VZCZCXRO9874
PP RUEHBC RUEHDA RUEHDE RUEHKUK
DE RUEHIHL #0023/01 0951132
ZNR UUUUU ZZH
P 051132Z APR 09
FM REO HILLAH
TO RUEHC/SECSTATE WASHDC PRIORITY 1159
INFO RUEHRC/USDA FAS WASHDC PRIORITY
RUCNRAQ/IRAQ COLLECTIVE
RUEHIHL/REO HILLAH 1232

UNCLAS SECTION 01 OF 05 HILLAH 000023 
 
SENSITIVE 
SIPDIS 
 
USDA/FAS/OCBD/CURTIS, BENSON, WOLF 
USDA/FAS/OCRA/ALLEN 
 
E.O. 12958: N/A 
TAGS: EAGR ECON EINV IZ
SUBJECT: TAKING STEPS TO UPROOT THE STATIST LEGACY IN BABIL'S 
AGRICULTURE 
 
HILLAH 00000023  001.2 OF 005 
 
 
¶1. (SBU) SUMMARY: Although agriculture is almost certainly the 
largest employer in Babil Province, a long history of central 
planning has undermined its competitiveness and long-term 
sustainability.  As the owner of around 70 percent agricultural 
land in the province, the government micromanages what farmers 
produce, guarantees the purchase of key crops, and, to a lesser 
extent, subsidizes agricultural inputs.  These statist policies 
and other factors, from inadequate credit to the distortionary 
Public Distribution System (PDS), have restricted private sector 
development in agriculture.  Having come to rely on government 
largesse, it is little surprise that Babil farmers look to 
intervention and protection rather than open markets for their 
livelihoods.  Taking heed of these deep-rooted structural 
impediments, Babil PRT has promoted the establishment of an 
Iraqi-led agricultural advisory committee comprised of public 
and private sector stakeholders invested in the long-term 
agricultural viability of the province, once the breadbasket of 
Iraq.  The council has begun working to prioritize projects and 
troubleshoot problems at the local level.  Consistent with a 
recent USAID assessment of Iraq's overall agricultural 
trajectory, production of vegetables and fish -- areas in which 
government intervention has been limited -- offer the greatest 
hope for future success in Babil.  END SUMMARY. 
 
 
 
FROM BREADBASKET TO BASKET CASE 
 
------------------------------- 
 
 
 
¶2. (SBU) Agriculture is almost certainly the largest employer in 
Babil Province, although there are no consistent official hard 
data.  The Ministry of Agriculture's Director for Babil 
Province, Hussein Hassoni Ahmed, told PRT officers March 18 that 
farming accounted for "over fifty percent" of the province's 
employment; he said his database contained the names of 38,000 
farmer heads of household.  A December 2007 food security survey 
by the World Food Program found that roughly 30 percent of Babil 
households owned farm animals, a farm plot, and had the head of 
household engaged in farming as a primary occupation.  In 
comparison, these percentages were 23%, 18%, and 12%, 
respectively, for Iraq as a whole.  Estimates of agriculture's 
role in Babil's GDP have ranged from as low as six to as high as 
90 percent, although PRT agriculture advisors assess that 
estimates on both ends of this spectrum are implausible, in part 
since between one half and one third of the province is 
urbanized.  From all of this data noise, the PRT concludes that 
approximately one third of the population is engaged in 
agricultural production, accounting for a much smaller 
proportion of provincial GDP, probably 15 to 20 percent. 
 
 
 
¶3. (SBU) According to the al-Rafidain Center, a government 
research center affiliated with the Provincial Council, the 
government owns approximately 170,000 acres of agricultural land 
in Babil Province.  USDA estimates this is around 70 percent of 
the total.  Of the government-owned lands, the average sized 
farm is 4.7 acres.  Babil is Iraq's top producer of dates and 
fish; its other main crops are wheat, barley, maize, and 
vegetables.  In addition to field crops, 11,000 farmers in Babil 
Province manage some 33,000 privately held acres of orchards 
growing oranges, lemons, apples, and apricots, according to 
al-Rafidain. 
 
