Executive sat with Mounir Bissat, secretary of Syndicate of Lebanese Food Industries, to talk about the challenges and opportunities in front of the agro-industry subsector experienced in 2017.
E What are the main challenges facing the industry sector in general, and the agro-industry specifically, in Lebanon?
The first challenge is instability in the country. The current situation [concerning Prime Minister Saad Hariri] is worrisome. Almost 60 percent of our exports are to Arab countries, so anything that endangers this relationship will backfire very badly on the industry sector as a whole and on the food subsector specifically.
In the Arab markets, the “made in Lebanon” [brand] has a premium for which consumers pay good money. The Lebanese agro-industry in these markets is well developed, because some of the big Lebanese companies have been present there for over 30 years, and put in a lot of effort and investment to establish their brands and presence in retail spaces in a professional manner.
It would be a pity to lose this work and these markets over the turbulence that is occurring now.
E Have exports to Arab markets managed to overcome the hurdle of road closures due to the conflict in Syria?
Yes, we were able to adapt rather quickly and export through sea instead of land. The impact at first was on the pipelining, because it used to take up to 15 days to reach Oman, which is the farthest destination [we export to] by land, while today, by ship, it takes a month or 35 days.
This is not to [mention] that the paperwork and formalities at land borders are faster and more efficient than at seaports.
This all negatively affected the sector, but we persevered and continued. But until when? This is a big question mark, especially if the Arab markets are further affected.
E Let us go back to the challenges facing the sector.
A challenge the industry sector suffers from—regardless of the political situation—is overhead and operational costs, which are very high in comparison to our competitors in the region.
Many of the traditional foods we produce are also made in other Arab countries such as Syria, Jordan, Egypt, Turkey, and Saudi Arabia. These countries have an advantage over us in that the industry sector receives government support and subsidies, which we don’t have in Lebanon.
The high cost of energy and of labor affect the competitive advantage of Lebanese exports in these countries.
If we want to talk about challenges in the agro-industry specifically, I think it is high time to invest in research and development (R&D).
E Why are we not doing so already?
Eighty percent of companies in the agro-industry are [small and medium enterprises], and family businesses, so most of them to do not even have a R&D department; they cannot afford to invest in one.
It is true that Lebanon is excelling in developing high-quality food products, but to innovate on a traditional recipe or develop a new one is not easy.
E But recently, we have seen more entrepreneurs in this sector modernizing traditional recipes or innovating them.
It’s happening at a small scale, but not at the industry level.
This is an essential need for the agro-industry to continue on the right path. We should invest in new products, or variations of the existing ones.
E Does this innovation have to be done through an R&D department? Or are there other ways?
We can outsource it, because many universities in Lebanon have the research centers to do this. But up until now, we have not been able to formulate a link between academia and private food companies.
E Why not?
Because it is expensive, and we cannot cover the costs if there are no subsidies or support. For example, the money companies spend on R&D is not tax deductible.
Also, the mindset of academia in Lebanon is not business-oriented, [where] internationally, the success of the food industry is due to collaboration between it and the research done in universities.
E What are the strengths of the Lebanese agro-industry?
The Lebanese agro-industry is export-oriented, which helps us survive the challenges mentioned. Regardless of the local economic situation, the market in Lebanon is small and exporting is natural for growth anyway.
What helps the export market is that the Lebanese diaspora and expats are spread around the globe, and they are the main consumers of our food products. Wherever expats are, they tend to establish Lebanese cuisine restaurants, and this automatically opens up markets for our food products.
The agro-industry is the subsector with the most diversification and diversification in export destinations, with around 70 destinations across the globe.
E But doesn’t being consumed mainly by Lebanese abroad limit the market for our agro-industry?
Unfortunately, yes. Lebanese food across the world is still labeled as ethnic food and is mainly consumed by Lebanese and Arabs. Europeans and Russians who try Lebanese food in a restaurant love it, but they rarely buy Lebanese food products from a supermarket.
This is a challenge where R&D and marketing could play a role [in finding a solution]. Let’s take hummus bil tahini, which is an estimated $1 million market in the USA; Lebanon has less than 0.1 percent share of this market.
The role of R&D here would be marketing Lebanese products in a manner resembling the way that hummus has been marketed and exploited by other countries [that produce it].
It may be too late for Lebanon and hummus, but we could, for example, promote pomegranate molasses as a healthy salad dressing. If this is something we can achieve, it would be a great success story for the Lebanese agro-industry.
E Who would be responsible for doing so?
It should be a joint effort with a team leader. The private sector has the dynamics for that but lacks the means. A task force should be created which includes research centers, agro industrialists, and the concerned ministries with a team leader.
But the question is: Who will the team leader be? The public sector will not accept that a member of the private sector be the leader, and the private sector’s confidence in the public sector is low.
E Is the agro-industry reaching out to new markets?
The subsector achieves growth because the market is increasing locally and internationally, due to a trend toward Middle Eastern cuisine being perceived as healthy. This creates more demand for Lebanese food products.
However, as I said earlier, if we want to achieve real growth in the export markets, we have to go mainstream and not remain in the ethnic market. If we stay in the ethnic market, we will continue to grow in modest percentages. The international market has already become saturated and the foods we produce in Lebanon are now being produced internationally.We are competitive on quality and are well established in the international markets we are present in, but other countries compete with us on price.
E What can be done to support this sector?
It’s high time the government develops an economic strategy and decides if they want Lebanon’s economy to be built on services or the banking sector or something else. Logically, all the pillars of the economy should be almost equally developed.
After the end of the [2006] war, factories that were not damaged resumed work the next day, while it took up to a year for tourism and services to recover. I am not saying that industry will contribute 60 percent to GDP, but if we are supported to reach 30 percent, it would solve many of the problems the government is suffering from today, such as unemployment, [low] foreign direct investment, [an unfavorable] trade balance, and [meager] cash flow.
Also, there should be some subsidies for the cost of production—especially the cost of energy. Factories in Lebanon buy fuel derivatives at market price, while all neighboring countries have subsidized rates. So you can imagine the difference in production costs. The government could also support the agro-industry with transportation costs and through legislation facilitating our work and reducing our expenses.
