The agro-food sector is highlighted as a defensive value proposition that has many underused development potentials in the contexts of satisfying local demand and achieving exports. Food safety and certification barriers need to be surmounted and challenges of breaking from ethnic niche markets into mainstream markets with Lebanese exports were confirmed, with the upside crisis risks of temporary cost advantages on labor and local produce inputs presenting opportunities will erode with time but can be maximized with decisive action in the short term. “We want to go beyond advocacy and actually see things happen,” says Executive’s editor in chief Yasser Akkaoui in the welcome note and introduction to the discussion.
As noted by Thomas Schellen, Executive’s editor at large and moderator, the steering committee of the roundtable project, which had been quick to agree that food processing and agro-industries warrant inclusion in the selection of industries with high job generation and productivity gain potentials, pointed to the wine and spirits sub-sector as specific area of interest for discussion by this roundtable.
In opening the deliberations on the sector’s issues and concerns industrialist Imad Abi Chaker confirms that the agro-food industry has room to grow. His enterprise Confexia – specialized in the manufacture of chocolates – was confronted overnight with growth potential that exceeded its production capacity which was established a few years ago. “The setback was that we would have planned a bigger capacity if we had known. When we originally planned we did not expect the growth to be what it is today,” he points out, citing fast growing demand to compensate for the loss of imports. He says a second growth challenge for his enterprise is to develop further products “that can be good substitutes for imported products that demanding and often spoiled Lebanese consumers are used to but can no longer afford.”
By the menu
Outlining the situation of the Lebanese wine producers, Zafer Chaoui of leading Lebanese winemaker Chateau Ksara and head of the Lebanese Wine Importers Association, describes Lebanon’s annual wine production as being worth “around 50 million dollars a year in products of which 40 percent are exported.”
While emphasizing that Lebanese wine is internationally competitive on quality and price, he cautions that this promising sector has to “solve administrative problems” to reach full potential. Pointing to global influences of the coronavirus pandemic and the lower purchasing power of the Lebanese consumer as factors behind his expectation that the economy in future will be very different from the years before 2020, Chaoui nonetheless sees persistent handicaps that Lebanese winemakers have to deal with. “The main handicap is that prices for vines to produce grapes is higher than other countries; the second handicap is that our equipment and habillage (bottle, cork,) are imported,” he says.
Mounir Bissat, president of the Syndicate of Lebanese food Industrialists and manufacturer of sesame-based ingredients that are widely used in Lebanese kitchens, concurs that the Lebanese food processing industry is one of the industrial sectors with the highest potentials before and during the ongoing national economic crisis. Consistently among top exporters, the food industry employs a quarter of the industrial workforce and ranks top by value added, he says. Acknowledging that sector challenges have pre-existed the sudden disruption of liquidity and international transfer activities in fall 2019, he highlights new financial threats that existentially challenge food industrialists. “As industrialists, we are in need of credit facilities, and in agro-food there is a three to six months cycle,” he says.
While some food industrialists found themselves during the crisis in less unfortunate positions of having working capital largely in form of inventories and receivables that they could cash out, the disruption of the agro-industrial financing cycle meant that agro-industrial businesses could not securely finance their credit facilities, which created a massive challenge to working capitals. Companies were in need to obtain new working capital to finance export activities and operations.
Delving further into his description of food industrial specificities, Bissat adds agro-industrial exports are a real success story but that the Lebanese exporters’ product niche to date is concentrated in ethnic markets. Widening of the product reach to mainstream products in national markets of developed countries requires bridging of these gaps with the collaboration of academia and consultants. “There are three phases: we need to upgrade the existing products, develop new products derived from the existing products, and we need product upgrading and adaptation to the taste and products of foreign consumers,” he says.
As he describes the situation, there are appropriate infrastructures as far as academia and consultancies, but a gap of communicating industry needs must be closed as a basis for new success stories. “Made in Lebanon” provides a value premium to Lebanese foodstuffs in Arab markets and elsewhere, but there are gaps in market perception and product design as products need to be better aligned with preferences of non-Arab consumers.
With regard to the experiences and challenges in finding access to finance, Bissat says that important funding barriers stand in the way of agro-industrialists attempting to activate holdings in Lebanese dollar (lollars) for the purpose of investing; he points out that such holdings are not suitable for acquisition of machinery and equipment by import, unless there is a substantial discounting.
According to Akkaoui, the financial idea on the table for its fit with the needs of Lebanese agro-industries today is the role of private equity and banks. A second key possibility to develop agro-industries is “your role in upgrading compliance and international best standard practices, whether its environmental impact, social sustainability, and governance, along with a development curve from family-run enterprises to corporate mentalities,” he advises. Funding barriers exist if agro-industrialists want to activate lollar holdings, Bissat points out.
