of economic activities. In this sense,the study’s methodology suggests that Lebanon has the potential to climb the‘Stairway to Heaven’ by facilitating the development of new complex products.These products are attractive in terms of the tradeoff between distance andcomplexity and their potential strategic value to improve the position of thecountry. Accordingly, Lebanon should focus on providing support and publicinputs (such as infrastructure, regulation, etc.) to existing industries withthe aim of improving their productivity and ability to conquer attainableopportunities.
2
1‘The setting in which private-sector interests wouldcommunicate their requestsfor assistance to the government, and the latterwould goad the former intonew investment efforts.’Dany Rodrik (2004)
Missed Opportunities amid Great Potential in the Agro Food Sector 3
Given that Lebanon has an important presence in the agro food sector,the first sectoral working group convened representatives from different agrofood industrial associations. The agenda included discussions on the mainchallenges facing the sector, the feasibility of developing new complex agrofood products, and prospects for expanding exports and export destinations.The agenda was designed to also include comprehensive crosscutting issuesto ensure that sectoral discussions are not isolated from the broader processof policy-making. This setup provides more focus, greater incentives forparticipants to collaborate, and more opportunities for reaching commongoals and lines of action.
Low-Complexity Agro Food ClusterA product space is a network that mirrors the productive capacity or embeddedknowledge of a country by highlighting the capabilities it possesses and theopportunities these imply. It is an industrial map that visualizes relatednessbetween different products traded in the global economy. Products that aretightly connected on the map share most of the requisite capabilities—bothtangible and intangible inputs. Products located on the periphery of the mapare technically less sophisticated products, including for instance rawmaterials and fresh vegetables. The further toward the center of the mapproducts are located, the more sophisticated they are.
Using the methodology of product space mapping, LCPS research suggeststhat Lebanon’s industrial sector has significant potential for development.The economic complexity index (ECI)2 of Lebanon is not very high, but it isclose to many complex products according to the product space. Therefore,Lebanon has the potential to produce these products without having to employmany new capabilities. Based on the opportunity gain index—which quantifieshow much a country’s position would improve relative to more complex productsif that country starts making the product—and the product complexityindex—a number unique to each product that captures how much productiveknowledge the product requires—Lebanon should focus on facilitating thedevelopment of newer, more complex products.
2The ECI is a number unique toeach country that measuresthe amount of productiveknowledge contained in thecountry.
LCPS Policy Brief
Figure 1
Lebanon's product space in 2014
The color nodes represent products that Lebanon currently exports with revealed comparativeadvantage (RCA greater than one). The pale nodes are those in which Lebanon does not have asignificant presence (RCA less than one). The color of each node corresponds to its ‘community’,a grouping of products requiring related productive knowledge similar to the notion of a sector.
Figure 1 shows that Lebanon’s product space has not diversified significantly.The country mostly produces low-complexity products, which are located on theright side or periphery of the product space, making knowledge accumulationmore difficult. Like many developing countries, the product space reveals thatLebanon has an important presence in the agro food sector (green and yellownodes).
This sector benefits from significant economic standing since it is thelargest industrial sector. In 2011 (latest available figures), it had an estimatedsize of $1.11 billion and generated an estimated 26.3% of the industrialsector’s value added and 4% of the country’s GDP. The agro good sector isthe largest employed industrial sector with an estimated workforce of 20,607,accounting for 25% of the industrial workforce. Currently, agro food enterprisesaccount for the largest share of industrial establishments in Lebanon, with18.2% of enterprises or some 736 companies involved in agro industrialactivities (Ministry of Industry).
The highest share of agro food establishments is involved in the productionof baked goods, comprising nearly 30% of total enterprises. Other industrieswith a high share of enterprises include milk and dairy with 15% of estab-lishments as well as the processing and preservation of fruits and vegetableswith 9.5% (figure 2).
4
Source The Observatory of Economic Complexity (OEC).
