December 9, 2009
High feed prices hurt Iraq agriculture economy
The lack of availability and high animal feed prices continue to hinder Iraq''s agricultural economy and results in reduced agricultural employment and higher meat prices, according to a US Department of Agriculture attache report posted Tuesday (December 8) on the Foreign Agricultural Services Web site.
Significant demand exists for corn, soy, and other feeds but it is stifled by governance and transportation barriers. However, bulk private sector imports of feed are poised to grow rapidly if import regulations are liberalized. This report provides estimates of Iraqi feed grain supply, details the current and preferred pathways for feed imports, and gives perspective of Iraqi import practices.
In Iraq, growing demand for sheep, beef, and poultry is not being met and meat prices are high compared to surrounding countries. Although data on animal numbers are sketchy, over the past three decades cattle and sheep populations have declined while the human population has nearly doubled to almost 30 million. Poultryproduction and imports have recently grown rapidly but per capita consumption is still only a fraction of levels in surrounding countries.
Domestic feed wheat and barley production has been affected by drought and the resulting contraction in the feed supply has primarily affected the sheep sector. It is likely that sheep and goat numbers have declined significantly in recent years. If this is the case, it calls into question how the Iraqi local feed market will respond if grain production returns to average production in 2010. Feed wheat is already extensively used by the poultry sector, and if there is a large wheat and barley crop next summer imports of feed grains could face competition. Protein meal would be the exception because of no established domestic production capacity.
The Iraq Ministry of Agriculture animal census estimates have not been released in recent years. It is generally believed that the 2006 census estimates are inflated. We believe it is conservative to reduce livestock numbers by 15-30percent in reaction to the successive droughts and their impact on feed wheat and barley production. There is little evidence that feed grain imports increased substantially in response to this situation. A 2008 Government of Iraq/Ministry of Agriculture Drought Relief Program, which was to include a large purchase of feed barley for livestock use, was never fully implemented.
High internal feed prices and high red-meat prices lead us to conclude that producers have faced a situation where they must sell animals to buy feed for the remaining stock. Regrettably, high wholesale beefand mutton prices have not resulted in increased revenues at the producer level. Livestock prices fell during the late summer of 2008 as producers marketed animals they could no longer afford to feed. Producer prices have stabilized since then, while wholesale red meat prices have risen dramatically.
Feed products available to the poultry sector have likely seen a small increase this year as the result of lower international commodity prices and increased familiarity and availability of pelleted feed.
Drought during 2008 and again this year has severely reduced Iraq''s output of both food and feed grain crops. Wheat production is currently estimated at 1.31 million tonnes this season, (2009-10) or 40 percent below the average expected crop of 2.3 million tonnes. The bulk of the wheat crop shortfall occurred across Northern Iraq in the traditional rain fed areas. Wheat produced in this area is typically of low quality and is used heavily as animal feed. Wheat crop losses across this area were very similar during the 2008-09 marketing year.
Barley production lost to drought conditions closely parallels wheat losses. Barley production across Iraq averaged 465,000 tonnes during the 2008-09 and 2009-10 market years, down 56percent from a pre-drought average of 1.08 million tonnes.
Feed corn production has also declined in recent years due to both drought-induced irrigation restrictions and reduced support for seeds and fertilizer. Feed corn production during 2006-07 and 2007-08 may have been as high as 350,000 tonnes. The corn harvest is under way across Iraq and the Ministry of Agriculture estimates that less than 100,000 tonnes will be harvested. Local markets report increased availability but prices remain steady at US$500/tonne. It seems very likely that some individuals with the opportunity to purchase corn from the Mesopotamia State Company (controlled by the Ministry of Agriculture) at the low supported of US$275/tonne are not users, but traders taking the opportunity to profit from spread between lower state price and actual value. Soymeal prices are being reported in the local market at approximately US$975/tonne.
A conservative estimate is that domestic feed production has been roughly 1.8 million tonnes per year below the pre-drought average. Imports of wheat have risen but by only 40 percent of the crop loss. The wheat import increase can be partially explained by the growing demand for quality milling wheat rather than simply making up for domestic wheat production shortfalls.
Domestic feed prices, as reported by ANKA, a USAID-funded market information service, indicate that wholesale prices for domestic wheat, corn, and barley, have increased 50 percent, 66 percent and 100 percent, respectively from fall 2007 to the fall of 2009.
Generally speaking, international grain prices rose significantly from the spring of 2007 and retreated in late 2008. It is interesting to note that Iraqi food and feed grain prices have not followed world price declines.
The interior market prices for feed products in Iraq highlight the competitive disadvantage that Iraqi livestock and poultry producers face. Prices are well above what might be expected when transportation, handling and minimal border inspection fees and taxes (a 2 percent tax is assessed on imports) are included.
Discussion with truck drivers at border crossings with Jordan, Syria, and Turkey suggest that the transportation cost for bagged product delivered to interior points within Iraq is in the range of US$40 to US$60/tonne. Handling and bagging, and inspection fees do not explain the US$120 to US$150/tonne hard cost that direct importers report paying to get feed products into the country. Iraqi wholesale prices most likely involve substantial markup, as feed products may change hands a number of times, prices also vary widely based upon availability and quality of the product.
Syrian feed mills currently quote grower pelleted poultry feed at US$425/tonne FOB. With inland freight, border taxes, and testing fees, a derived CIF price to an Iraqi end user of US$480/tonne is achieved.
Although nearly identical in terms of handling characteristics, food-use wheat and feed grains have distinct import channels. Food wheat imports of an estimated 3.8 million metric tonnes annually arrive via ship through Iraq''s southern Arabian Gulf seaports and some wheat is distributed by rail. Wheat is imported by the government-owned Grain Board of Iraq. Most feed grains are imported privately by truck via Jordan, Syria, and Turkey, which is clearly more costly and subject to significant delays. Truckers report that they charge an additional US$50/day for each day over 5 days. This can add significantly to delivered cost, which traders build into their price quotations depending on expected border conditions.
There are obvious benefits to be gained from private use of Iraqi sea ports for more efficient vessel-sized (20,000 to 50,000 tonnes) shipments of corn and soymeal.
If the Government of Iraq wants to promote poultry and livestock production, it should encourage: Feed import testing at ports of entry rather than having samples sent to Baghdad for testing. Vessel-sized shipments of feed grains through Iraq''s Arabian Gulf seaports of poultry importers arranging corn and soymeal imports using this path should also be done. Lifting all seasonal bans on imported feed should likewise be implemented. Container shipments of feed and feed ingredients direct to Iraqi Poultry producers via Arabian Gulf ports as a method of eliminating land border crossings and middlemen.
