Oman - Transformation of an economy (Vol. 2 of 3) : Major sectoral developments

Report No. 1620-OM Oman: Transformation of an Economy (In Three Volur s)\ Volume II: Major Sectoral Developments October 25, 1977 Europe, Middle East and North Africa Region Country Programs Department II FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distriuuuu lU u U uIIU Uy UIp tcIItv only in the performance of their official duties. Its contents may nkt otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS (Official Exchange Rate) Prior to August 15, 1971 O.R. 1 = U.S. $2.40 U.S.$1 = O.R. 0.417 August 15, 1971 to January 1973 O.R. 1 = U.S. $2.60 U.S.$1 = O.R. 0.385 February 1973 to May 1976 O.R. 1 = U.S. $2.895 U.S.$1 O.R. 0.346  FOR OFFICIAL USE ONLY VOLUME TWO MAJOR SECTORAL DEVELOPMENTS TABLE OF CONTENTS Page No. CHAPTER 9. AGRICULTURE AND FISHERIES ..1..................... I. Introduction ............................. .......-................ I II. The Resource Endowment *................-....... 1 III. Recent Performance . . .... .. . . . . . . . .......... .. -. . . . .. 7 IV. The Five Year Development Plan .......-.....-... 16 V. Development Options and Prospects -- ..... ........... 21 Appendix: A Summary of Major Findings and Conclusions of the Water Resources Studies CHAPTER 10. HYDROCARBONS, MINING AND MANUFACTURING ..... ..... 29 I. Oil and Gas . -- .............. 29 II. Minerals and Mining ... o. ............ ..... .. 35 III. Other Manufacturing Industries ...........o......... 38 CHAPTER 11. POWER ............ ................... 42 I. Past Trends and Growth .............. ..........-. 42 II. Organization ...-*.. .................. . ....* . .. 43 III. Description of the Existing System ............... 44 IV. Tariffs and Financial Aspects ....... .......... 47 V. Load Forecast ... .... .. ..... .... ... ...... . ......- 49 VI. Future Developments ... .... . .... .. . .o ...... ..... . . . 50 CHAPTER 12. TRANSPORT .oo- .. . ... .52 CHAPTER 13. CONSTRUCTION ...........-.-...... --*-.... 56 CHAPTER 14. HEALTH o ... .. ... ....... --. . ..... - ....... . ..58 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CHAPTER NINE AGRICULTURE AND FISHERIES I. INTRODUCTION 1. For many years farming, livestock production, and fishing were the mainstays of the Omani economy. Their importance in terms of national income began to decline in the 1960s with the discovery of oil and subsequent expan- sion of petroleum production and exports but it was hastened by lagging growth of output from agriculture and fisheries. These activities now account for only about 3% of GDP (down from nearly 34% in 1967), while agricultural exports are an even smaller portion of total exports (less than 1%). However, despite a substantial outflow of labor from rural areas in recent years, agri- culture and fishing continue to be the most important means of livelihood for most of the Omani population. At present, two-thirds of the Omani and nearly half of the total work force are employed in these activities. Labor productivity, incomes and welfare lag far behind levels achieved in the non- farm economy and agriculture is increasingly viewed by rural Omanis as an economic activity of secondary importance. The outflow of workers from rural areas and resultant scarcities of agricultural labor were probably important factors in explaining an apparent overall decline, or at best, stagnation, in agricultural and fisheries output in recent years. The country's dependence on agricultural imports has increased. II. THE RESOURCE ENDOWMENT 2. The Sultanate of Oman extends over some 300,000 km2 of which only about 37,000 ha (0.12%) are cropped. Most of the area consists of desert, sparsely populated by nomadic herdsmen. The agricultural areas are located where suitable water has been found and developed, either through the aflaj system of man-made underground channels, as in much of the Interior, or, increasingly, from wells equipped with motorized pumpsets. The Cropping Pattern 3. More than a third of the cropped area is located in the Batinah coastal plain located north and west of Muscat. The Interior of Northern Oman accounts for much of the remainder, although small areas are cultivated in the Sharkiya area southeast of Muscat, in the Musandam Peninsula and in Dhofar Province in the South. With water a severe constraint, expansion of the cropped area in recent years has been small. New areas developed in some interior valleys with excess water and in the Batinah Coast appear to have been largely offset by land abandonment elsewhere. 