Gold
Jewellery
Diamonds
ScrapIron
ScrapCopper
ElectricGenerating Sets
Brochures
Potatoes
OtherProcessedFruits and
Nuts
FlavoredWater
Refrigerators
OtherFurniture
Chocolate
RawPlastic
Sheeting
OtherProcessedVegetables
RawSugar
HairProducts
Perfumes
PackagedMedicaments
ScrapAluminium
InsulatedWire
Non-Knit
Women'SSuits
Other EdiblePreparations
Citrus
IronStructures
PlasticLids
ElectricalTransformers
ToiletPaper
PaperContainers
RawTobacco
RawLead
PreciousStones
CleaningProducts
Sauces andSeasonings
PureOliveOil
Lettuce
Applesand
Pears
LeatherFootwear
PickledFoods
OtherPrepared
Meat
IndustrialFood
PreperationMachinery
BeautyProducts
BuildingStone
StoneProcessingMachines
PaperNotebooks
PreparedCereals
Wine
PittedFruits
NonaqueousPaints
VehicleParts
ElectricalControlBoards
AluminiumBars
PrefabricatedBuildings
Water
Pasta
Grapes
ConfectionerySugar
OtherPlastic
Sheetings
AnimalOrgans
PetroleumGas
BakedGoods
OtherColoringMatter
Centrifuges
NitrogenousFertilizers
LiftingMachinery
BaseMetal
Watches
Cement
Soap
CombustionEngines
Jams
PlasticHousewares
Spark-IgnitionEngines
HardLiquor
Onions
SyntheticMonofilament
LightFixtures
Other KnitGarments
IndustrialFatty
Acids, Oilsand
Alcohols
OtherPlastic
Products
ElectricMotors
Non- Knit...
OtherPrintedMaterial
DeliveryTrucks
NonaqueousPigments
Spices
AqueousPaints
CelluloseFibersPaper
ElectricMotorParts
Sheepand
Goats
OtherFruits
FruitJuice
Low-Voltage
ProtectionEquipment
ElectricalPower
Accessories
IndustrialFurnaces
Wheat
OtherSyntheticFabrics
KnitMen'SSuits
Equineand
BovineHides
WheatFlours Tanned
Equine andBovineHides
RawAluminium
AluminiumStructures
SeedOils
Seats
RubberworkingMachinery
LightPure
WovenCotton
MetalMountings
Wadding
Beer
PlasticPipes
MachineryHaving
IndividualFunctions
RubberTires
BoatPropellers
LargeConstruction
Vehicles
WoodCarpentry
HandSaws
OtherVegetables
ExcavationMachinery
AirPumps
OtherHeating
Machinery
OtherAluminiumProducts
OtherIron
Products
Washingand Bottling
Machines
ShapedPaper
EssentialOils
Polishesand
Creams
Cheese
DriedLegumes
Small IronContainers
ShavingProducts
KnitT-Shirts
Other PaperMachinery
MaltExtract
OrganicCompositeSolvents
MetalMolds
Cars
OtherSmall Iron
Pipes
KnitSweaters
IronHousewares
KaolinCoatedPaper
OtherNuts
StoneWorking
Machines
Tomatoes
HouseLinens
EngineParts
SheepHides
OtherFootwear
AluminiumFoil
CerealMeal andPellets
RecoveredPaper
Non-Knit Babies'Garments
Mattresses
KnitWomen'S
Suits
ElectricHeaters
LightRubberized
Knitted FabricLiquidPumps
IceCream
Newspapers
Trailers
Non- Knit...
ElectricalIgnitions
PaperLabels
KnitSocks and
Hosiery
Semi-Finished
Iron
Non- Knit...
WoodworkingMachines
ScrapPlastic
Iron GasContainers
Bran
PostageStamps
OtherCloth
Articles
UsedClothing
IronIngots
Other PureVegetable Oils
Bovine
OtherUncoated
Paper
Marble,Travertine and
Alabaster
PorcelainTableware
Legumes
VegetableSaps
Felt orCoatedFabric
Garments
UnprocessedSynthetic Staple
Fibers
AluminiumCans
InteriorDecorativeGlassware
Valves
PapermakingMachines
CoatedFlat-
Rolled Iron
UncoatedPaper
FrozenBovineMeat
SyntheticFilament
Yarn WovenFabric
Cabbages
KnitMen'SShirts
SawnWood
OtherHandTools
OtherOily
Seeds
IronBlocks
GlazedCeramics
WoodFiberboard
Microscopes
TropicalFruits
WoodOrnaments
AluminiumPlating
Whey
IronRailway
Products
BathroomCeramics
Transmissions
PerfumePlants
Non- Knit...
