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FM AMEMBASSY BAGHDAD
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INFO RUCNRAQ/IRAQ COLLECTIVE

UNCLAS BAGHDAD 001351 
 
SIPDIS 
 
C O R R E C T E D C O P Y  (RENUMBER PARAGRAPH) 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EAID EAGR
SUBJECT: RRT ERBIL -- AGRICULTURE POTENTIAL IN THE KURDISTAN REGION 
 
This is an Erbil Regional Reconstruction Team (RRT) cable. 
 
¶1.  (U) SUMMARY:  A recent study by the Monitor Group highlighted 
the potential for agriculture and processed foods to become a 
lucrative, employment-generating growth cluster in the Kurdistan 
Region. However, the mixed experience of one U.S. agribusiness 
investor (including difficulties in accessing raw materials) 
highlights some of the current challenges. The Kurdistan Regional 
Government (KRG) is eager to restore agriculture to the position it 
once held as the anchor of the Region's economy and has announced a 
five-year strategic plan aimed at bringing together KRG ministries, 
farmers and private sector investors in support of that goal. 
Transforming a sector dominated by small farms into a modern, 
agribusiness cluster will require targeted government support for 
infrastructure and extension and extensive private investment.  END 
SUMMARY 
 
¶2.  (U) With an economy historically rooted in agriculture and 
animal husbandry, the Kurdistan Region (KR) boasts some of the most 
fertile land in Iraq.  For decades, the KR provided vegetables, 
fruits and grain to the rest of Iraq and the wider region.  However, 
the sector was decimated by the former regime's policy of destroying 
villages and relocating families to "collective towns" where they 
lost the use of their lands.  The exclusively imported food provided 
in the UN/OFF Public Distribution System (PDS) dealt another blow to 
the region's farmers.  Since that time, drought, antiquated training 
and isolation from modern agricultural techniques (such as drip 
irrigation, disease-resistant seeds and methods of processing) have 
impeded the recovery of the KR agricultural sector.  Today, the KR 
agricultural sector is comprised of a few agro-businesses and 
560,000  small-scale farmers producing limited amounts of 
cereals/grains, oil seeds and industrial crops, poultry and cattle, 
honey, vegetables, fruits and legumes.  But local farmers are unable 
produce enough food to meet regional demand; the KR still imports at 
least 65% of the food that it consumes. 
 
 
--------------------------------------------- ----- 
KRG Prepares for Agriculture to Take Center Stage 
--------------------------------------------- ----- 
¶3.  (U) In late 2008, the KRG announced that 2009 would be the "Year 
of Agriculture."  The Kurdistan Regional Government (KRG) released a 
five-year, USD 10,221,297,000 strategic plan with input from the KRG 
Ministries of Agriculture, Trade, Industry and Water.  Hoping to 
partner with the private sector to comprehensively revamp the 
agricultural sector of the KR, the plan enumerated some 1865 
projects designed to increase overall agricultural output and put 
the KR on the path towards food security, self-sufficiency and 
ultimately to an economy that can export food to the rest of Iraq 
and the greater Middle East.  The plan includes projects to improve 
the irrigation system of the KR, build cold-storage and processing 
facilities for leather, produce, grain and dairy products and 
improve domestic and international marketing of Kurdish agricultural 
products.  Recognizing that the rest of Iraq is an excellent market 
for its goods, the KRG Ministry of Agriculture (MoA) is already 
working towards an agreement with the Government of Iraq (GoI) 
Ministry of Trade to use Kurdistani chickpeas and lentils rather 
than imported products in the national PDS baskets.  How much of 
this ambitious plan will be implemented will depend on the KRG's 
success in securing the necessary funds.  The plan was designed 
during a period of record high oil prices.  Budget allocations for 
infrastructure will be adversely affected by decreases in oil 
Qinfrastructure will be adversely affected by decreases in oil 
revenues and the resultant decrease in the regional budget for 2009. 
 
¶4.  (U) In an effort to bring modern agricultural technology to the 
KR and encourage private sector investment in the industry, the KRG 
has hosted two agricultural expositions in Erbil since the strategic 
plan was released.  The first expo included a majority of foreign 
vendors, while the second was billed as a "local agrofair." 
Hundreds of vendors from Lebanon, Turkey, Iran, the UAE, as well as 
other parts of Iraq, displayed products such as fertilizers, hybrid 
seeds, drip irrigation systems, tractors and machinery, greenhouses, 
and processing services for poultry, meat, fish and dairy items. 
There is a market for such items, but the initial capital investment 
needed to purchase such items is beyond the reach of many farmers. 
Agriculture Ministry Director General (DG) Yahya informed RRTOff 
that once a budget is allocated, his office hopes to be able to 
operate an agricultural bank to which farmers will be able to apply 
for loans up to USD 50,000 (based on approved business plans.) Until 
this plan is approved, some Kurdistani farmers have begun to pool 
their assets and collectively finance big-ticket items. 
 