4. Dates and citrus account for nearly half of the cropped area. Alfalfa may occupy about 15% and onions another 10%. The balance is made up of various vegetables, fruits and field crops, of which wheat is the most  - 2 - important. Estimates of cropped area, by district and crop, based on field- work in 1971, are: 1/ Table 14. DISTRIBUTION OF CULTIVATED AREA BY DISTRICT AID CROP Percent Percent District Area (ha) of Total Crop Area (ha) of Total Batinah 14,700 39 Dates 13,600 37 Jan and Buraimi 600 2 Citrus 3,600 10 Dhahira 3,600 10 Mangoes 400 1 'Jestern Hojar 3,800 10 Bananas 900 2 Eastern Hojar 3,400 9 Alfalfa 5,600 15 Nizwo 6,900 19 Onions 3,700 10 Sharkiya 2,800 8 Wheat 1,200 3 :lusandam 400 1 Others 8,000 22 Dhofar 800 2 Total 37,000 100 37,000 100 Soil and Water Availability 5. Availability of water, and to a lesser extent suitable soil, is the major technical constraint to expansion of cropped area. No systematic studies of Oman's soils have been undertaken, although information based on l'imited surveys suggests that cultivable lands are restricted in extent and widely scattered. Unusually great contrasts in soil quality exist within short distances in presently-cropped areas. In these-locations, deep medium- textured soils with considerable potential for irrigated agriculture are closely associated with sandy or stoney soils which offer little or no potential for crop production. 6. With yearly rainfall averaging less than 150 mm in most areas with suitable soils, all crop production requires irrigation. Greater rainfall at higher elevations results in some runoff and percolation to underground aquifers. Until recently, little was known of the extent of potentially arable new lands and the amount of surface and underground water available Lor agriculture and livestock production. In 1973-75, a series of land and water resource studies were carried out which covered nearly all potential development areas. While of varying quality and coverage, these studies strongly suggest that the country has little unexploited water supply. The current estimate of soil experts in Oman is that from the viewpoint of soil l/ These figures are approximations. No agricultural census has been taken in Oman. Initial fieldwork for a 5% sample survey of holdings got underway in 1976.  -3- characteristics, i.e., excluding considerations of water availability and the economics of development, up to 10,000 additional ha are suitable for crop production. More than 9000 ha of this total were in Northern Oman (2,000 in Sharkiya; 2,000 in Wadi Quryat; 5,000 in the Batinah Coast); and less than 1,000 in Dhofar. In some areas limited unused quantities of water exist and its coincidence with suitable soil would permit some increase in cropped area. The Sharkiya was identified as one of the most promising areas for expansion, with more restricted possibilities in the Interior, in Dhofar and, with improved management of the existing water resources, in the Batinah Coast. The studies suggest that even with favorable economic conditions for development, an expansion in cropped area by something considerably less than the 10,000 ha indicated by soil considerations would be possible. Given the high costs of developing relatively small scattered areas which appear to be suitable, opportunities for economically-viable expansion are likely to be limited. More efficient use of existing water would permit additional expansion, although this would require considerable expenditure on field reorganization, introduction of new methods of irrigation and agricultural extension work. (See Appendix I for a summary of the water resource studies.) 7. Overexploitation of available water is a growing phenomenon in several areas, e.g., parts of the Batinah Coast, the Sur area and Buraimi in the Interior. This is resulting in falling fresh-water tables and deteriora- tion in water quality through saltwater intrusion. The major effect until now has been to reduce crop yields, particularly for saline-sensitive crops such as citrus and some vegetables. Some abandonment of land has occurred. Con- tinued deterioration of water supplies would lead to more serious, lasting effects on soil productivity. Land Tenure and Size of Holding 8. In the allocation of land and water rights, Moslem law and tradi- tional authority vested in tribal and local leaders continue to play important roles. However, that authority has been reduced in recent years with greater administrative control by the Central Government. The Ministry of Land Affairs and 11unicipalities is charged with the registration of privately-owned lands, based upon proof of occupancy or purchase from government. To date, the major thrust of this registration has been toward urban lands. Most agricultural land is individually owned, although public grazing lands are important. Owner-operatorship appears to be the dominant form of tenure in Northern Oman, although in some interior areas tenancy is high. On rented farms, crop sharing, frequently with 50% of the crop committed to the land- owner, is practiced. 9. Size of agricultural holdings vary widely among regions. The larger holdings tend to be located in the newer areas of the Batinah Coast with smaller, more fragmented farms in the Interior. Water resource studies for North-West Oman (1973) suggest that farm size in that region averaged about 4.2 ha. The size of holdings is typically small relative to the size required for efficient use of irrigation and modern agricultural machinery.  -4- Livestock 10. Livestock, which may account for as much as one-third of gross domestic product from agriculture and fisheries, play an important role in the rural economy as a source of draft power, transportation services, food and cash income to herdsmen and farmers. In the country's arid and semi-arid rangeland, livestock utilize a forage resource which is exploitable only through grazing. While estimates of livestock numbers vary, plausible figures are: 10,000 camels, 30,000 sheep, 70,000 cattle and 140,000 goats. The nomadic Bedu tribes may account for 20,000 head, mainly sheep, goats and camels. The Central Government owns dairy production farms at Sohar and Salalah stocked with exotic breeds. The Dhofar provincial government operates a beef-fattening farm on the Salalah plain. 11. Livestock management systems are simple. Animal and poultry rear- ing in settled agriculture is almost always the responsibility of women and children. Sheep and goats typically are grazed in communal village pastures. Cattle owned by the farm population are confined to stalls and fed largely on freshly-cut forage (frequently alfalfa) and other locally available feed- stuffs such as dates. Poultry flocks generally are small and run unconfined in house lots. Recently, however, modern large-scale broiler and egg opera- tions, based on imported birds and feed, have been established in the Muscat- Mutrah area. 12. Among the richest livestock resources in the country are the Jebeli herds on the Qara mountain range in Dhofar. These cattle, a small, hardy type, number 30-40,000 head and are efficient users of the grass produced by the 500-700 mm of moisture from annual monsoonal rains which fall in the mid-June to September period. Supplemental feeding, largely dried sardines purchased from Dhofari fishermen, is provided during the dry season. These herds produce ghee and live animals for sale in the area. In recent years young animals have been sold to the provincial government's beef-fattening farm on the Salalah plain. 13. Until recently, little effort has been made by government to im- prove the productivity of Oman's livestock. The veterinary service, staffed by 10 expatriate professional veterinarians and additional technicians, began operating in rural areas in 1975. Animal research farms at Wadi Quryat and Rumais carry out performance and cross-breeding trials with imported breeds. Fortunately, the country is free of the most troublesome epizootic and enzootic diseases, although the risk of infection remains large from the increasing number of live animal imports and the absence of effective quarantine facili- ties. 14. Roughly estimated, domestic production accounts for two-thirds of total national consumption of meat and dairy products and about one-third of the eggs. Prices for livestock products are high by international standards and a general view is that production of milk and meat (including beef and  -5- mutton) is declining. 1/ Production declines may be partly due to the migra- tion of labor from rural areas and its adverse impact on feed supplies. Shortage of feed is probably the most important explanation for low livestock productivity levels. 2/ The Fisheries Resource 15. With more than 2,000 km of coastline and rich fishing waters, the fisheries resource is one of Oman's best prospects for non-oil, income-gener- ating activities. Information on the fisheries industry is limited, although a study completed in 1975 has confirmed the high potential for development. 3/ The study concluded that fish production in Omani waters is as high as or higher than in any other part of the Arabian Sea/Bay of Bengal/Indian Ocean area. Surveys in 1973-74 suggest a standing crop of demersal fish along the Omani coast of slightly less than 750,000 metric tons (mt), with a potential annual yield of 300,000 mt. Among pelagic fish, annual yield estimates for sardines within 12 miles of Oman's coastline run as high as 1.5 million mt. The tuna reserves in Omani waters, of which the yellowfin is the most impor- tant, is estimated at 10-60,000 mt per year. Valuable stocks of abalone, lobster and cuttlefish also have been identified. 16. Fisheries output appears to have declined in recent years prior to 1976, largely as a result of the continued outflow of fishermen to more attractive employment in urban areas or neighboring Gulf states. In the mid-1950s the annual catch in Northern Oman was estimated to be 100,000 tons. Annual national output in recent years appears to be about half as high, with a significant portion accounted for by the sardine catch in the South (Dhofar Province). Most of the Dhofari catch - a small fraction of potential annual yield - is sundried and fed to local livestock. At present 7-10,000 Omani families may depend on fishing as a primary source of income. Fisheries production in 1976 appears to have increased from 1975 as a result of expanded trawler operations. 17. Low earnings in fisheries reflect the poorly-developed state of the industry. Prior to 1974, when the Directorate of Fisheries was established, almost no government assistance was provided to traditional fishermen. 