 
 
¶4. (SBU) Babil consumers rely on imports and their government 
ration baskets for much of their consumption rather than locally 
produced crops.  The PDS ration basket supplies much of the 
public's basic foodstuffs including powdered milk, rice, wheat, 
and oil.  When a PRT locally employed staff member recently 
visited one Babil vegetable wholesaler looking for locally grown 
products, the vendor reported that nothing he sold was Iraqi; 
the PRT has observed a similar preponderance of imported 
foodstuffs in other markets.  Locally grown items are 
consistently more expensive than their imported competitors. 
Babil farmers, for their part, complain about the flood of 
foreign vegetables from Iran, Syria, and Jordan as undercutting 
the competitiveness of their own production. 
 
 
 
WIDESPREAD GOI MARKET INTERVENTION 
 
 
HILLAH 00000023  002.2 OF 005 
 
 
---------------------------------- 
 
 
 
¶5. (SBU) The GOI maintains a tight grip on the supply of 
agricultural inputs, relying on an often corrupt and inefficient 
supply chain and limiting the freedom of Iraqi farmers to choose 
what they grow on state-owned lands.  Agriculture Director Ahmed 
said nearly one third of agricultural inputs, ranging from 
fertilizer to seeds to tractors, are provided by state-run 
entities at subsidized prices.  For Babil farmers to receive 
inputs for use on GOI-owned land, they must plant crops as 
directed by the Ministry of Agriculture.  The state-run 
fertilizer distributor, whose mandate is to sell inputs at 
around one third of their cost to local producers, sets prices 
artificially high to dissuade farmers from buying government 
products.  Many farmers then opt for cheaper and lower-quality 
Iranian fertilizer imports, as employees at the state-run 
distributor sell their supplies on local markets and pocket the 
profits, according to PRT discussions with local farmers.  An 
American businessman interested in investing in feedlots, 
slaughterhouses, and enhanced genetic inputs in Babil told the 
PRT in early March that payment of bribes was "expected" to 
wrest control of any part of the input supply chain from what he 
perceived was the government's virtual monopoly. 
 
 
 
¶6. (SBU) Just as it subsidizes inputs, the GOI guarantees the 
purchase of "strategic crops" (wheat, barley, dates, maize, and 
rice).  Agriculture Director Ahmed said that the government was 
committed to buying up these types of agricultural output in the 
province at subsidized prices.  Apologizing for only being able 
to provide a third of the necessary inputs to meet demand, he 
explained that the GOI seeks to "make it up to the farmers" by 
paying high prices for Babil's agricultural output.  Whereas the 
government paid 450,000 ID per ton for wheat last year, for 
example, this year it would pay 855,000 ID per ton (about double 
world market prices).  The Director said the only farmers in 
Babil who did not sell their output directly to the government 
were a handful of very poor farmers living hand-to-mouth who 
needed "fast cash" and could therefore not wait for the 
administrative processing delays in selling to the government. 
Ahmed said that even by buying up all of the output, the 
relatively low yield of Iraqi agriculture meant Iraq was still 
reliant on imports to meet the demand of the Ministry of Trade's 
Public Distribution System (PDS) of food rations. 
 
 
 
¶7. (SBU) Government price supports have inculcated in the Babil 
public the idea of government interventionism as a fix to the 
region's agricultural woes.  The Babil business community and 
public have frequently voiced to us their belief that high 
tariffs should be added to the mix of government intervention; 
they are apparently unaware that tariffs carry costs.  In a 
February 26 business environment conference sponsored by Babil 
PRT (reported septel), two independent working groups of local 
business and government leaders identified tariff protection as 
one of their top solutions to enhancing Iraqi production, 
including agriculture.  There is also a near-universal 
perception that all neighboring countries are "dumping" their 
produce into Iraqi markets.  Farmers and agribusiness owners 
tell us frequently that many of their problems would be solved 
if the GOI just sealed the borders from competitive imports. 
 
