North African drought threatens efforts to cut spending, boost growth

by Reuters
Thursday, 4 February 2016 09:00 GMT

A farmer stands in a dry field in the Bouskoura village, outside Casablanca, Morocco, Feb. 3, 2016. REUTERS/Youssef Boudlal

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Abnormally dry weather threatens to become another financial headache for Morocco, Tunisia and Algeria

* North Africa wheat imports forecast to increase

* Rainfall deficit measured at 61 percent

* Harvest shortfall comes at sensitive time

By Aziz El Yaakoubi

RABAT, Feb 4 (Reuters) - Abnormally dry weather across North Africa is threatening to become another financial headache for Morocco and neighbouring Tunisia and Algeria, just as each seeks to spur more economic growth and cut public spending.

Rising food import costs would come at a delicate time, as Morocco faces protests over austerity measures, Tunisia struggles to ease an outburst of unrest over joblessness, and Algeria cuts spending after a collapse in oil prices.

Along with Egypt, Morocco, Algeria and Tunisia are among the world's biggest wheat importers, with import levels highly sensitive to the results of the local harvest.

"Drought has a huge impact across the region," Jon Marks, chairman of the consultancy Cross Border Information, said. "It weakens the trade balance and holds back efforts to overhaul the agriculture sector."

"In Algeria and Tunisia, drought may slow the pace of planned subsidy cuts," he said. "Morocco, the region's big winner from the oil price slump, may channel some more resources into rural areas."

Morocco plans nearly $600 million of measures to support farming, including assistance for small farmers, feed subsidies, and around ($125.4 million) of insurance from the state-run Moroccan Agricultural Mutual Insurance (Mamda).

It also plans to subsidise 800,000 tonnes of barley production and imports, by paying almost 1 dirham per kilogram of the crop.

With drought looming, the Moroccan cereal harvest is expected to fall sharply from an exceptional 2015 crop that hit a record 11 million tonnes.

"(The) rainfall deficit has reached around 61 percent until now. If the spring cultivation is also affected, this year's cereal harvest would reach hardly 2.5 millions tonnes," the head of Morocco's planning agency, Ahmed Lahlimi Alami, said.

The planning agency estimates that the drop in agricultural output will drag down gross domestic product (GDP) growth to 1.3 percent this year - against a government projection of 3 percent - from an estimated 4.4 percent in 2015.

The agency, known by its French acronym HCP, says the drought would also increase government spending this year, raising doubts over plans to cut the budget deficit.

The government estimates that the budget deficit will fall to 3.5 percent of GDP this year from 4.3 percent in 2015.

Agriculture accounts for more than 15 percent of the Moroccan economy.

LONGER IMPORT WINDOW

Experts and traders expect this year's Moroccan imports to remain under 3 million tonnes as last year's bumper harvest helps mitigate the impact of the drought. However, one Moroccan importer said the country would likely have to extend its import window, which is typically open from October to April.

The import window is closed to protect the local harvest, he said, but this year there may be nothing to protect. "We expect it to be expanded until the end of May," he said.

Importers expect shipments to rise next season, once last year's harvest has been worked through. They say the government should suspend custom duties on soft wheat to ensure adequate supplies to the market by the start of the next season.

Across the border in Algeria, officials played down the impact of any rain shortfall on their country's economy.

"We cannot talk about drought right now," Agriculture Minister Sid Ahmedi Ferroukhi told reporters last week. "We had insufficient precipitation in November and December, but we got good volumes of rains and snows this month (January)."

Algeria's grain imports rose 11.2 percent to 13.67 million tonnes last year, despite efforts to curb purchases from abroad. Its foreign exchange reserves dropped by $6.33 billion to $152.7 billion in the third quarter as global crude oil prices plunged.

The government has said it plans to boost cereal output to 6.13 million tonnes this year from 3.77 million tonnes in 2015, through better-quality seeds, improved mechanisation and more incentives for farmers.

It has also said it would raise total irrigated areas by two-thirds to 2 million hectares by 2019. The share of irrigation for cereals is expected to leap to 600,000 hectares from 60,000 hectares currently.

In Tunisia, El-Majid Ezzar, president of the Tunisian farmers organisation, said it was too soon to gauge the implications of the dry weather.

"This will be a tough year, but we hope there will be enough rains in February and March to save the season," he said.

Tunisia currently imports around 2.4 million tonnes of grains annually including 1.2 million tonnes of soft wheat, but experts and analysts expect trade deficits may widen because of heavier food imports.

Drought would also make it harder for governments to reform their subsidy systems, as requested by foreign lenders. ($1 = 9.9076 Moroccan dirham) (Additional reporting by Hamid Ould Ahmed in Algiers, Tarek Amara in Tunis; Editing by Jan Harvey)

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