1/ In 1976 the selling price of a 30-kg goat or sheep was about OR 50 (US$145). Ghee in the Salalah area sold for approximately OR 0.18/ litre. Retail prices per kg for mutton and beef in Muscat were OR 2.5 and OR 2.0, respectively. 2/ Recent surveys by animal production experts in Oman suggest that the typical daily ration per animal unit of 3-4 kg of freshly-cut alfalfa provides only half the nutrients required for body maintenance and production of one litre of milk. 3/ Mardela International, Ltd., Marine Resources Development Program: Sultanate of Oman, Final Report (April 1975).  - 6 - Fishing villages are widely-scattered and in many cases poorly served by either road or sea transport. Boats and gear are primitive and annual output per crew is low. In most fishing centers landing facilities and marketing infrastructure are either non-existent or adequate to meet only the immediate needs of the nearby population. Large quantities of canned fish are imported at reasonable prices to supply the bigger population centers and, increasingly, inland consumers without ready access to fresh fish. 18. Recently the government began development of modern commercial fishing in Oman through joint ventures with foreign firms. Under a one-year agreement with the Taiyo Fishery Company of Japan, four stern trawlers of 1,500 gross tons each began fishing in a restricted area between the Kuria Muria and Masira Islands. The immediate objectives are to increase fish production from Omani waters and, through associated surveys, provide addi- tional information on the country's fisheries resource. Under the agree- ment, only demersal fish can be exploited. These are to be marketed abroad until cold store and market facilities in Mutrah are constructed. Total catch by these trawlers in April-September 1976 was about 3,500 tons. The agreement provides for the training of 10 Omani fishermen aboard each trawler and deployment of 6 Omanis to a regional fisheries center in Kuwait for train- ing as assistant captains and marine engineers. 19. Under another recent agreement with ARABCO Traders, Ltd. of New Zealand, the government purchased an ice plant and cold store equipment for the Mutrah-Muscat area, refrigerated trucks and three small trawlers of 380 gross tons capacity. The agreement provided for ARABCO to erect the shore facilities and operate the trawlers and shore installations for one year. Seventy-seven man-years of expatriate services are to be provided in manage- ment, refrigeration engineering, fishing and fish marketing. Each trawler, with an expatriate captain and a crew of 4 Omanis, is expected to catch 450 tons of demersal fish per year. 20. Because of the poorly-developed marketing infrastructure, the domestic market for local fish is limited. Throughout the country fish prices are high relative to those in neighboring countries. Domestic demand for fresh or chilled fish would increase significantly if prices were lowered and supplies made available more widely. Incomes of traditional fishermen can be improved by expansion of the market and upgrading the product. Better landing facilities, ice plants, cold stores and refrigerated trucks are needed. 21. The government has begun to provide this infrastructure. In Sohar an ice plant and fish sorting hall were constructed in recent years, but no fish landing facilities exist. At Mutrah a large cold store and municipal market facilities are under construction. However, in the important boat-. building and fishing center of Sur landing and shore facilities do not exist. In the south at Salalah a cold store, ice plant and fish sorting hall are under construction. No landing facilities are available. At nearby Reyzut a good port, with accommodation for traditional fishing craft, is being built.  -7- III. RECENT PERFORMANCE Output Growth 22. Because of the extremely weak data base with respect to both pro- duction and prices, all figures have to be taken to represent broad orders of magnitude only. 1/ The average annual growth rate of value added from agricul- ture and fisheries from 1970-74 was estimated at less than 2% in current value terms. Average price increases during the period almost certainly exceeded that figure; hence a negative growth rate in real terms is implied. Impres- sions, based on travel by the mission and discussions with knowledgeable individuals in Oman, confirmed that agricultural production has at best stagnated, if not fallen, during the last few years. During 1975, production of some commodities rose while output of other commodities continued to fall. Among those products with declining production were dates, citrus, milk and meat. Together these comprise more than half of gross value of production from these sectors. (See Table 15.) Output of fisheries, which accounts for more than a quarter of total agriculture and fisheries production, also apparently continued to fall in 1975, although it is likely to have risen in 1976. Production of wheat, some vegetables and fruits appears to have increased in response to growing use of modern inputs and production from recently developed private farms in the Batinah Coast. Overall, a gain in value added (current terms) for agriculture and fisheries of 4% over 1974 levels is estimated. 