THE HASHEMITE KINGDOM OF JORDAN WATER ALONG THE FOOD CHAIN THE JORDAN CASE Analytical brief of selected food chains in a water perspective AMMAN, 12 MARCH 2014 Turi Fileccia, Senior Agronomist, FAO-Investment Centre Vasyl Hovhera, Economist, FAO-Investment Centre FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS - ROME INVESTMENT CENTRE DIVISION EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT FAO/EBRD COOPERATION
Water Budget Supply of renewable water resources: 853 MCM per year (2011) underground water safe yield: 293 MCM surface water*: 560 MCM Use: 899 MCM per year groundwater used for all purposes: 516.86 MCM! surface water: 381.93 MCM Deficit: 45.79 MCM * Including treated wastewater, ~ 100 MCM ~ 140-130 m3 per capita annual share; Climate change scenarios all predict a further decline of water resources
Consumption: NO LOWERING THE GUARD! Municipal Industry Agriculture All Uses Linear (Municipal) Linear (Industry) Linear (Agriculture) Linear (All Uses) 1600 1400 1200 1203 1345 1379 1000 800 817 766 803 804 860 932 917 932 928 863 893 899 600 400 200 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2015 2020 2025 The water deficit for all uses will grow from about 314 MCM in 2015 to 490 MCM by the year 2025 (USAID, 2011)
Water Consumption by Sector Sector Amount consumed MCM 2011 2010 2009 2008 2007 2006 Average (2006-2011) Average share (%) Municipal 347 352 326 315 294 291 321 37 Agriculture 405 400 399 397 421 431 409 Agriculture (TWW) 103 103 101 101 91 80 97 58 Other 7 7 8 8 8 8 8 1 Industry* 37 39 37 38 48 38 40 5 Total 899 901 871 858 862 848 873 100 *The food and beverages industry consumed about 10% of the total water utilized by the entire industrial sector.
Water is scarce: Effective policy framework in place National Agenda 2020: means to achieve sustainable development: Food industry and agriculture as a priority; Develop and upgrade wastewater treatment facilities for agriculture and industry; Improve efficiency of water distribution networks; Restructure tariffs and progressively reduce subsidies; Involvement of the private sector in developing the water sector
Water is scarce: Effective policy framework in place Water for Life Jordan Water Strategy 2008-2022, goal: Minimize water imbalance Water for Life Jordan Water Strategy 2008-2022, targets: drastic reduction in groundwater exploitation; irrigated agriculture in the highlands capped water tariffs* Incentives to promote irrigation water efficiency and productivity
Water Priorities Water for Life Jordan Water Strategy 2008-2022 1 st priority: adequate, safe and secure drinking water supply Disi-Amman Conveyance Project Red Sea-Dead Sea Canal Major planned / pipeline water conveyance investments
Water Priorities Water for Life Jordan Water Strategy 2008-2022, priorities: Industrial sector, projected to grow four-fold by 2025; prioritization includes management of industrial wastewater; Agriculture water use to continue but capped at the current levels (or even lower?), with continued improvement of efficiency and increased productivity.
The Economy Jordan ranks among the most open economies in the world and second (behind the UAE) in the Arab region. Jordan is committed to contributing towards the strengthening of a free, open and stable multilateral trading system; has signed several trade agreements, and has joined the WTO and the Greater Arab Free Trade Agreement. Services, 66%? Industry, 31% other industry, 28% food and beverages, 3% *JOD billion: 20.4 Agriculture, 3%
Water Productivity (JD/m3) Producing more food, income, livelihoods, and ecological benefits at less social and environmental cost per unit of water used. The overall water productivity of the agricultural sector (Gross Output) is low amounting to some 1.2 JD/m3 (598 million JD/ 508 MCM of water) Crop But (in the JV) Gross revenues per cubic meter of irrigation water required Current Prices Best Market Prices Tomatoes GH 8.17 20.27 Tomatoes OF 1.60 4.10 Cucumbers GH 8.33 16.59 Potato OF 7.77 7.78 Melon GH 9.72 9.72 Dates: non-medjool Medjool 8.22 20.16 8.22 20.16 Bananas 1.61 1.61 Citrus surface 0.47 1.20 Citrus drip 0.96 2.43 The Jordan Valley confirms water values that are about twice as high those prevailing in the highlands.
