Iraq is a major importer of grains, consumes around 6 million tons of wheat a year. Iraq imports about 3 million tons of flour a year, meeting almost half of its demand. Cereal import requirements in the upcoming 2018/19 marketing year are forecast at 4.4 million tonnes, including 2.9 million tonnes of wheat and 1.1 million tonnes of rice. The total cereal import requirement is forecast to be similar to the previous year’s level, but about 20 percent above the five-year average.
After years of war and social unrest, Iraq is facing a number of challenges that are common to all sectors of the economy, amongst which the most important are the deteriorated state of the social and economic infrastructure, the disruption of the social fabric of the society and the increased dependence on oil incomes –representing two thirds of the GDP and almost all exports and fiscal revenues.
Iraq has about 34 million citizens, with a yearly population growth rate of 2.6%. The population is young, with more than half less than 20 years old. Iraq has a land area of 437,072 sq km. It has the capacity to be a thriving, middle class country. With a long trading history, deep commercial traditions, and vast natural resources - including the world’s second largest proven oil reserves; Iraq, at the crossroad of culture and commerce, has enormous potential.
Iraq’s economy enjoyed robust growth of more than 10 percent in 2016 because of higher oil prices and greater financial stability. And the security situation has improved somewhat as Iraqi Security Forces have made gains against the ongoing insurgency. U.S.-backed Iraqi forces ousted ISIS from Mosul in Iraq.
Diversification, key to Iraq’s long-term economic development, will require a strengthened investment climate to bolster private-sector engagement, which in turn will require improving the security environment and restoring the rule of law.
Iraq’s largely state-run economy is dominated by the oil sector. The war against the Islamic State has imposed a high cost on the economy, and Baghdad will have to shoulder the additional costs of reconstructing the war-damaged infrastructure of Mosul and other liberated areas. Businesses face significant costs to ensure security, as well as cumbersome and confusing procedures and long payment delays on some government contracts.
According to official estimates, one in five Iraqis are farmers. Agriculture is mostly practiced on small farming units and it is a low input–low output system. Crop yields are low by any comparative standards. Crop production is the major source of income for the majority (75 percent) of farmers in Iraq, while the rest depend on livestock or mixed crop and livestock enterprises. Grains, primarily wheat and barley, are Iraq’s main crops in the north and central rainfed areas. In central and southern Iraq, where agriculture depends mainly on irrigation from the Tigris and Euphrates rivers.
Government policies in the agricultural sector have been characterized by the state determination to control and subsidize farm inputs (fertilizers, seeds, insecticides, farm equipment and machinery) and prices of strategic crops. The most important crop, wheat, has been the most controlled and the most affected by the lack of open markets.
Iraq agriculture is under increasing pressure to feed its growing population. It is estimated that Iraq will need much more than the current USD 5 billion to import basic food to meet the annual shortages–for as long as required by domestic production to achieve sustained growth. Iraq will be dependent on imports for meeting domestic food demand for many years to come.
Iraq has been importing on average of 2.6 million tonnes of wheat annually. The average annual value of total cereals (principally wheat) imports average around 750 million USD.
Cereals, primarily wheat and barley, are Iraq’s most important crop (approximately 80 percent of cultivated area). The north and central rainfed areas are the principal wheat producers. On average, farmers in Iraq cultivate about 3 million hectares of combined wheat and barley each year.
CONFLICT CONTINUES TO AFFECT PRODUCTION
Iraqi farmers grow wheat, primarily in the same region where the wheat plant itself originated. This land between the Tigris and Euphrates rivers is referred to as the Fertile Crescent and wheat was first grown here more than 10,000 years ago. Iraq’s arable land is estimated at 8 million hectares, comprising less than 15% of the country’s total area. However, only 4 to 5 million hectares is being cultivated. Cereal production is the principal agricultural activity in Iraq accounting for 70 to 85% of cultivated area.
However, increasingly erratic rainfall across the region, along with the construction of dams in upstream Turkey and Iran, have all reduced the amount of water flowing in the key rivers of the Tigris and Euphrates by at least 50 percent in recent decades, according to Iraqi government officials. This has hit the country’s agricultural and farming sectors hard. Consequently, the government has now banned the plantation of summer crops, including corn and paddy rice cultivation.
In addition to water shortages, food production in Iraq has been affected by ISIS’s 2014 takeover of Salahuddin, Nineveh, Kirkuk, and Anbar - areas that comprise the country’s cereal belt.
The lack of this territory resulted in Iraq losing the majority of its annual wheat and barley harvests from those regions, which contribute more than one-third of Iraq’s cereal production, or about one million tonnes of wheat.