 
 
¶8. (SBU) Macroeconomic conditions driven by national-level 
policies also undercut the potential for greater agricultural 
production in Babil.  Lack of capital and the poor banking 
system prevent farmers from buying inputs or arranging letters 
of credit for exports, thus perpetuating their reliance on the 
state to provide inputs and purchase output.  While the 
state-run Agriculture Bank claims to offer zero percent loans to 
farmers, it has consistently refused to share any of its lending 
statitistics with us; this treatment of lending practices as a 
state secret has made us question the extent to which is it 
lending to farmers at all.  CHF International, the largest 
microcredit provider in Iraq, has eschewed the agricultural 
sector because of low repayment rates.  Another national level 
distortion is the PDS, which provides sustenance to Iraqi 
families from predominantly imported goods, but which undercuts 
demand for locally grown crops such as wheat, barley, and maize. 
 Farmers of these products are better off selling their 
production to government warehouses.  Another constraint is the 
slow pace of land reform.  An aspiring Iraqi investor in 
 
HILLAH 00000023  003.2 OF 005 
 
 
slaughterhouses told PRT officers March 19 that confusion over 
zoning and the absence of land reform deters Iraqis from 
pursuing capital improvements to their plots.  Finally, 
unreliable utilities and infrastructure are a detriment to Babil 
farmers and agribusinesses.  The NuNu Dairy in North Babil, for 
example, told us that largely because of inadequate electricity 
supplies, it is operating at 25 percent of its capacity, 
compared to 90 percent in 2003. 
 
 
 
THE DATING GAME 
 
--------------- 
 
 
 
¶9. (SBU) The case of the al-Furat Date Company illustrates the 
negative effects on private investors of Iraqi government price 
supports.  Yasin Kadhum Alabid, manager/owner of Al-Furat Date 
Processing Company, told the PRT in March that the GOI's October 
2008 decision to buy raw dates at a fixed price to use in the 
monthly PDS ration had raised the price of raw dates 30-90 
percent, depending on the quality.  These government purchases 
reduced date supply, driving up the price and driving Alabid out 
of incipient export markets in the Gulf.  He hypothesized that 
the government's intervention had also impacted the supply of 
dates, as producers were now substituting production of the 
high-quality dates al-Furat processes for low-quality dates 
purchased in bulk by the government.  According to Alabid, 
Al-Furat started operations three years ago with USD 2.5 million 
in start-up costs; he said that the company has not made 
significant profits and that if business did not improve soon, 
the plant must close.  Although Alabid reached out to European 
and U.S. buyers, he said he cannot compete with cheaper Saudi 
and Tunisian dates at the current high price of Iraqi raw dates, 
which he blames on the GOI.  Alabid said that if the GOI does 
not stop purchasing dates at fixed prices, then the only way the 
business will survive is if the GOI starts buying his processed 
dates. 
 
 
 
IF YOU BUILD IT, (HOPE) THEY WILL COME 
 
-------------------------------------- 
 
 
 
¶10. The jury remains out on the extent to which big ticket 
construction projects have supported Babil's agricultural 
output.  Some $3.2 million of CERP funds and full-time coalition 
staffing have gone into the Central Euphrates Market, but since 
the market is not yet online it remains to be seen whether it 
will supplant the ad hoc but relatively well functioning markets 
in Hillah that currently serve to effectively supply Babil 
consumers with an abundance and variety of reasonably priced, 
mostly imported goods.  Because the government purchases almost 
all the province's agricultural output, it will be hard for the 
market to serve as a trading depot for locally produced goods, 
despite assurances from local shaykhs that the new market will 
do so.  The project's organizers hope the market will repeat the 
success of the Karbala vegetable market, where demand for 
products is so strong that vendors tell us they must pay USD 
100,000 annually to lease a stall.  In another example, the 
state-owned Hillah Cold Storage Project, which is currently 
being refurbished, is primarily used to store PDS rice rations, 
although the Ministry of Trade's representative for the province 
told us the GOI's intent is to eventually lease parts of it to 
private sector suppliers. 
 
 
 
TEACH A MAN TO FISH... 
 
---------------------- 
 
 
 
¶11. A February USAID report on Iraq's overall agriculture 
prospects identified vegetables and meat/fish production as the 
two areas of Iraqi agriculture that have managed to remain free 
of government intervention and therefore offer the greatest hope 
for sustainability.  Locally produced meat in Babil Province, 
however, remains almost three times as expensive as imported red 
meats.  This may reflect Iraqi preference for fresh meat over 
frozen imports, or stem from government restrictions on growing 
 