Potential > Water Productivity Highest possible value added in high-end markets is necessary to increase competitiveness and to achieve the highest value per cubic meter of water. Exporting fruits and vegetables to EU, Balkan, and Russian markets generates three to four times higher water values compared to Jordan s traditional export markets*. * There is growing evidence though of higher value being generated in some of the traditional markets as well when produces reach the high-end segment of such markets!
Potential > Water Productivity Food industry water productivity is highest: 639 million JD / 3.7 MCM water withdrawal = 173 JD/m3 (2011) Sector scores well: achievement of international standards by Jordanian meat and poultry companies is promising (quality and food safety standards, ISO 9001, ISO 22000 and HACCP, including ISO 14001 for environmental management systems)
Selection criteria for Food Chains to invest in: Exclusive use of renewable water resources; Low water opportunity cost (treated wastewater) Highest water efficiency sunk investment; Higher water productivity; Highest competitiveness scoring; Sustained market demand (domestic and export); Profitability; Potential for improvement through investment; Private sector interest.
Criteria largely met by: Processed poultry meat Winter vegetables and fruits (dates) of the Jordan Valley for high-value markets
Poultry meat VCA Poultry S&D in Jordan in 2012 Per capita poultry meat consumption = 35.7 kg/y/person 226 thd MT Domestic consumption + 19 thd MT Export (frozen) = TOTAL DEMAND 245 thd MT TOTAL SUPPLY = 200 thd MT Domestic production (90% fresh for domestic use + 10% unsold fresh then frozen for export) + 45 thd MT Import (frozen) Self-sufficiency level = 89%
2 1.8 Poultry meat VCA Growing market in Jordan Population, per capita and total poultry consumption growth index (2003=1) 1.6 1.4 1.2 1 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total food consumption Population Per capita consumption If growing trend in population (+2,2%/y) and income (+4%/y) continues, domestic poultry meat consumption increase by 50%. from 226 thd MT in 2012 to up to: 345-350 thd MT in 2020 Will the domestic industry be able to meet the target?
Poultry meat VCA Distribution Chicken meat available for domestic use 226 thd MT Butchers 25-35% operate on traditional (noncompetitive) markets Good margins only to intermediaries; negative to producers Distribution of products through shops, groceries and supermarkets 65-75% High intermediation margins (av. - 13%; max. - 50%) Well organized distribution of brand products
Poultry meat VCA Meat supply (slaughtering) Small SH and butchers 67 thd MT -not efficient, not compliant with sanitary regulation - no detailed information on efficiency indicators Industrial SH 133 thd MT (15+118) -9 SH, overall capacity 40 thd birds/hour used by 45% (<10 hours/day) -Highly efficient and compliant with international quality standards -Av. cost = 0.17 JOD/br.; Av. return on costs 16% - Required improvements: labor efficiency, better use of existing capacity Chicken meat available for domestic use 226 thd MT (chilled 80%, whole carcass 95%) Export 19 thd MT - Import 45 thd MT = Trade bal. -26 thd MT
Poultry meat VCA Farming, hatching and breeding 2 Ingredients suppliers Feed mill (Feed price 450 JOD/MT) 1 Grandparent farm 106 Parent farm, cap. 3.8 mln birds, prod. 265 mln eggs 41 hatchery, cap. 292 mln eggs, prod. 213 mln eggs Small farms (<50 thd) 15% Livability 80%; Feed conversion rate 1.67; TOTAL PRODUCTION COST 1.39 JOD/kg live weight Farm gate price 1.30 JOD/kg live weight Returns on cost -6% NON INTEGRATED, OLD TECH. Medium farms 20%??? Big farms (>1.5 mln) 65% Livability 93%; Feed conversion rate 1.5; TOTAL PRODUCTION COST 1.16 JOD/kg live weight Farm gate price 1.30 JOD/kg live weight Returns on cost 12% FULLY INTEGRATED, NEW TECH. 1722 Broiler farms, cap 28.1 mln birds/cycle Broiler production est. 194 mln birds (257 thd MT live weight) Butchers Brokers Industrial SH
Poultry meat VCA Water efficiency and productivity Remarkable levels of water use efficiency (high performers)- 6.86 L per kg of meat (slaughtering segment: comparable with international best practices) Strong internal discrepancies Non integrated and less efficient market players use 12.9 L per kg of meat water productivity (added value per m3 of water) best performers 90 JOD/m3 average of the sector 25 JOD/m3 worst performers 14 JOD/m3.