OtherConstruction
Vehicles
ForgingMachines
IronStovetops
Brooms
Bellsand Other
MetalOrnaments
WovenFabric ofSynthetic
StapleFibers
Non-Knit
Women'SShirts
PreciousMetal
Scraps
WindowDressings
RubberFootwear
RolledTobacco
Non-Knit Women'SUndergarments
Corn
UncoatedKraft Paper
Tea
Hot-Rolled
Iron
PoultryMeat
Coffeeand TeaExtracts
Water andGas
Generators
DairyMachinery
ProcessedFish
LiquidDispersingMachines
SpecializedVehicles
PlasticBuildingMaterials
SyntheticFabrics
Sulfates
High-Voltage
ProtectionEquipment
AbrasivePowder
RubberBelting
ElectricFilament
ArtificialVegetation
SafetyGlass
IronRadiators
ProcessedTomatoes
Soupsand
Broths
SowingSeeds
Other Women'SUndergarments
OtherLeatherArticles
FacialTissue
LocustBeans,
Seaweed, SugarBeet, Cane,
for Food
OtherRubber
Products
Yeast
Thermostats GlassBottles
LargeFlat-RolledStainless
Steel
PulleySystems
Sausages
OtherCast IronProducts
Rice
IronFasteners
VinylChloridePolymers
OtherLive
Plants
ParticleBoard
HeavyPure
WovenCotton
Concentrated Milk
OilSeed
Flower
FloatGlass
DriedFruits
PotassicFertilizers
Pearls
CopperPipe
Fittings
CoatedMetal
SolderingProducts
FrozenVegetables
Melons
FermentedMilk Products
OtherCeramicArticles
Cucumbers
ShapedWood
Curbstones
CranesIronPipe
Fittings
CementArticles
Leatherof OtherAnimals
Coconuts,Brazil Nuts,
andCashews
Alcohol> %80Abv
HeavyMixedWovenCotton
OtherStainlessSteel Bars
Honey
CastingMachines
Non-Knit Men'SUndergarments
Motor-Working
Tools
IronPipes
Non-Knit
Women'SCoats
InstructionalModels
AluminiumHousewares
CutlerySets
IronSheetPiling
HouseholdWashingMachines
Glues
MetalStoppers
Interchangeable ToolParts
Antiques
Plywood
LightSynthetic
CottonFabrics
ElectricFurnaces
HeavySynthetic
CottonFabrics
TannedSheepHides
MetalLathes
Other FrozenVegetables
ElectricSoldering
Equipment
Knit Women'SUndergarments
PreservedMeatIron
Toiletry
DriedVegetables
PackingBags
OtherSteelBars
SteamTurbines
Embroidery
SilkFabrics
Hydrogen
Large IronContainers
Hot- Rolled...
MetalworkingMachines
Sulfonated,Nitrated orNitrosated
Hydrocarbons
OrnamentalCeramics
Newsprint
CuttingBlades
Non- Fillet...
Eyewear
GardenTools
OtherEngines
SurveyingEquipment
OtherInorganic
Acids
ExplosiveAmmunition
OtherCopper
Products
VacuumCleaners
OtherSugars
CocoaButter
Gypsum
MetalworkingMachine Parts
Cold-Rolled
Iron
UnpackagedMedicaments
SyntheticFilament Tow
OtherCarpets
RootVegetables
Padlocks
OtherNitrogen
Compounds
PlasterArticles
TextileProcessingMachines
GlassMirrors
WovenFabrics
Opto-Electric
InstrumentParts
Tractors
CeramicTableware
OtherVegetable Oils
Milk
KnitActiveWear
InsulatingGlass
RockWool
TechnicalUse Textiles
GlassFibers
BallBearings
TextileFootwear
TannedGoatHides
VeneerSheets
OtherPrecious
MetalProducts
IronCloth
OtherMetal
Fasteners
Gas andLiquid FlowMeasuring
Instruments
DrillingMachines
LetterStock
ProcessedFish
Basketwork
Tullesand NetFabric
SoilPreparationMachinery
PlasticWash
Basins
TuftedCarpets
Videoand CardGames
StrandedCopper Wire
Non- Fillet...
RecreationalBoats
MillingStones
RailwayCargo
Containers
CutFlowers
Granite
MixedMineral orChemicalFertilizers
Non-WovenTextiles
CopperPipes
KnitBabies'
Garments
OtherWood
Articles
Pens
Textile FiberMachinery
VehicleChassis
Eggs
Hand-WovenRugs
FootwearParts
ElectricalLighting and
SignallingEquipment
Amino-Resins
CopperPlating
RubberSheets
HarvestingMachinery
PlasticCoatedTextileFabric
StrandedIron Wire
Safes
Blankets
TherapeuticAppliances
Postcards
DentalProducts
OtherFirearms
Other KnitClothing
Accessories
CocoaPaste
Bandages
Rubber
MedicalFurniture
OtherNon-KnitClothing
Accessories
RoughWood
Clays
ProcessedCereals
AnimalFood
BovineMeat
SoybeanOil
Bovine,Sheep,
and GoatFat
PropylenePolymers
PartyDecorations
UnglazedCeramics
NarrowWovenFabric
RollingMachines
Bedspreads
KnitWomen'S
Shirts
MetalFinishingMachines
GasketsMonofilament
WoodCrates
OtherAgriculturalMachinery
OtherLarge Iron
Pipes
RubberPipes
-
Non-Iron and
Steel Slag,Ash andResidues
FlexibleMetal
Tubing
Knit Men'SUndergarments
Flat Flat...