--------------------------------------------- ---------- 
The Vanguard: Private Investors Working in Agriculture 
--------------------------------------------- ---------- 
¶5.  (U) Private investors (both foreign and local) are beginning to 
tap into the KR's agricultural potential, but are facing challenges 
to their efforts.  Private equity fund Marshall Fund is renovating a 
local tomato and fruit processing plant in Harir, Sulaimaniyah 
Province.  Marshall Fund executives note that, aside from irregular 
electricity, it has been difficult to convince local farmers to 
change their focus from immediate consumption-focused (e.g., 
table-ready produce) to process-focused (e.g., produce grown to be 
processed into paste or juice) farming.  The Marshall Fund has also 
struggled with getting the KRG to deliver on the cooperation it has 
promised to them and their contract farmers.  In one case, the KRG 
promised to give a certain amount of fertilizer and pesticides to 
farmers who signed contracts to grow raw products for the Marshall 
Fund.  The KRG ultimately failed to deliver and at the last minute, 
the Marshall Fund was forced to pay for those chemicals out of its 
operational budget.  Despite these challenges, Marshall Fund 
executives believe that these costs are well worth the benefit they 
expect to receive both this year and further down the road.  The 
company is already considering ways to expand into the other 
provinces of the KR. 
 
------------------ 
No Easy Row to Hoe 
------------------ 
¶6.  (U) Farmers in the Kurdistan Region cite many barriers to making 
agriculture a profitable and sustainable venture, including: 
 
- Antiquated agricultural technology, growing methods and pest 
control methods: The KRG has established agricultural training 
offices throughout the Region which function as extension agencies, 
but farmers and officials say that those offices are 
under-resourced.  Farmers confirm that crops are not rotated so as 
to provide a steady stream of produce throughout the year, causing 
gluts in the market.  Cold-chain storage requires the 24-hour 
availability of electricity, which is still not available in the 
majority of the KR. 
 
- The inability of local producers to compete with the cheap 
imported produce: said Abdulsatar Hussein, an apple farmer in the 
Amedi district of Dohuk Province, "Turkish and Iranian products are 
a real challenge to our products.  People prefer the products from 
Kurdistan because they know no harmful chemicals are used.  But 
the low prices of the Turkish and Iranian products, plus the 
continuous availability of  all types of fruits and vegetables, 
cause local farmers to stop trying to compete."  Contacts confirm 
that imported produce dominates the market.  Farmers say that the 
combined cost of harvest, fuel, and transportation are high enough 
to discourage the effort associated with getting local produce to 
market, leading to the rotting of tons of produce in the fields of 
the KR.  To protect the local poultry industry, the KRG recently 
announced a number of measures to curb imports, including taxes on 
poultry meat and egg imports, and increased controls at border 
points. 
 
- A dying farming culture:  Governmental and private contacts 
confirm that the future of agricultural industry is at risk because 
many young people would prefer to work in government offices rather 
than their fathers' fields.  Furthermore, farming villages 
frequently lack secondary schools, hospitals/clinics and other 
resources that growing families need.  Local university faculty 
members express the concern that agriculture is considered an 
inferior major to engineering, medicine or law because students do 
not believe that they can earn money as farmers.  The aversion to 
studying agriculture will result in a dearth of scientifically 
trained, local agronomists who will be able to maintain and improve 
the sector's competitiveness within the greater Middle Eastern 
economy. 
 
- Drought and poor irrigation systems.  Contacts report that the 
annual level of precipitation received in the KR has steadily 
decreased for the past decade.  This crop cycle the province has 
only received about half of this declining mean.  According to the 
DG of Agriculture for Semel district of Dohuk, Semel's grain farmers 
QDG of Agriculture for Semel district of Dohuk, Semel's grain farmers 
lost a cumulative amount equal to what they earned in 2007.  The 
problem is further exacerbated by the scarcity of efficient forms of 
irrigation, such as drip and spray irrigation.  According to the KRG 
MoA, only 413,669 acres of the KR's 3,795,029 acres of arable land 
are currently irrigated. 
 
-------------------------------- 
Monitor Group Touts Agriculture 
-------------------------------- 
¶7.  (U) A recent KRG-commissioned study on private sector growth 
potential in the Kurdistan Region completed by the Monitor Group 
(associated with competitiveness "guru" Michael Porter) highlighted 
two sectors in the KR as having strong growth potential: 
construction and construction materials and agriculture products and 
food processing.  The study examined demand in Iraq and the region, 
looked at the region's competitive advantage, and focused on those 
areas with potential for high-employment and high growth.  The study 
will be used by the Enterra Group (under contract to the KRG) to 
develop foreign investment strategies. 
-------- 
COMMENT 
-------- 
¶8.  (U) The potential for agriculture is clear, and the fact that 
the KRG is putting its own money into market research and efforts to 
attract private sector investors is a positive sign. A viable 
agricultural industry will help diversify the economic (exclusively 
dependent on oil revenues) and encourage a shift away from public 
sector employment to more productive areas.  The real challenge for 
the KRG will be getting the government side of the equation right 
(particularly in a tough budget year and given the low levels of 
capacity at the Ministry of Agriculture). At the university level, 
there are already promising signs of cooperation with U.S. 
universities, such as the recent (privately sponsored) visit of a 
delegation from Texas A & M University to Erbil. 
 
¶9.  (U) The USAID-funded Inma program has recently stepped up its 
activities in the Kurdistan Region and is focusing on providing 
capacity building and training for farmers in horticulture. Inma 
also offers some microloans to farmers and small businesses to 
encourage local investment in crop production and post-harvest 
processing. Under USDA's Iraq Agriculture Extension Revitalization 
training program, 10 officials from KR provinces will go to U.S. 
Land Grant Universities for short-term training in agriculture 
extension and new agriculture production techniques.  These are 
positive steps, given the fact that heretofore USG agricultural 
assistance programs have been largely absent from the region. 
HILL