JOD/kg of meat (whole carcass) Poultry meat VCA Integrated Industry view 2.5 25% Profit 2 20% 20% 1.5 1 9% 12% 16% 15% 10% Specific segment related costs Cost from previouse segment 0.5 5% Profit (%, right axis) 0 Hatching egg production Hatching Broiler farming Slaughtering 0%
Domestic market Vegetables VCA: Supply chain Veg. Production in 2011 1.93 mln MT Tomatoes 0.78 mln MT Cucumbers 0.23 mln MT Potatoes 0.22 mln MT Eggplants 0.12 mln MT Sweet peppers 0.05 mln MT Jordan Valley 0.88 mln MT (46%) Independent farms Import Central Market (Wholesale) Integrated farms Packing House Export market Low profitability at local market Through central markets Unequal distribution of margins Logistics centre Grocery shop Two export destination (Gulf and non Gulf) High quality and high value chain Supermarket Domestic consumer Export
Vegetables VCA: Jordanian exports 2010-2012 vegetables accounted for over 6% of total exports 450 million USD or 715 thd MT Share of JV and UL in vegetables export 100% 80% 60% 40% 20% Jordan Valley Uplands 0% 01/2011 02/2011 03/2011 04/2011 05/2011 06/2011 07/2011 08/2011 09/2011 10/2011 11/2011 12/2011 Export from JV: around 76% of total export but Total Export to non-gulf countries is around 6%
Vegetables VCA: Export Gulf Vs UE Non Gulf Countries Difficult access (+ barriers) Higher transportation costs by sea, 6 to 15 days 0.25 JOD/kg by plane 1 to 2 days 0.85 JOD/kg Gulf Countries Easy access (- barriers) higher quality standards higher value markets low transportation costs by truck, 1 to 2 days 0.1 JOD/kg low quality standards low value markets
Vegetables VCA: margins Cucumber Cld. Pepper Ch. Tomato 0.10 JOD/kg RoC 10% Net profit of the trader 0.35 JOD/kg RoC 26% 0.25 JOD/kg RoC 14% 0.06 JOD/kg RoC - 33% Net profit of the farmer 0.12 JOD/kg RoC - 26% 0.47 JOD/kg RoC - 90%
Vegetables VCA: Water efficiency and productivity Cucumbers Cherry Tomato Colored Peppers Total Water used for production and packing Total profit from production, packing and exporting 30.4 22.9 26.1 l/kg 0.16 0.72 0.47 JOD/l Productivity of water 5 31 18 JOD/m3 Production segment uses 98% of water Production of vegetables in Jordan is already very efficient Productivity of water may increase if marketing improves Investment in new multispan greenhouses may allow increasing water productivity
Dates VCA: Medjool dates market Local market Export Net profit 2.30 JOD/kg!!! Net profit 0.90 JOD/kg Net profit 1.55 JOD/kg Supermarket price of finest dates 7.80 JOD/kg Total cost at Supermarket 5.50 JOD/kg Marketing cost 0.50 JOD/kg CIF price 7.50 JOD/kg Total CIF cost 6.60 JOD/kg 5.95 JOD/kg Freight cost 1.50 JOD/kg 0.35 JOD/kg Via air Via sea Local transportation cost 0.10 JOD/kg 2012 Export 850 MT > 6 Mil. JOD 5.00 JOD/kg Packinghouse gate price
Dates VCA: Medjool dates supply 5.00 JOD/kg Packinghouse gate price Packhouse gate price 5.00 JOD/kg Integrated farms > 650 MT (2012) Net profit 1.55 JOD/kg Processing and packaging cost 0.95 JOD/kg Farm gate price 2.50 JOD/kg Farm net profit 1.48 JOD/kg Primary production costs 1.02 JOD/kg Independent farms < 350 MT (2012)
Dates VCA: water use Packaging 6 m 3 /t Production 72.5 m 3 /t Total water use 79 m 3 /t Added value m 3 of water: Export via sea 19.7 JOD/m3 Export via air 11.5 JOD/m3 Supermarket 29.3 JOD/m3
Investment Suggestions Jordan should move away from all unsustainable agriculture and food activities that are high water consumers and are water inefficient. Investment should mainly, if not exclusively, target profitable food chains that have made clear efforts to improve their water efficiency level and that have the potential to further enhance the productivity of each drop of water they consume. Continue to invest in agriculture groundwater use? NO Low High Water efficiency Water productivity High YES NO Low NO NO
Investment Suggestions Poultry industry : YES Issue: some 35 % of the domestic production (old-fragmented-non integrated) will likely fade away because of its unprofitability; some may upgrade, differentiate, etc. but unlikely without support Small SH and butchers 67 thd MT -not efficient, not compliant with sanitary regulation - no detailed information on efficiency indicators Exit? Issue: the remaining 65% (modern-integrated) will need to make up for the likely supply gap and for the growing demand! In the meantime, imports will increase
Investment Suggestions Poultry industry : YES Options (for the modern-integrated): increase production capacity and efficiency/competitiveness (in all initial segments but mainly hatcheries; broiler farming) increase efficiency/competitiveness of feed segment (infrastructure; requires separate in-depth analysis) increase efficiency/competitiveness of slaughtering segment (capacity is underused; in the long term may need to increase capacity as well) For > competitiveness: abatement of energy costs (= solar power units); more R&D; improved sanitation organization; improved health management; better waste management; feed infrastructure (?), more efficient transportation.