Butter
EyewearFrames
...
Sheepand Goat
Meat
Wrenches
Starches
AluminiumPipes
RawIronBars
KnitWomen'S
Coats
OtherVegetableResidues
Buses
Solderingand
WeldingMachinery
Large Flat...
PileFabric
Polymer Ion-Exchangers
Hydrometers
IronWire
CoalTar Oil
FishFillets
CocoaPowder
OtherNon-MetalRemoval
Machinery
QuaternaryAmmoniumSalts and
Hydroxides
SunflowerSeeds
Twineand
Rope
Poultry
CorrugatedPaper
HandTools
CastIron
Pipes
CocoaBeans
LiquidFuel
Furnaces
OtherIronBars
PetroleumJelly
HairTrimmers
IronChains
RubberInnerTubes
DraftingTools
BoilerPlants
Margarine
KnitMen'SCoats
IronNails
KnittedHats
Asphalt
GroundNuts
SteamBoilers
Crustaceans
OtherNickel
Products
LargeCoated
Flat-RolledIron
ArtificialFilament
Yarn WovenFabric
UsedRubber
Tires
Coke
Awnings,Tents, and
Sails
UtilityMeters
DyeingFinishingAgents
Molluscs
WoodFrames
FuelWood
CentralHeatingBoilers
PalmOil
PolyamideFabric
CoconutOil
VegetableParchment
CoalBriquettes
Flat-Rolled
Iron
SewingMachines
RefractoryCements
CombedWool or
Animal HairFabric
Bicycles
Graveland
CrushedStone
OtherStone
Articles
IronSprings
MetalOffice
Supplies
Felt
IronPowder
ProcessedTobacco
Lighters
FakeHair
BreathingAppliances
MetalworkingTransfer Machines
Labels
VendingMachines
FrozenFruits and
Nuts
ElectricalInsulators
Ammonia
BabyCarriages
LightMixedWovenCottonRefractory
Bricks
ArtificialFilamentSewingThread
Metal PicklingPreparations
Carbon-Based
Electronics
TensileTesting
Machines
EdibleOffal
OtherZinc
Products
KnittingMachines
Metal-Rolling
Mills
AluminiumWire
Compasses
OtherMeat
Umbrellas
RevolutionCounters
TobaccoProcessingMachines
Netting
FlaxWovenFabric
TrafficSignals
Saddlery
Carbon
TannedFurskins
AsphaltMixtures
MetalInsulatingFittings
Pencilsand
Crayons
OtherFloating
Structures
Rapeseed
OtherInedibleAnimal
Products
Foliage
Peat
CompoundedUnvulcanised
Rubber
MaltRaw
Cotton
AnimalMeal andPellets
GlassWorking
Machines
CardedWool or
Animal HairFabric
ArtificialGraphite
Sand
Non-Retail
Artificial...
RubberTextileFabric
Non-Retail PureCotton Yarn
Buttons
Steel
Wire
Horses
FrictionMaterial
KnittingMachine
Accessories
RailwayFreight
Cars
Barley
Decals
Soybeans
SpecialPurpose
Ships
PitchCoke
AluminiumOxide
Zippers
VehicleBodies
Enzymes
StrandedAluminium Wire
LocomotiveParts
-
FishingShips
StainlessSteel Wire
InorganicSalts
-
WorkTrucks
Non-Retail
Synthetic Staple...
ToolPlates
-
Carbides
Sorghum
Electricity
RapeseedOil
-
RailwayPassenger
Cars
ot-Rolled
S inless teel...
Self-Propelled Rail
Transport
CaseinPigs
PigMeat
i
Bulbsand
Roots
LeadOre
SoybeanMeal
DetonatingFuses
StarchResidue
Sulphur
AluminiumOre
ZincOre
ChromiumOre
TitaniumOre
Niobium,Tantalum,
Vanadium andZirconium
Ore
StainlessSteel Ingots
RawFurskins
Asphalt
SteelIngots
OtherMetals
Sodiumor
PotassiumPeroxides
Oxometallic orPeroxometallic Acid
Salts
Fluorides
Nitritesand
Nitrates
PreciousMetal
Compounds
y enzenes any nap a enes
s
VegetableAlkaloids
...