23. The sluggish performance of Omani agriculture and fisheries re- flects several factors, including labor shortages, a deteriorating physical resource base in some areas and continuing problems with plant pests and diseases. One of the important factors is the shortage of agricultural workers, particularly near urban areas where non-farm employment is readily available. The urban wage pull is strong. In 1976, urban wage levels for unskilled workers were about twice those in rural areas. Outflow of workers from agriculture and fisheries has been large in recent years and is con- tinuing. In consequence, less labor-intensive agricultural production systems are practiced and, in many cases, the quality of crop and animal husbandry is declining. A widely-reported example is the labor shortage in date production which prevent timely weeding, pruning and pollination of the palms. 1/ No regularly-collected data on agricultural (and fisheries) production and prices exist in Oman. The absence of an agricultural census has been noted. Even agricultural trade figures are incomplete and suspect because of unreported trade and smuggling over both land and sea routes. All published data on agricultural production are based on qualitative judgments and ad hoc surveys with limited coverage. Margins for error in these figures obviously are large.  - 8 - Table 15. INDICATIVE ESTIMATES OF AGRICULTURAL AND FISHERIES OUTPUT, 1975 Commodity Volume Farmgate price Gross value ('000 tons) (OR/ton) ('000 OR) Dates 49.0 110.0 5,390 Limes (fresh) 3.0 /1 375.0 1,125 Other fruits 5.0 75.0 375 Tomatoes 5.0 100.0 500 Onions 7.0 100.0 700 Other Vegetables 4.0 75.0 300 Wheat 4.0 130.0 520 Tobacco 0.9 256.0 225 Other Crops 1.0 130.0 130 Meat 4.7 1,275.0 5,990 Milk, ghee, etc. 13.4 180.0 2,430 Wool, hides, etc. 0.2 500.0 100 Fisheries 45.0 150.0 6,750 Total gross value 24,535 Less purchased inputs Irrigation services /2 3,700 Fertilizers, agricultural chemicals /3 300 Tractor, machinery services /4 100 Fuel and supplies for fisheries /5 2,300 6,400 Equals gross value added in agriculture and fisheries 18,135 /1 Assumed roughly equivalent to 1,500 tons of dry limes. /2 Costs of well irrigation only. Assumed to be OR 200/ha on half of total irrigated area, i.e., 18,500 ha. /3 2,100 tons at OR 65/ton plus a similar expenditure for insecticides. /4 Includes 30,000 hours of tractor services at OR 2.5/hr. /5 Assumed to be about one-third the gross value of fisheries output. Source: Directorate of Agriculture, consultant studies and mission estimates. There are no regularly collected series of agricultural price and production data in Oman. In Shinas District, located in the Batinah Coast where non-farm employment opportunities are greater than in the Interior, only about one-half of the date palms were reported in production in 1975.  - 9 - 24. Despite government efforts at control, Dubas bug infestation in 1975 reduced date yields. The citrus black fly caused considerable damage in lime orchards. 1/ In some areas, e.g., at Al-Khabura in the Batinah, insect pests reduced the 1975-76 lime harvests to a small proportion of previous crops. Deficiencies in water management and supplies also constrain agricultural production. Although the number of motorized pumpsets has expanded steadily, these irrigation systems frequently are not managed pro- perly. Over- or under-irrigation is common. Irrigation efficiency is rela- tively low, estimated at less than 50%. In several areas increased water abstraction has drawn down the freshwater table and led to increased pumping costs and/or saltwater intrusion. In some areas irrigated by aflaj, labor shortages have resulted in deterioration of the aflaj system and reduced water supplies. Agricultural Trade 25. Once the major items of Oman's trade, dates and dried limes today account for a small fraction of total exports but represent three-quarters of all non-oil exports. Published trade data, which must be interpreted cautiously, suggest that the value and volume of dates and lime shipments moved erratically in recent years with no distinct trend apparent. Official figures indicate that date exports in 1975 were down about 15% from 1974 levels while lime exports were up by 23%. 2/ Recent import curbs by India, the major traditional buyer of Oman's relatively low-quality exports of unprocessed dates, threatens the export market for this product. 26. Imports of agricultural products (food, live animals, beverages, tobacco) grew by more than 50% p.a. (current value terms) in the last five years and by some 80% in 1975. The value of cereals and preparations, fruits and vegetables and dairy products and eggs rose by 51%, 106% and 56%, respectively, in 1975 from year-earlier levels. Data on price movements are not available. However, the sharp moderation of world prices in 1975 for most products, and price declines for the important cereals group, suggest that nearly all of the 1975 increase in import value reflected a similar increase in import volume. 