SECTOR ASSESSMENT (SUMMARY): AGRICULTURE, NATURAL RESOURCES, AND RURAL DEVELOPMENT 1

Transcription

1 Horticulture Value Chain Development Sector Project (RRP AFG 51039) SECTOR ASSESSMENT (SUMMARY): AGRICULTURE, NATURAL RESOURCES, AND RURAL DEVELOPMENT 1 Sector Road Map 1. Sector Performance, Problems, and Opportunities 1. The Afghanistan agriculture sector (excluding opium poppies) accounts for 21.9% of the national gross domestic product (GDP) with sector value addition of $4.1 billion in 2016, and is the second largest sector after services. 2 More than 80% of the population (and 90% of poor people) live in rural areas where agriculture plays an important role in their livelihoods. Agriculture is Afghanistan s major source of livelihood, employing 62.2% of the national workforce of 10.9 million people in Within agriculture, the horticulture subsector is one of the main contributors, accounting for 34% of sector GDP. The diverse geographical and climatic conditions enable a wide range of crops to be produced at different times of the year, the main export crops being grapes (raisins), almonds, and pomegranates, with significant export expansion opportunities in citrus, apricots, and other stone fruit. Horticulture contributed $1.4 billion to national GDP while horticultural exports were $331 million in 2016, accounting for 42.9% of total Afghanistan export earnings. During the period, the horticulture subsector grew at an average of 5.5% per annum and is one of the country s most promising growth prospects. It currently provides employment for 200,000 people (full-time equivalent), of which some 90,000 are in the nonfarm economy. 2. Major constraints that limit horticulture s growth potential are (i) insecurity (inhibiting private investment as well as the widespread damage inflicted from decades of conflict), and (ii) the structure of the producing sector (the average horticultural land area is about 0.4 hectares [ha] per holding) that complicates product aggregation and market access. In addition to these, other constraints include (i) the availability of irrigated agricultural land (mainly because of widespread destruction and lack of maintenance of irrigation systems); (ii) limited availability of improved varieties and planting material; (iii) low productivity amongst old orchards in need of replanting; (iv) insecure property rights that discourage long-term investment; (v) almost nonexistent technical support services (except on a project basis); and (vi) widespread use of traditional production techniques and systems. Horticulture requires a functioning cool chain to remove field heat to protect shelf life of perishable products. Such facilities do not exist, and interrupted value chains result in high levels of waste and significant export rejection on quality grounds. Furthermore, with increased international pressure for food safety and global agricultural practices, access to higher-priced markets in Europe and the United States is difficult for Afghanistan s products. 3. Institutional constraints are also evident in that public services for on-farm productivity improvement is limited by the capacity of technical extension personnel in the provinces and districts as well as the financial limitations imposed by inadequate operating budgets. The private sector is increasingly assuming this function as relationships between traders and producers are strengthened. Institutional mechanisms for quality control of agricultural inputs are also lacking, particularly in respect of planting material where the control of new genetic material has been left to a nongovernment organization in the absence of any effective government institution. 1 This summary is based on Government of Afghanistan, Ministry of Agriculture, Irrigation and Livestock National Comprehensive Agriculture Development Program Kabul. 2 (accessed on 5 May 2018).

2 2 4. Afghanistan has a wide variety of agro-climatic zones suited to the production of seasonal perennial and annual horticultural crops. Historically, there was a strong and competitive horticulture subsector that was competitive in export markets producers are familiar with production of a wide range of perennial and annual crops. The country has extensive water resources capable of irrigating 7.0 million ha (the current irrigated area is 2.4 million ha). As the period of extreme insecurity is waning, there has been significant investment in the rehabilitation of irrigation infrastructure that has made possible the establishment of larger production units. A number of major crops traded internationally, including apricots, grapes (over 90 varieties unique to Afghanistan), pine nuts, and pistachio nuts, have their origin in Afghanistan. The country also has access to the full range of plant material of internationally traded varieties. For the more perishable items, Afghanistan is geographically close to the significant markets of the People s Republic of China, India, Pakistan, and central Asia that are accessible by land transport, while for nonperishable dried fruit and nuts access to the more distant and higher-priced markets of Europe and the United States is constrained only by quality standards, certification procedures, and logistics. 5. For grapes, there are opportunities to significantly improve yields from increased use of quality planting material and improved trellising as well as potential improvements in post-harvest handling and grading and/or sorting during drying, as well as for the fresh market for seedless grapes in export markets at times when supplies are limited from other sources. In the case of apples, there are opportunities to expand the area of internationally demanded varieties using high-density production and management systems to significantly increase yields and quality. For citrus, subject to increased availability of planting material, there exists a large unsatisfied demand domestically and internationally in central Asia and Russia. For potatoes, there are opportunities to export seed material to neighboring countries and to expand domestic production for food security and export expansion. For stone fruit, there is an unsatisfied demand for fresh products initially in the region but also to the higher-priced markets in the longer term if certification requirements can be addressed. 6. Based on recent growth trends, the horticulture subsector is projected to increase from 3.9 million tons per annum in 2017 to 5.0 million tons per annum by Production gains can be achieved through a reduction in post-harvest handling and storage losses and increased production output. Together, these changes could lead to an annual GDP contribution of about $3.5 billion by 2026 (compared to $1.4 billion in 2016). This would add another 362,000 full-time jobs by ,000 in horticulture production and 95,000 in other value-addition activities. Since 90% of poor people live in rural areas, this high growth potential subsector will have an immediate impact on those people through employment opportunities. Gains outlined here are consistent with projected demand on domestic and export markets. 2. Government s Sector Strategy 7. National Comprehensive Agriculture Development Program ( ) (footnote 1). This is a strategic program for agricultural development in which the emphasis will shift towards a farmer-centered perspective. To bring about this reorientation, the Ministry of Agriculture, Irrigation and Livestock plans to (i) ensure implementation of an integrated service approach placing farmers at its center; (ii) focus on the intensive agriculture sector with its potential for increasing value addition (and downstream processing), employment, and country revenue; and (iii) strengthen institutional structures to deliver services. 8. The program highlights horticulture value-chain development as one of its seven strategic pillars. Under horticulture value-chain development pillars, the priorities are (i) expansion of the