Non-Retail
Combed...
Fishing andHunting
Equipment
TugBoats
Manganese
RefractoryCeramics
PigIron
ElectricLocomotives
Passengerand Cargo
Ships
HydraulicTurbines
Looms
OtherLocomotives
OtherSea
Vessels
ArmoredVehicles
Planes,Helicopters,
and/or Spacecraft
WeaponsParts and
Accessories
Missed Opportunities amid Great Potential in the Agro Food Sector 5
Products that dominate the sector’s production are generally low-complexityproducts and tend to be less interconnected and more peripheral in the productspace. This suggests that inputs required for the production of these foodsare less central to the production of many other goods, making knowledgeaccumulation more difficult.
Using the example of beer (HS4: 2203) from the category of alcoholicbeverages (with an export value of $5.42 million), figure 3 displays that thebeer’s node in bright green is an isolated node with only one linkage to rockwool. Accordingly, the production of beer does not provide knowledge or inputsthat facilitate diversification.
Figure 2
Agro food enterprises in Lebanon by type of production and percentage
Source The Lebanese Industrial Sector Facts and Findings (2007).
Preserved Vegetables & Fruits
9%
Milk & Dairy Products
15%
Confectionary
8%
Oils, Fats & Derivatives
5%
Mills Products
4%
Alcoholic Beverages
4%Bakery Products
30%
Other Industries
21%
Processed Meat & Fish
2%
Water & Juices
2%
Figure 3
Product interrelatedness of beer
Source The Observatory of Economic Complexity (OEC).
LCPS Policy Brief
Diversification in the Agro Food ClusterDespite the limited complexity of Lebanon’s agro food sector, the countryhas been adding new products in the industry with higher complexity byemploying new technologies and specialized human capital. For instance,16% of total imported industrial equipment was specialized for agro foodproduction, indicating that the agro food sector is one of the most techno-logically advanced industrial sectors in the country. In addition to its significantemployment generation potential, the sector also benefits from a well-trainedlabor base. A considerable number of students graduate yearly with specializeduniversity degrees as well as vocational training in agro industrial processingand food quality management.
To shed light on how to increase the average complexity of a country’sproduction, the product space can provide clues about what new productsare feasible given Lebanon’s constraints. These clues consider the tradeoffbetween existing productive knowledge (distance), complexity of a newproduct, and future diversification possibilities that the new productiveknowledge would bring. Accordingly, the product space identifies seven complextarget products in the foodstuff communities (HS2: 16-24) that are attainablegiven the country’s productive knowledge. As a group, the agro food clusteris relatively close in terms of the country possessing the inputs required forits production and therefore should be easier to ‘conquer’. These products arepresented in table 1.
Table 1
Recommendations for Lebanon
‘The growth of Lebanese restaurants in the West have been key to our success
because through them we have been able to introduce Lebanese cuisine to a new
market.’ Georges Nasraoui, Vice President of ALI.
6
2105
1601
2309
2101
2402
2306
1604
HS4 Product Name
Ice Cream
Sausages
Preparations of a kind used in animal feeding
Extracts of coffee, tea, or mate
Cigars
Cotton seed oilcake
Prepared or preserved fish
Source LCPS (2016).
Missed Opportunities amid Great Potential in the Agro Food Sector 7
Despite its limited complexity, the agro food sector is one of the firstsectors to gear exports to an area where Lebanon has a clear comparativeadvantage, by capitalizing on the growing Mediterranean food craze in the West.Moreover, the country is endowed with the highest proportion of agriculturalland in the Middle East. According to the Agricultural Census 2010, the totalagriculture land area is estimated at 332,000 hectares, of which 231,000hectares are cultivated. Lebanon’s moderate climate, rich soil, and abundantwater resources further provide it with key enablers to stand out in the regionas an ideal location for agricultural activity.
Agro food products accounted for 20.7% of total exports and for 26.5% oftotal industrial exports in 2015. Exported food products totaled $452.80million, almost 46% of the year’s total estimate production (figure4).
Figure 4
Lebanon's total exports in 2014
The main exported products are beverages, spirits, and vinegar at 37.4%of Lebanon’s total agro food exports. Sugar and sugar confectionery occupythe second-largest share at 22.4%, followed by prepared vegetables, fruits,and nuts at 14.8% (figure 5).