Eating at the same table
As Nadine Chemali, deputy head of the Trade and Investment Facilitation (TIF) project, funded by the United States Agency for International Development (USAID), confirms, the relative resilience of agro-food processing in context of the current crisis and its important role in employment have reinforced the agency’s attention to the sector. “We believe that the impact [of economic achievements] will not only be on the industry but it has a value chain impact, so on the whole food sector,” she says. In addressing challenges from the current crisis to the need for research and development in this industry and the move from ethnic to mainstream markets, she underscores that “a lot of work to be done with compliance standards and make new products.”
Noting that the TIF project has received a new authorization to work on issues of wine and arak trade facilitation because of its newly increased export potential, she tells roundtable attendees: “We can put our resources together to try to find a solution for this sector. We would love to collaborate to have an impact on the wine and the whole agro-food sector.”
According to Atef Idriss, agro-industry expert and food safety consultant, collaboration on industry level is in great need of intensification. With knowledge of food safety impediments and repercussions on consumer health not communicated between industrialists, consultants, and other stakeholders, long-standing quality issues in the industry need to still be resolved and in some cases re-addressed.
“Addressing markets, consumers, [and] addressing our trade partners’ priority are core [issues]. In this age of economic meltdown, I am not talking about the Lebanese economic meltdown; I am talking of value chain changing because international trade is changing,” he emphasizes. Value chains that stretch across economies with very diverse food safety regimes must be understood and the process by which Lebanese agro businesses are integrating different ingredients in value-added products must be elucidated further, Idriss admonishes.
Pointing to the fact that he has been involved for years with devising plans for agro-industry development that are updated every few years, he asks why the importance of interaction in Arab trade agreements, or of understanding drivers and restrictive influences in intra-regional Arab trade, is mostly still obscure. “This is the market where we are most prone to succeed and deliver,” Idriss says. According to him, long-standing biosafety issues must be addressed at the places where they occur and cannot be deflected, “otherwise we will always think that the problem is somewhere else.”
Commenting on the access to finance challenges of the agro-food industry, Abi Chaker notes that the pressures of losing banking facilitation of trade had advantages by turning the entire market into a cash market as a temporary solution where long lead times have vanished. This underlines the need to find new financing solutions and diversify products to more effectively reach markets.
“Today, the problems are not different than before [the economic crisis],” observes Fadi Fayad, consultant and expert of food entrepreneurship. Some capacities for manufacturing value chain components such as glass bottles and caps, which had been present in Lebanon, were eroded or disappeared entirely, causing the need to import all packaging materials, he points out. “We lost something that we had, because we did not look well after our sector. We need to reestablish the infrastructure, [and] build back those factories so that we can have the basis for the food industry operating,” is how he describes one key present problem of agro-industry. “The second [key problem] is that since we do not have the financial resources, and import, we need to find this relationship between the agricultural sector and the industrial sector,” he adds.
Common infrastructures for electricity etcetera have to be built. Temporary advantages such as lower labor costs and good exports in some agro product categories are not sustainable as platform for a strong agro-industry. “We need to do more than this to be able to succeed in the agro-food sector, we need to work in a professional way. We cannot hope to build an agro-food sector if we cannot build the things needed to have such a sector. We need to have this infrastructure; this requires solidarity between the sectors and especially on [the level of] the Association, who has representatives on this panel,” he emphasizes. If infrastructures are built and greater international competitiveness is achieved, the agro-food sector in Lebanon is very promising, he concludes.
Sampling global opportunities
Participants presented what solutions they thought viable for the needs of their industry. For Bissat, the overdue implementation of the Lebanese food safety law and activation of official accreditation council Colibac are priorities, along with adoption of laws that ease doing business and enable access to finance, by transforming incorporation requirements and making mergers or acquisitions less costly.
Chaoui, who reiterated that the wine sector has seen tremendous improvements in producer diversity and more-than-doubling of total annual wine production over the past three decades, sees the wine sector’s top priority and biggest target for the coming years in the development of exports. From the perspective of the consultant Idriss, efforts should be concentrated in the area of confidence creation within the food industry as well as in relations between academia and the private sector overall. Creation of strong awareness on consumer rights as well as building of a Lebanese consumer culture, secure compliance with food safety standards nationally and internationally, and protection of the environment, are his further priorities.
