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Iraq Has Strong Farm Sector Potential, USDA Official Says
Statement of H. Lee Schatz, Foreign Agricultural Service,
U. S. Department of Agriculture
Before the House Committee on Agriculture
Washington, D. C. June 16, 2004
Mr. Chairman, members of the Committee, I appreciate the opportunity to review
the work of the U. S. Department of Agriculture (USDA) in Iraq and assess the
outlook for U. S. agricultural exports to that market.
Introduction
I would like to provide a brief overview of Iraq's agricultural production and
highlight the trade opportunities and challenges ahead for U. S. exporters. I
also will bring you up-to-date on what USDA and our private sector partners are
doing to renew relationships with Iraqi public and private sector partners.
I arrived in Iraq on April 24, 2003, shortly after the fall of Baghdad. As the
first USDA employee in Iraq, I served for nine weeks as the senior advisor to
the Iraq Ministry of Agriculture for the Office of Reconstruction and
Humanitarian Assistance and its successor, the Coalition Provisional Authority
(CPA). Since my return to the United States, I have continued to work full time
on Iraq issues for USDA.
Ten additional employees from USDA have served in Iraq assisting in
reconstruction efforts. USDA has already designated two Foreign Service officers
to staff the agriculture office of the new Embassy.
Iraqi Government Agencies
USDA has been working primarily with two government agencies -- the Ministry of
Agriculture (MOA) and the Ministry of Trade (MOT). MOA focuses on the domestic
production of food, fiber, livestock and poultry. This ministry controls and
administers land ownership, manages water resources and delivery, may dictate
what crops are to be produced, and proposes domestic procurement prices. It
imports all production inputs from seeds and fertilizer to fan belts for
tractors, veterinary supplies and sprinkler systems. MOA is also responsible for
imports of two commodities -- corn and protein meal for use in poultry
production. The Ministry subsidizes the sales of these inputs to keep food
prices low.
MOT imports all food distributed through the Public Distribution System (PDS).
The PDS continues to operate, providing every man, woman, and child an adequate
food ration meeting goals set earlier in consultation under the Oil For Food
program as administered by the United Nations.
Even prior to the Oil For Food program, MOT's Grain Board purchased all imported
wheat and rice. This ministry contracts for the milling and distribution of
wheat through their own and private sector mills to final market points. MOT
buys domestic wheat and rice at pre-announced prices. They operate their own
truck fleet and grain silos.
Iraq's Agricultural Situation
Decades of state intervention in the economy have marginalized private,
market-driven initiatives in agriculture and nearly every other sector of the
economy. A limited number of large agricultural producers and processors operate
in Iraq, but they are, the most part, technologically still in the 1980's.
For the past 20-plus years, Iraq's agriculture and agribusiness effectively have
been cut off from innovation. Adoption and use of high-yield varieties, modern
herbicides and pesticides, the full range of improved cultural practices
(tillage, planting, irrigation, fertilizer use), and new post harvest
technologies have largely bypassed Iraq agriculture.
But despite an extended period of mismanagement of its resources, Iraq still has
the land, water, and human resources needed for a successful agricultural
sector. However, if agriculture is to flourish, it will take time, and require
tough decisions on the part of the new leaders in Iraq, including how to budget
their money.
We estimate that the Ministry of Agriculture, if their new budget allows, will
need to import over $1 billion of agricultural inputs annually for Iraq's
producers to boost production.
For the next several years, and most likely longer, Iraq will need to rely on
imports to meet a large portion of its food and fiber needs, even with
substantial gains in production.
Public Sector Purchases
To meet current Iraq food needs, the government of Iraq, through MOT, imports
and distributes nearly a half million tons of key food items monthly. That
requires about 500--600 trucks moving into the country daily. Supplying this
Public Distribution System, as it is known, is a huge responsibility. It appears
that the Iraqis will continue to fund with their own money this massive public
sector purchasing for the near future. In fact, MOT leaders have discussed
adding items to the ration to show the Iraqi public that the situation is
improving.
MOT has completed its first purchases since resuming responsibility for the PDS,
and we are assessing that effort. In the past, Iraq had a six-month stock of
goods in warehouses to avoid shortages, but that luxury is not available today.
But MOT, along with the CPA, is working to rebuild at least a three-month buffer
stock to better ensure adequate food availability.
We expect that for at least the next year, MOT will remain the major customer
for food sales to Iraq. In addition, there may be opportunities for small sales
to traders in countries bordering Iraq, who will move those goods into Iraq for
the limited private food sector.
But commodities like wheat, rice, and pulses will move almost exclusively
through Iraq Government purchases. And the volumes, based on current monthly
distribution plans, will be substantial. For the next 12 months, distribution
requirements met through imports, will be at or near the following levels:
-- Wheat 2.6 million tons
-- Rice 1 million tons
-- Pulses over 300,000 tons
-- Ghee and oil over 400,000 tons
-- Sugar over 600,000 tons
-- Full fat dry milk over 150,000 tons
-- Other items included in the PDS are tea, salt, infant formula, weaning
cereals, soap, and detergent.