Source The Observatory of Economic Complexity (OEC).
LCPS Policy Brief
Figure 5
Agro food's exports' net weight in tons in 2014
The largest share of Lebanese agro food exports is destined for Arab countries(excluding GCC countries) at 49% of total exports with 34.1% going to Syria, 13%to Iraq, and 2.8% to Egypt. A total of 26% of exports go to GCC countries withSaudi Arabia (8.5%), the UAE (3.7%), and Qatar (3%) as main destinations.Africa ranks third with a share of 7%. Western Europe occupies fourth place, whilelower volumes are exported to North America, Asia, and Australia (figure 6).
Figure 6
Export destinations for agro food products by percentage
8
Source Lebanese Customs.
Beverages, Spirits, & Vinegar
Sugar & Sugar Confectionery
Preparations of Vegetables, Fruits, & Nuts
Products of Milling Industry, Malt, & Starches
Preparations of Cereals, Flour, Starch, or Milk
Animal or Vegetable Fats, & Oils
Preparations of Meat, Fish, or Crustaceans
Cocoa & Cocoa Preparations
Coffee, Tea, & Spices
Other
0 20,000 40,000 60,000 80,000 100,000 120,000
Source Lebanon Customs (2013).
GCC Countries
26%
Africa
7%
Western Europe
4%
USA & Canada
7%
Syria
34%
Iraq
13%Egypt
2%
Australia
1%Rest of the World
6%
Missed Opportunities amid Great Potential in the Agro Food Sector 9
It is notable that exports to Syria have increased by 30.6% and nowconstitute about 63.6% of total exports to Arab countries (non-GCC), whileexports to Iraq have increased by 44.2%. This indicates that while the Syriancrisis has had its share of negative impacts on the Lebanese economy, it hasallowed for increased demand for Lebanese products to compensate for thedecrease in Syrian exports in these markets.
Structural Challenges Impeding Diversification Given its ECI and the relative short distance to nearby products, Lebanon iscategorized as a country calling for parsimonious industrial policy or industrialpolicy ‘in the small’. Countries in this category should focus on providingsupport and public inputs (such as infrastructure, regulation, etc.) to existingindustries with the aim of improving their productivity and ability to jumpto nearby opportunities. Despite this, Lebanon’s ECI has been relatively stablesince 1995, fluctuating between -0.4 and 0.
The Lebanese industrial sector has a long history of missed opportunitiesfor development. The sector’s occasional booms have been largely the resultof positive external shocks and favorable macroeconomic conditions ratherthan fruits of industrial policy. As a matter of fact, industrial policy has neverbeen a priority for the Lebanese economy.
It is interesting to note that the number of products (with RCA greaterthan one) within the agro food cluster diminished from 1995 to 2012. Thissector has witnessed a slowdown in production in recent years due to localand regional challenges. The Ministry of Economy and Trade (MOET) recentlyrevised downward the share of agriculture in GDP from 6.3% in 1997 to 4% in2011. Accordingly, data from the World Bank represented in figure 7 indicateoscillating growth in agricultural production that has remarkably decreasedpost-2012 to grow at a slow pace of 0.6% in 2014.
Agriculture (% GDP) Agriculture (% growth)Source World Bank (2016).
LCPS Policy Brief
Some of these challenges have been identified through the dialogue withthe agro food working group:
Absence of agricultural policies and institutional linkages exacerbatestructural problemsThe absence of a comprehensive agricultural policy and the inefficiency ofextension programs provided by the Ministry of Agriculture (MOA) have failedto resolve structural problems persistent in the agro food sector. It suffersfrom lack of funding, receiving less than 1% of the state budget, while private-sector finance and bank loans to the sector are limited. Accordingly, the sectorsuffers from a lack of agricultural policies and plans to enhance, primarily,the irrigation system, importation of agricultural inputs, agricultural extensionservices, marketing channels, and adequate replacement of crops, in additionto the need for financial support, through agricultural micro-credits. The sectorsuffers from a number of structural problems such as monopolized markets,poor financial intermediation, and an overvalued exchange rate, all of whichare mainly a result of weak policy and an unfavorable legal and regulatoryenvironment, which in turn discourages investment and diversification in thesector.