HILLAH 00000023  004.2 OF 005 
 
 
alfalfa and other crops that could be used in feedlots.  Fish 
production, on the other hand, is thriving in the province.  The 
Central Euphrates Fish Farm (CEFF), a private sector enterprise 
with start-up support from USAID, has provided six million high 
quality fingerlings to 472 small farmers in south/central Iraq. 
Khudair Abbas al-Emara, the farm's owner and general manager, 
told PRT officers March 31 that the farm produced 1,200 tons of 
fish per year, accounting for about 8 percent of Iraq's fish 
production.  Demand greatly outstripped supply, he estimated, 
because of Iraqis' preference for live fish.  Although al-Emara 
said his business was profitable and had remained relatively 
unencumbered by government interference, he suffered indirectly 
from the Trade Ministry's agriculture pricing policies.  Barley 
accounts for about 20 percent of al-Furat's fishfeed formula, 
but the Ministry of Trade had set the price of barley paid to 
Babil farmers at the artificially high price of 700,000 Iraqi 
Dinars/ton.  Imported barley was available in limited quantities 
for 500,000 ID/ton, but the government controlled the amount of 
imports to discourage traders from arbitrage (selling imported 
barley back to the government as if it had been locally grown). 
Therefore CEFF buys the remainder of its barley at relatively 
high prices, around 550-600,000 ID/ton, from local farmers who 
are unwilling to wait the several months it takes the government 
to make payments.  Fortunately for CEFF, much of the composition 
of its fish feed consists of inputs not grown in Iraq at all, 
including soybeans and concentrated proteins, which it is able 
to import without difficulty. 
 
 
 
PRT LOOKS TO ESTABLISH SUSTAINABLE AG COMMITTEE 
 
--------------------------------------------- -- 
 
 
 
¶12. (SBU) Looking beyond the legacies of brick and mortar 
projects and indefinite price supports, Babil PRT helped 
establish a public-private Provincial Agricultural Advisory 
Committee (PACC) with the goal of increasing Babil's 
agricultural competitiveness and productivity.  The members 
include Provincial Council Agricultural Committee members, the 
Agriculture Director Ahmed, and prominent private-sector 
business figures in the local agricultural community.  With the 
help of the PRT, the PACC has used a "value chain analysis" to 
identify elements of the agricultural supply chain that add 
value to multiple types of agricultural output.  The 
determination of shared "nodes" provides a template for applying 
resources to those areas of the Babil supply chain most likely 
to have the broadest impact.  In addition to targeting areas 
with the largest bang-for-the-buck, the identification of 
"nodes" that impact multiple value chains establishes shared 
equities among otherwise disparate producers.  The key value 
chains reviewed by the PACC were fish, livestock, poultry, feed 
grains, forage crops, vegetables, dates, bees.  These reviews 
determined the key shared nodes as: access to capital; training; 
inputs (fertilizer, seeds, plants, feed mills); soil analysis; 
processing and delivery (slaughterhouses, harvesting equipment, 
cold storage); infrastructure (water pumps, transportation); 
utilities (electricity, water); and marketing.  The 
identification of key "nodes" has been a useful tool in focusing 
the energies of the nascent PACC.  Babil PRT has taught this 
methodology to other PRTs and it has become a FRAGO (military 
command directive) for all south/central Iraq. 
 
 
 
WAY FORWARD 
 
----------- 
 
 
 
¶13. (SBU) Prospects for private-sector led agricultural 
development in Babil Province amid the influx of imported goods 
and PDS rations will be dim as long as the Ministry of 
Agriculture continues to focus its energies on subsidizing 
inputs, micromanaging production, and buying up output. 
Director of Agriculture Ahmed, to his credit, seems to recognize 
the deleterious impact of Baghdad's policies on the province's 
production but is hard-pressed to do anything about them. 
Future support, in forms such as expanded extension services or 
other technical assistance, to such relatively distortion-free 
areas of production as vegetables and fish production is likely 
to have a greater impact at lower cost than massive buy-back 
schemes or big ticket brick and mortar projects.  The PACC 
offers hope as a forum to troubleshoot provincial problems and 
 
HILLAH 00000023  005.2 OF 005 
 
 
to transparently prioritize local agriculture projects.  The 
PACC can also work to establish a consensus on problems outside 
the scope of local actors, such as zoning and access to credit, 
and work together to raise the Babil agricultural community's 
concerns to policymakers at the national level.  Without 
addressing some of these national structural constraints, the 
best efforts of local institutions to band together to improve 
the province's long-term agricultural prospects may be in vain. 
HILLAS