CPA advisors have worked to move Iraqi buying to a more transparent, open
system. But the terms of trade used by Iraq in recent years, and likely in the
period ahead, are considered quite onerous by U.S. traders. These terms include
requirements such as: quality and quantity inspection at the final destination
(not the origin of loading) in Iraq; arbitration in Iraq; transportation
required on the seller's account to the final warehouse in Iraq; payment 30 days
after the presentation of all documents; and no allowances for demurrage.
However, we must remember that these same terms found willing suppliers under
the Oil for Food (OFF) program. We all recognize that the previous Iraqi
government corrupted the operations of the Oil For Food program. Today, advisors
to the Ministries have developed new management teams to change old ways of
doing business. Every Ministry now has an independent Office of the Inspector
General to audit activities.
Anticipated Demand for Agricultural Products
We believe that there is much room for growth in the Iraqi market. If we look at
the levels of wheat consumption in Iraq we discover that per capita consumption
is about 60 percent of the level in Turkey, 70 percent of the level in Iran, and
80 percent of the level in Syria. In the long run, we believe that Iraq will
remain a major commercial food market --and a market that will demand high
quality from its suppliers.
Iraq has a long history as a commercial market. It was a major market for U. S.
agricultural products and our largest market for rice in the late 1980's with
annual rice sales in the 400,000 -500,000 ton range. While the World Food
Program (WFP) did have a presence in Iraq, it was not there to provide food aid.
WFP had a monitoring (and in the north,
distribution) role under the OFF program and earlier this year assisted CPA and
the MOT in making commercial purchases. While some isolated food aid for
vulnerable groups in Iraq (displaced groups) may be appropriate in the future,
in general we do not see a need for U. S. food aid.
USDA's long-term relationship with WFP decision-makers allowed USDA officials to
work effectively to ensure that U. S. exporters had an opportunity to compete in
the first open and transparent tenders earlier this year. As with any commercial
market, U. S. producers had to compete for sales. Our wheat industry
demonstrated its competitiveness with sales of 325,000 tons, representing
one-third of purchases. U.S. rice, however, faces a different situation. Strong
early season U.S. sales this year moved our rice prices sharply above those of
our Asian competitors. Although U. S. rice has an image of top quality and Iraq
buyers are eager to resume imports, the current premiums for U.S. rice have kept
Iraq's purchases focused on Asian supplies.
Status of Export Credit Guarantees
For the remainder of 2004, budgets developed for food imports will allow Iraq to
continue commercial cash imports with Iraqi funds.
As you are aware, in 1991 Iraq discontinued all payments against its purchases
from the United States under the Commodity Credit Corporation's
(CCC) direct sales program, as well as the export credit guarantee programs.
That total debt is approximately $1.975 billion; late interest has accrued since
then in the amount of $1.92 billion. International discussions, through the
Paris Club, have begun on the forgiveness and rescheduling of Iraq's debts. USDA
awaits those results and in the interim, USDA is reviewing the possibility of a
future guarantee program.
U.S. Government and Private Sector Efforts
Dangerous situations throughout the country have limited our ability to identify
and pursue broad capacity building and technical assistance projects. When such
work can be undertaken, indications are that the demand for assistance to help
Iraq catch-up with 21st century agriculture techniques will be substantial.
For now, USDA has fielded 10 advisors for varying periods of time to work with
Iraqis. A major function of USDA's presence in the new Embassy in Baghdad will
be to continue to work with the Government of Iraq to identify and provide such
assistance to strengthen Iraq's agribusiness sector.
Since late last year, even given the unstable security situation, U.S. private
sector trade groups, specifically our market development partners, have been
working in Iraq. Their work is limited to training and support from outside the
country. U.S. feed grain, soybean, wheat, rice, and pulse cooperators have
renewed contacts with Iraqi buyers.
Two of USDA's Market Development Program Cooperators, the U.S. Grains Council
and the American Soybean Association, have received USDA funds to help Iraq's
broiler and layer producers restart and modernize their industry.
A number of technical training seminars for managers of facilities have already
been completed. In addition, work is progressing to form a poultry producers
association in Iraq. This association would strengthen Iraq private sector
involvement in the development of a modern industry.
USDA also supported representatives of the U. S. wheat, rice, and pulse industry
to meet with Government of Iraq buyers in Amman, Jordan in February of this year
to begin the process of clarifying and modifying contract terms used by Iraq. As
a result of these initial meetings, U.S. commodities are once again able to meet
Iraq import quality specifications. Contract terms are still an issue, but
upcoming meetings with the U.S. industry will continue to work on those
outstanding issues.
USDA's Foreign Agricultural Service (FAS) used the Foreign Market Development
Program to support the U. S. Grains Council in its proposal to contract an Iraqi
specialist to undertake work on behalf of all cooperators desiring to penetrate
the Iraqi market. An initial Iraqi contractor has been hired.
Supporting and guiding market promotion activities will be a key focus for the
USDA team that will staff the Embassy. We are currently working to reschedule
the first visit to the United States of a team of senior MOT officials. These
individuals already know the quality of U.S. agricultural exports, but there is
nothing stronger than renewed personal contacts, with our producers, handlers,
and exporters to convince Iraq's decision makers that we are ready and able to
meet their needs for quality agricultural products.
Mr. Chairman, that concludes my testimony. I would be happy to answer any
questions
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