Given the present state of Afghanistan’s agricultural sector, it is hard to believe its fruits and nuts were once exported around the world. In the 1960s and 1970s, exports of high value horticultural products provided Afghanistan with 48% of its export revenue, equivalent to just under $300m prior to the Soviet invasion in 1979, according to the United Nations Food and Agriculture Organisation. It was also the world leader in raisin production.
Other important crops included apricots, peaches, melons, pistachios, walnuts, cumin, cinnamon and apples. By-products of orchard fruits, such as pomegranate rind and walnut husks, were used to dye the carpets for which the country is famous, as was madder root, which produces the prized deep red hue.
In contrast, total exports in 2003/2004 amounted to just $144m, of which high value horticultural products accounted for just $85m, according to government figures. Today, much arable land lies fallow or is low yielding. War, drought, the loss of skills and general mismanagement have devastated the sector. What little production gets to market is limited to local demand as producers either do not meet quality and hygiene standards or have lost touch with changing consumer tastes in world markets.
According to the government, agriculture is estimated to account for 52% of legal GDP, providing livelihoods for more than 60% of the population. Even with the growth projected in the industrial and services sector from their current low base, agriculture is estimated to still contribute 43% of GDP by 2015.
Because of its significance to the rural economy, agriculture enjoys priority status in government. Added to this, farming and the processing of agricultural outputs are considered the most logical and viable sectors to provide sustainable and compelling alternative livelihoods to the country’s illegal poppy growers. For this reason, agriculture and agro-processing is also the target of foreign donor assistance, in the form of finance and technical skills transfer.
This is opening up a number of business opportunities, both upstream in the form of agricultural inputs such as seed stock, fertiliser and farming implements, as well as downstream opportunities in packaging, cold-storage, processing, transportation and marketing. Crucially, various forms of concessional finance are also available to early-stage investors who participate in the rebuilding of the Afghan agricultural sector.
The government is targeting specific barriers to the sector’s development. For instance, production has historically been constrained by a near-total dependence on erratic winter snows and spring rains for water; formal irrigation systems are primitive. The government’s irrigation strategy aims to increase the proportion of water coming from large water works from 10% to 30% by 2015.
Relatively little use is made of machines, chemical fertiliser or pesticides. Added to this, long periods of under-investment plus the erosion of skills and know-how during the years of conflict, have left productivity and yields low. With improvement in irrigation systems, fertiliser use, season extension techniques and infrastructure, it is generally accepted that output can be steadily increased with the introduction of several simple techniques. These measures will translate into increased and more stable production and reduced input prices for agro-processing.
A national institute of standards and statistics is also being established, with international assistance, enabling agro-businesses to meet international phyto-sanitary requirements and provide a basis for successful exports to high-income overseas markets. Other institutions, such as the national raisin export board, are assisting agricultural exporters in this respect.
Demand potential for raw and processed agricultural products is high. Most processed food is imported into Afghanistan, presenting an opportunity to do this locally instead. Rising incomes are matched by growing demand for a variety of processed foods and beverages.
These is also export potential for some agricultural products, particularly to India and Pakistan. As the economies of both countries develop, their import demand grows. A preferential trade agreement with India has already boosted exports but the potential remains significant; similar trade deals are under negotiation with other neighbouring countries.
Beyond the immediate region, Afghanistan still enjoys brand awareness in historical export markets such as the UK, Germany, Canada and Russia. A number of foreign-led or partnered projects are under way, and early successes indicate Afghanistan’s challenging operating environment can be tamed. All of these benefit from development finance, reducing the cost of capital and improving project returns for private sector investors.
An Italian government-supported project in Jalalabad is rehabilitating a 1960s-era olive oil factory built by the Soviets. With the factory back in operation, attention is now focused on improving yields on a 300-hectare section of land under olive tree cultivation, with an eye on the rest of the 20,000 hectare plantation also established by the Soviets. This year, five tons of olive oil was produced in the factory, which laboratory tests in Italy confirmed to be “top quality”. It quickly sold out in Kabul stores. The introduction of modern packaging and attractive labelling, taken for granted in the industrialised world, is a revelation in Afghanistan.
Production will be ramped up as the rest of the plantation is cultivated, with plans to market the product into India and Pakistan. As the only olive oil factory in the region, the prospects are exciting. The factory employs 135 Afghans and up to 300 permanent and seasonal workers farm the land.
The New Afghan Project for Cotton and Oil Development (NAPCOD) aims to revitalise Afghanistan’s cotton production. Led by French cotton and textile company Dagris, and with financial assistance from the French government, the venture will provide Afghan farmers with seeds, fertiliser, farming tools and training, plus a contracted price for the cultivated raw cotton (less input costs). In five to six years, NAPCOD hopes to achieve raw cotton production of 100,000 tons, compared to Afghanistan’s total production 15,000 tons today. Around 5000 hectares of land have been sown.
Dagris is confident of success. Application of relatively simple technology, such as using better quality seeds and fertiliser could double yields instantly. Afghanistan abandoned seed research in the 1980s, and has been planting the same variety since then. Seed varieties should be changed every five to seven years, and ongoing research is needed to adapt new varieties to local conditions.
The project also plans to produce edible oil from cotton seeds and oil processing is a rapidly growing business across Afghanistan. One edible oil plant has been set up in Kabul and a similar project is under construction in Mazar-I-Sharif. Opportunities exist in other regions of the country.
The agro-business sector includes production of fruit juices and dairy goods; karakul skins and leather; meat processing; and mills and baking. Fruit juice imports exceed $20m, and are growing at 15% a year. Opportunities exist at all stage of production, including crushing, pressing, pasteurisation, filtration, filling and packing. The country is also ideal for cultivating roses, which can produce oil. The World Bank’s Multilateral Investment Guarantee Agency notes the potential for organic farming, combining Afghans’ preference for traditional farming methods with the steadily rising global demand for organic produce.
Early-stage investors cite problems, including poor infrastructure and the absence of finance for farmers and small and medium-sized enterprises. They mention a reluctance to change traditional practices, meaning yields are low. Productivity could thus be increased dramatically if farmers can be persuaded of the benefits of modern techniques. Similarly, there is a shortage of storage facilities and transport and logistics infrastructure is weak. Both these requirements present interesting gaps in the market.