There has been inadequate coordination and consultation between publicand private sector stakeholders and between concerned ministries responsiblefor agro food sector development, which has led to weak and insufficientpolicies and incentives to support the sector. At the national level there are alarge number of actors involved, deeply influencing the sector: Different centralline ministries (particularly the MOA, the Ministry of Commerce, the Ministryof Industry (MOI), and the Ministry of Health), local government authorities,public and private institutions dedicated to agriculture and food processing,certified laboratories, and research centers.
Persistent high costs of production cripple development of industriesOn a comparable scale, Lebanese food products struggle to remain competitive.The Lebanese agro food sector has been facing competition from neighboringArab countries that benefit from lower production costs, direct subsidies, andlarger economies of scale. The relatively high local production costs inLebanon are mainly due to higher labor costs, expensive utility services,lack of local competition, the high cost of upgrading the industry (training,equipment, etc.), and the high cost of capital (borrowing). Moreover, theinterruption of exports’ transportation through the Syrian border in recentyears interrupted Lebanon’s sole land export route to the region. Accordingto the Association of Lebanese Industrialists (ALI), the cost of clearing truckscarrying raw materials to Lebanon by land used to be some $7 per ton, whileclearing them in the Port of Beirut costs almost $70 per ton. This could havea strong distorting effect when world prices are already low (table 2).
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Missed Opportunities amid Great Potential in the Agro Food Sector 11
Table 2
Food products’ price per ton (in $)
Accordingly, the agro food sector is affected by subsidized imports thatundercut domestic producers and are a disincentive for them to invest inproduction. Lebanon has been considered a major food importer in recentyears, with local production satisfying only 20% of domestic consumption.Although Lebanon’s agro food sector has the potential to be one of the mostproductive in the region, it is underdeveloped and poorly managed. Only 55%of productive areas are exploited, often in an inefficient and wasteful manner.The food manufacturing trade deficit stood at $957.4 million in 2013,tightening from 2012’s deficit of $1.01 billion.
Figure 8
Agro food external activity
2007
2008
2009
2010
2011
2012
2013
Year Imports
990
1,240
1,170
1,240
1,450
1,618
1,481
Exports
1,290
1,580
1,570
1,530
1,280
1,695
1,468
Source The Syndicate of Lebanese Food Industrialists.
Lack of institutionalized marketing channels fail exports to the WestThe lack of institutionalized and sophisticated marketing channels to accessEU markets, lack of accreditation and certification, poor performance of locallaboratories, and the inability to meet international standards pose a majorchallenge and are impeding agro food products from entering freely intoforeign markets. Nonetheless, discrepancies with safety and traceabilitystandards remains one of the main obstacles facing industrialists who wish toenter international export markets. Over 50% of Lebanese agro food exports arerejected by European markets because of labeling and packaging irregularities,35% are rejected because of illegal additives, and 5% due to Salmonella. Inaddition, Lebanon is still denied the possibility of exporting animal originproducts to a large number of Western countries, thus eliminating the chancesof exporting certain ready-to-eat products.
Several bodies in Lebanon share responsibility for food safety and qualityregulations for agro food products. The MOI is responsible for maintainingquality standards and promoting better production practices. The MOA workson enhancing linkages between agricultural and agro food activities. Inthis respect, quality regulations from different bodies can be contradictory.Moreover, the lack of credible and qualified laboratories to conduct producttesting and issue quality certifications prohibits many industries from beingqualified. More than one-third of the products tested proved to be non-compliant, although most of them had made the necessary upgrades.
Sustaining existing export markets is another concern for agro industrialists.For instance, in the 1930’s, brands such as Cortas and Conserve ModernesChtaura pioneered the export of canned reade-to-eat meals. Cortas was thefirst to introduce canned hummus to North American markets. However,Lebanese producers have not been able to keep up with developments in foreignfood canned meals. In the US and Europe, fresh and quick frozen foods areincreasingly lowering demand for canned meals. In other Arab countries, localproducers are dominating markets since they operate at considerably lowerproduction costs than Lebanese producers. Furthermore, Arab countries suchas Egypt and Jordan are able to negotiate better and longer lasting tradeagreements with gulf markets.
Therefore, trade policies, regulations, and/or agreements have profoundimplications on the Lebanese economy. These agreements—such as theAssociation Agreement with Europe, the European Neighborhood Policy, and theGreater Arab Free Trade Area—overlook issues such as regional competitivenessand quality. As a result, these trade agreements reduce import barriers butfail to promote export competitiveness for the Lebanese agro food sector.