Modernizing the food safety system in Lebanon is essential for improving both domestic and export market access, Fayad concurs. He points out, however, that the Lebanese agro industry has already been put on a track of progress in the area of regulations and compliance with food safety standards, and expresses his view that the financial challenges of the monetary and liquidity crises of Lebanon will increase the food industry’s appreciation of donor funding and make use of financial resources more prudent and rational. As to placing greater priorities on research and development, he says, “We have a lot of potential in our country because of our universities, also some research industries, but we need to focus on our applied research, on our needs, and these needs to be determined by the industry.” Infrastructures and supply chain components need to be rebuilt, often from zero, he agrees, but besides seeking solutions in export growth, as proposed for the wine sector, Fayad says that focus also needs to be directed to the local market, reasoning that without the mass of the local market, better economies of scale are not achieved and products cannot become competitive.
As the discussions circle back into further detailing the proposed approaches for developing crucial aspects of an agro-food industrial ecosystem in Lebanon, Wissam Ghorra, a member of the management team of the Cedar Oxygen ESG Fund, makes a brief intervention to say that an “interesting percentage” of the fund’s portfolio is in agriculture and that development of financing tools for this sector is a priority of the fund’s management. “Agro-food is one of the main pillars that we are working on and ready to finance. The facilities of Cedar Oxygen are structured to cater to either local sellers of agro-food, or food industry in general and to exports. This is a crucial sector in which we believe, because it affects other sectors,” he enthuses.
As Ghorra asserts, and as Nadine Chehadi and Mounir Bissat agree with regard to the question of in-sector communication and collaboration barriers, or “ego-issues,” the agro-food sector is growing. Chehadi asserts that the sector “has the nicest people” as industrial decision makers and enjoys close-knit employer-employee relations on the levels of the factory floors and the farms. Bissat concedes that there are communication issues within the sector for which there are “endless examples,” yet emphasizes like Chehadi that ego issues are not festering in the agro-food industry to the detriment of productivity.
More detailed interventions on agro-industrial priority needs, such as had been alluded to in the roundtable to this point, elucidated participants on problems such as quality and certification deficiencies that pose reputation risks or block exports of some produce and agro-industry products to important markets.
Food safety policies in focus
Geographical and quality certifications – with wines being a prominent example – could be advanced much more, to the benefit of products from olive oils to jams and pickles, and thus give a big boost to local production. “There are projects and initiatives that should be adapted if you want to introduce a game changer in our industry,” Bissat emphasizes.
As several participants agreed, the lack of agricultural policy and the lack of trust in Lebanese agro-food products constitute bigger and more deeply seated problems for this industry than the national economic and political crises that have been charring the country in the recent past. However, fighting through the policy and trust crises will afford the stakeholders in the agro-food industry to demonstrate “proper leadership,” Akkaoui opines. “[Past governments] did not promote any collaborative effort among different stakeholders. I think the crisis should bring everybody together, to introduce these principles. Across all industries, there should be bridges built with the financial industry, consulting firms, [and] branding companies, making our products mainstream,” he says.
In addressing fears of distressed Lebanese consumers, discussants showed confidence that local suppliers have enough capacity for serving their domestic markets but admitted to having fears of devaluation and purchase power erosion.
Representing USAID, Georges Frenn commented on the roundtable that the agency has witnessed, over many years of working on development projects, that it could succeed on the enterprise level more strongly than on sector or value chain levels and also did not achieve success on the micro level of farming. “There are still many issues to deal with. The sector has not been growing or has not grown as much as potentially could have,” he says, continuing that the recent changes in the situation of the agro-industrial and food production sector need new collaboration and initiatives. “We would definitely need a lot of your insights and to be able to prioritize and focus where support and assistance would be most useful, and most efficient,” he adds, confident that roundtable participants could all work together in continued networking efforts or collaborate in other ways to address the needs and opportunities that roundtable participants had elaborated on.
His peer Bourhan Kreitem added as his impression from the roundtable deliberations that, in light of the lived tragedy of Lebanon, there is a need for a clear plan. “What should the sector, and the supporting sectors [adjacent to] this sector, should do first in order to get out of the problem? There should be a plan,” he says, because many stakeholders in the community of donors will be ready to support many initiatives. Once a government of some sort were to be established in the country, a plan should be ready for discussion and financing. “I would hope that the recommendations [resulting from the roundtable] will really highlight a need for some sort of plan and activity that might be of interest to us as the Lebanon Enterprise Development project and, obviously, USAID, and also to other donors,” he concludes.
Closing remarks from roundtable participants Idriss and Chemali emphasize the need, on the side of industrialists, and readiness, on the side of agencies, to restart projects and programs under the umbrella of USAID. Bissat points out how the industry has made substantial progress in certification to standards such as ISO 22000 which has been achieved by more than 50 manufacturers over the past 30 years.
Abi Chaker in his closing remark emphasizes the need for the private sector to lead new initiatives – possibly with support of international organizations – but without waiting for governmental action.