3 3 horticulture land base, (ii) increase in crop productivity, (iii) development of value chains for selected crops where the country has a high comparative advantage, (iv) infrastructure and market development, (v) promotion of standardization and certification, (vi) support to the private sector, (vii) development of crop nurseries through adaption research, and (viii) expansion of the area under protected agriculture. 9. Government expectations for horticultural development led by the private sector is contingent on the security situation. Private investment will materialize if investors can be assured of a stable environment where they can invest without the risk of local conflict and can be assured of reliable supply chains to enable produce to pass through their packhouses and processing works. These risks also limit access to credit from formal financial institutions, necessitating the approach adopted in the proposed project design. The government needs to place greater importance on providing access, particularly to higher-priced international destinations. Public investment in cold chain facilities at airports and permitting cargo services to potential markets, together with quality certification services, will facilitate such access. These are also contingent on incremental horticultural production of the required quality being produced by farmers. The challenges of product aggregation over an extended distance from a large number of small producers can only be addressed through improved business relations between farmers and trader and/or processors. Perhaps the biggest challenge to the government will be to establish and monitor certification requirements in order to access the higher-priced international markets ADB Sector Experience and Assistance Program 10. Since 2005, the Asian Development Bank (ADB) has provided $2.83 billion as grant funds in support of the agriculture and natural resources sector in Afghanistan through six active projects, directed mainly at the irrigation and water resources subsector. Moreover, projects financed by ADB and development partners have helped promote market linkages for fruit and vegetables while enhancing rural entrepreneurship. Lessons learned from these and other ADBfinanced projects include (i) the need for flexibility in the provision of security services and to have security issues more central in project design and implementation; (ii) the need to concentrate on a limited number of sectors to ease the burden on government and ADB resources; (iii) the need to have better quality at entry of projects, strengthened capacities, and increased supervision to improve efficiency; and (iv) the need to improve results frameworks and monitoring of outcomes. The Independent Evaluation Department review of ADB s Afghanistan portfolio following the final strategy review recommended, amongst others, (i) a continued focus on the agriculture and natural resources sector, (ii) support for an enabling environment for the private sector, and (iii) strengthening the risk management approaches to project interventions ADB s country partnership strategy 5 agreed with the government s calls for a stronger foundation for more inclusive and sustained growth to prevent the poverty rate from worsening. (footnote 1). Three pillars have been identified for ADB support: (i) expanded access for women and men to economic opportunities, markets, and services; (ii) stronger institutions and human capacities; and (iii) increased environmental sustainability, climate change resilience, and disaster resilience. Within the first pillar, the development of agriculture and natural resources is specifically mentioned. The strategy recognizes one of the keys to poverty reduction and inclusive 3 When Afghanistan was a major supplier to the world market in horticultural products, food and safety standards were not an issue in determining market access. This is rapidly changing. 4 ADB Validation Report of the Country Partnership Strategy Final Review: Afghanistan, 2009 to mid Manila. 5 ADB Country Partnership Strategy: Afghanistan, Achieving Inclusive Growth in a Fragile and Conflict-Affected Situation. Manila.

4 4 growth is the development of agriculture and water resources. In addition to agriculture serving as an engine of growth for the economy, the development of the sector will contribute to peace and stability in rural areas through increased employment, higher incomes, and more equitable distribution of water resources. ADB s focus will be on the provision and rehabilitation of irrigation and water resource infrastructure, and on the development of agriculture market infrastructure and value chains. 12. In this regard, the proposed project is well-aligned with the country partnership strategy and is likely to have a significant impact on reducing rural poverty by providing employment opportunities and raising rural incomes.

5 5 Problem Tree for Agriculture, Natural Resources, and Rural Development (Horticulture Subsector) EFFECTS (National) Low per-capita incomes, high rural poverty, and weak export performance EFFECTS (Sector) Lack of longterm investment and sustainability in horticulture Underdeveloped and noncompetitive agro-processing Opportunities forgone in export and value addition CORE SECTOR PROBLEM Disrupted value chains that limit incentives for growth MAIN CAUSES Low on-farm productivity Inefficient and dilapidated irrigation systems Old and conflictdamaged orchards in need of rehabilitation Traditional and/or outdated production and post-harvest handling systems remain Limited access to planting material for internationally demanded produce Source: Asian Development Bank. Weak infrastructure and marketing linkages with downstream traders / processors Underdeveloped post-harvest handling and storage facilities Disrupted cold chains from farm to market Insecurity discourages private investment in mobile, chilled transport facilities Limited adherence to supply contract arrangements by small farmers Inability to access high-priced markets from weak certification Ineffective quality and certification mechanism Unreliable export procedures and logistics (air space) Limited access to clean planting material for demanded varieties Large number of small-scale producers impacts consistency of quality