Machinery and irrigation structures in conflict areas are reported to be damaged. Due to the limited availability of irrigation water, farmers are encouraged to employ dry rice production techniques. Many farmers across the country resorted to planting uncertified seeds, resulting in lower yields due to the lack of timely hybrid seed distribution normally carried out by the Government.
The area planted for Iraq’s 2018-19 wheat crop may drop by as much as 50 percent, Hameed Al-Nayef, the agriculture ministry’s spokesman told Bloomberg. Iraq will need to increase imports as a result. It imported 4.1 million tons of wheat in 2017-18 season.
Turkey’s Ilisu dam project on the Tigris has led Iraq’s government to halt plantings of rice and corn for the season starting in July, as both rely on large quantities of irrigated water, according to Al-Nayef. Consequently, the 2018 cereal harvest is forecast at below average 4.3 million tonnes. The preliminary wheat production forecast indicates a 14 percent reduction from last year’s level and almost a 20 percent decline compared to the five-year average.
Iraq may have to resume importing corn next year. The country currently has reserves of about 100,000 tons, enough for about a year. Iraq’s Water Resources Ministry didn’t allocate sufficient water for all crops, so the agriculture ministry had to halt plantings of rice, yellow and white corn, sesame and sunflower seeds, and cotton, Bloomber reported.
Iraq planted 4 million dunams (988,421 acres) of wheat in 2017-18. The USDA estimates that Iraq’s wheat harvest in 2018-19 will be little changed at 4 million tons. Iraq’s stockpiles at the beginning of the season will grow to 1.3 million tons from 881,000 tons, reducing the need for imports, according to the USDA.
Iraq’s Ministry of Trade continues to support wheat producers with a purchase program that pays 560,000 IQD/MT for no.1 wheat; roughly $487/MT at today’s exchange rate. The current procurement price represents a sharp price decline from recent years and may lead to a lower planted area in coming years. Lower world oil prices and the cost of Iraq’s ongoing conflict appear to be constraining Iraq’s support to the agriculture sector.
GRAIN IMPORTS INCREASING
Grain import requirements in the upcoming 2018/19 marketing year (July/June) are forecast at 4.4 million tonnes, including 2.9 million tonnes of wheat (mostly as flour) and 1.1 million tonnes of rice. The total cereal import requirement is forecast to be similar to the previous year’s level, but about 20 percent above the five-year average.
ANNUAL FLOUR IMPORT COSST $750-$800 MILLION
The private sector is responsible for Iraq’s flour imports, while the government tightly controls wheat imports. According to USDA, the surge in flour imports of over 50 percent since 2014 suggest that Iraq’s domestic wheat production does not meet the quality requirements of Iraqi bakers. Suggestions have been floated recently by Iraqi officials that Iraq should import wheat to supply to the private sector millers and ultimately, bakers, independent of the Public Distribution System (PDS), which distributes subsidized basic food rations to the population. Two direct benefits of such a plan would be to better utilize Iraq’s private sector milling capacity, currently estimated to be operating at only 33 percent of capacity, and to capture the bran portion of the wheat for sale to the poultry and livestock sector.
IRAQI MILLING INDUSTRY
Iraq needs an annual wheat supply of between 4.5 million and five million tonnes, implying an import gap of around two million tonnes for the year. Iraq’s grain purchases are controlled by a government body- the Grain Board of Iraq. It buys wheat of US, Canadian and Australian origin.
The grain board, which falls under the trade ministry, regularly announces international purchasing tenders, to import wheat for the country’s food rationing programme, which covers flour, cooking oil, rice, sugar and baby milk formula. Under the system, imported wheat is mixed with local grain to produce flour. The board organizes the receipt of grain and supplies the State Company for Grain Processing with both imported and domestic wheat. The State Company for Grain Processing, another government entity, delivers the wheat to millers. From there, the majority of flour in Iraq is dispensed according to the PDS, the world’s largest food distribution system through which the government provides a monthly basket of goods to qualifying citizens.
The milling industry in Iraq has been out of maintenance since the invasion of Iraq in 2003. Although most of the milling factories are individual property but lack of security and skilled labors or technicians and genuine spare part are the main obstacles to have those milling factories under control and smoothly maintained.
The dominant trend regarding Iraq’s agricultural grain trade in recent years has been the reversal of roles between the Ministry of Trade and the private sector. Prior to 2014, Iraq’s imports of wheat and rice were principally undertaken by the Ministry of Trade for use in the PDS. Since 2014 imports by the Ministry of Trade for use in the PDS have declined precipitously and private sector imports of rice and flour by the private sector have risen, USDA reports.
Reduced wheat imports by the Ministry of Trade have driven private sector flour imports to record levels. Iraq tightly controls wheat imports due to its high internal purchase price but allows flour imports. Rice imports by the Ministry of Trade have also declined, leading to increased private sector imports.