01/2011 02/2011 03/2011 04/2011 05/2011 06/2011 07/2011 08/2011 09/2011 10/2011 11/2011 12/2011 Investment Suggestions High-end market export vegetables from the JV: YES 100% 80% 60% 40% 20% 0% issue: 80 % of JV production has low to negative profitability at primary production level (downstream segments are ok) issue: 76% of national veg. exports but the bulk ends in low value markets issue/opportunity: less than 6% of production volume is directed to highvalue markets (@ 3 times higher prices; generating over 20% of total JV export value!) These figures need to turn around!
These ratios need to turn around! Feasible? Jordan Valley West bank Vegetable area : 30,000 dunums East Bank Vegetable area : 200,000 dunums Output value: 150 million USD Output value: 450 million (@ average exp. Price) 16% of area / one third of output value More value addition = high value markets
Investment Suggestions High-end market export vegetables from the JV: YES Options: move from current 5,000-6,000 dunums to 10,000 d (ST); 50,000 d (MT); 100,000+ d (LT) Options (Agribusinesses): larger production base > water efficiency; > high-tech greenhouses and large multi-span; > from contract farming to outgrower scheme arrangements? (+reciprocity + capacity building + loan guarantors?); > modern pack houses > Cold chain > food quality and safety control and mgt system > energy saving (solar power) > reliable freight contracts (best at present juncture: through Haifa) > trustworthy market outlets
Investment Suggestions High-end market export vegetables from the JV: YES Options (producers): shift crop choice to high-end market demand > optimising cropping systems/practices > technology improvements of protected agriculture gears and means (greenhouses) > capacity development, compliance to international GAPs/SPSs standards ( soft and hard investments) > expansion of the WUA organization > improved organizational status to access credit (Cooperatives?)
Investment Suggestions Dates: YES Issue: high cost of land and ownership restrictions to individuals only Options: move from current 10,000 dunums to 20,000 dunums (mainly Medjool) > plantations > irrigation equipment > mechanized harvesting (hydraulic lifts) > high-tech pack houses (automated?)
Investment Suggestions/ Enabling Environment policy and institutional actions (soft investment): Labor, increase quotas for the Valley that are well regulated and are extended to Asian countries; Amendments to JV land regime (titles extended to companies and cooperatives?); Modern and efficient Cooperative Framework ; Remove residual trade barriers (banana); efficient market information systems (through e.g. an empowered JEPA); R&D spotlight on major issues concerning the producers (through Public Private Partnership programs with NCARE, Universities, Agribusinesses); capacity development on GAP/SPS international standards through PPPs).
Investment Suggestions/ Enabling Environment Public sector hard investments: Improve JVA infrastructure to ensure water of reliable quantity and quality Accelerate pipeline of > TWW availability of good quality > Food Quality-Safety infrastructure (PPPs?)
Investment Suggestions/ Enabling Environment (Mainly for the JV F&V chain) Preliminary conditions: Public sector declaration: JV = country high priority area (JV=Agribusiness Hub) Public sector Sponsor; Private sector Champion Workplan (first priority Plans of Action)
Water Along the Food Chain: The Jordan Case Thank you! turi.fileccia@fao.org vasyl.hovhera@fao.org