Minimal research and development activity limits expansionThe rates of local Research and Development (R&D) activity within theLebanese agro food sector are quite low. A number of companies invest inmarket research and business development, but very few venture into productdevelopment and innovative scientific research activities. The main reasonbehind this scarcity in R&D is that research is costly. The majority of agro
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Missed Opportunities amid Great Potential in the Agro Food Sector 13
food firms are micro or small family-owned enterprises that do not havethe financial or human resources to independently perform R&D activities.Accordingly, various parties such as the MOI and MOA, the Syndicate of AgroIndustrialists, and universities and research centers, should collaborate toproduce specialized studies about different food products and sectors withinthe food industry.
Another issue that producers face that complicates potential exportactivity is the lack of adequate information about foreign markets. Producersstudy foreign markets primarily through attending exhibitions and fairsabroad, where they try to learn about the main market players, channels ofdistribution, etc. However, they require an adequate marketing strategy andbetter linkages, which are based on more detailed information about exportmarket structures, especially for new products that Lebanese producers wouldbe interested in venturing into.
Policy RecommendationsDespite the secondary role that the industrial sector plays in the nationaleconomy, Lebanese industrial exports increased and became more sophisticatedfrom 2000 to 2008. However, this is largely attributed to the increase inexternal demand shocks rather than an increase in productivity. Accordingly,there is substantial potential for agro food sector development to meet increasingand diversified food needs, generate employment, and uplift economies.Development has been constrained by a lack of coordinated policies andinsufficient priority being given to agro food sector development. Now, toenhance productivity levels, Lebanon must prioritize the sector, invest inquality vocational training, improve infrastructure, support innovation, andprovide assistance for developing industrial exports. This process should beaddressed in the context of a broader public policy dialogue, which bringstogether government agencies led by the MOI and industrialists to developpolicies which promote diversification.
This analysis concludes with the following recommendations:
Reform institutional policies and frameworksCoordinate approaches between concerned ministries to develop the agroindustry, accord higher priority to developing the agro food sector, andpromote territorial concentration of enterprise through facilitating clusters,networks, and industrial parks and techno poles. Develop enabling and facilitating policies and strategies to support agrofood sector development notably through improving infrastructure, ensuringavailability of adequate financial resources, and improving the provision,focus, and coordination of research and technology services. Promote effective national competition policies to ensure that a small numberof companies do not dominate markets. Issue laws and regulations by the government to protect local markets fromcheap imports.
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LCPS Policy Brief
Renegotiate existing trade agreements and opt for better conditions infuture trade agreements.
Reinvest in agricultural productionEncourage a much greater role for the private sector in providing keyfinancial services to the agro food sector, including low-cost credit servicesor affordable weather insurance. Re-balance current government funds toward much greater support forsustainable agricultural production, subsidies, and extension programs. Secure national and international funds for the support of R&D activitieswithin the agro food sector.
Develop research and marketing strategiesCollaborate between different ministries, universities, and research centers toproduce specialized studies about the different food products and industrieswithin the agro food sector.Support producers attending regional and international exhibitions so theycan facilitate promotion of their range of products and link them withforeign importers, traders, and distributors. Establish international partnerships to launch new products and reach newmarkets using Lebanon’s excellent human resources and education systems. Build a market presence in international markets, especially in Europe, theUnited States, and Canada, through networks and contacts with the Lebanesediaspora.Establish a market research unit that provides needed market intelligenceand helps producers enter new markets and expand existing ones. Develop a comprehensive export market strategy directed toward differentmarkets, whether traditional Arab markets or new Western markets.
Ensure product safety and compliance with international standardsCoordinate regulations and criteria for product safety between concernedministries.Provide training and technical assistance on methods for improving theefficiency of factories and improving safety and quality through HACCPand ISO 22000. These certifications could allow for further accreditationin foreign markets. Enhance the capacities of local laboratories including the Industrial ResearchInstitute (IRI) to adhere to global standards and qualifications. This alsoprovides credibility to the assessments and results provided by theselaboratories.
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LCPSAbout the Policy BriefA Policy Brief is a short piece regularly published by LCPS that analyzes keypolitical, economic, and social issues and providespolicy recommendations to a wide audience of decision makers and thepublic at large.
About LCPSFounded in 1989, theLebanese Center for PolicyStudies is a Beirut-based independent, non-partisanthink-tank whose missionis to produce and advocatepolicies that improve goodgovernance in fields suchas oil and gas, economic development, public finance,and decentralization.
Contact InformationLebanese Center for Policy StudiesSadat Tower, Tenth floorP.O.B 55-215, Leon Street,Ras Beirut, LebanonT: + 961 1 799301F: + 961 1 [email protected]