1/ In 1973 yield losses from the Dubas bug of up to 70% of normal produc- tion were reported in Central Oman. Government control efforts were more effective in 1975, although losses continued, especially in narrow valleys which were inaccessible to aerial spray crews. 2/ Lime exports in 1975 represent production in 1974. Private trade data suggest 1976 export volumes (reflecting 1975 production) were down from 1975 levels. The consistency problems with official trade data are exemplified by the case of dates. While the reported volume of date exports in 1975 was 15% below the 1974 level, the value of date exports in 1975 is reported to be more than 4 times year-earlier levels.  - 10 - 27. Imports make up a growing proportion of total domestic consumption of agricultural products. Reflecting lagging domestic production and rapidly- growing urban food demand, the latter influenced in part by a large expatriate community and affluent Omanis, the proportion of consumption provided by im- ports increased from about 10% in 1970 to more than 50% in 1975. A recent study concluded that more than 90% of the cereals consumed in Oman in 1975 were imported, while imports supplied more than half of the vegetables, two- thirds of the eggs and about a third of the meat and dairy products. Table 16. INDICATIVE ESTIMATES OF IMPORTS, DOMESTIC PRODUCTION, AND CONSUMPTION OF BASIC FOOD ITEMS, 1975 Domestic Imports as Percent production Imports Consumption of Consumption ------------------------('000 tons)---------------------- Wheat 3.0 27.0 30.0 90.0 Rice - 25.0 25.0 100.0 Vegetables 8.5 9.5 18.0 53.0 Dates 50.0 - 16.0 - Other fruits 8.5 2.5 11.0 23.0 Meat 4.7 2.6 7.3 36.0 Eggs 0.3 0.5 0.8 63.0 M'ilk/dairy products 13.5 6.5 20.0 33.0 Source: Renardet-Saudi-ICE, Water Resources Survey, Northeast Oman: Interim Report (March 1975). Institutional Development 28. Government support of agricultural and fisheries development is of recent origin. In 1970, prior to the existence of a ministry, administra- tive sections for agriculture, irrigation and fisheries were established within the General Development Organization. (However, crop and livestock experimental work under government auspices was initiated some 10 years earlier - at Nizwa in 1959-60 and at Sohar in 1962-63). In 1974, the Minis- try of Agriculture, Fisheries, Petroleum and Minerals (MAFPM) was formed. Reorganization within the MAFPM in 1975 resulted in the creation of separate Directorates for Agriculture and Fisheries, the first with 13 departments, the latter with 4. 29. Sinoe 1970 steady progress has been made by the government in increasing the scope and quality of supporting services to agriculture and fisheries. However, many of these remain weak and all are hampered by the severe shortage of qualified Omani manpower. The government has relied  extensively on expatriate technicians and professionals, particularly in agricultural research, extension and veterinary services. Main features of the present system of agricultural services are discussed below. 30. Agricultural research. Steady progress has been achieved in several research areas, although a comprehensive national research effort which meets the full range of technical problems facing Omani agriculture remains to be developed. Four experimental stations (Rumais, Wadi Quryat, Sohar, Salalah) are in operation, generally with severe manpower constraints in terms of pro- fessional staff numbers and research qualifications. Other experimental stations at Nizwa, Sohar and Rumais were converted to commercially-oriented production farms in 1971 but remain the responsibility of the Department of Agricultural Research. Financial performance of these operations has been poor, and all reportedly continue to operate at a loss. High operating costs, resulting from the acquisition of a large number of field workers formerly used in the research operations, is a major reason for their un- satisfactory performance. The government now operates 7 production farms totalling about 135 ha. Good research with useful results has been done on varietal and fertilizer trials for vegetables and wheat. Work on plant protection is less advanced. Valuable work on forages and legumes has been started, some of it under the Bank-supported project of technical assistance to the MAFPM. Little research has been done on the important date and citrus crops. Soil and water management and irrigation practices are other important areas where past work has been inadequate. 31. Agricultural extension. This activity dates back only to 1971 when the government established 17 local extension centers, primarily to distribute seeds, fertilizers and insecticides and provide tractor services, generally at subsidized prices. By 1976 the number of local extension centers had increased to 23 (plus 7 "sub-centers"), supported by 6 regional centers at Nizwa, Rumais, Sohar, Salalah, Dhahira and the Sharkiya. Each center is staffed by an Omani administrator, generally with primary school training, together with 1-3 expatriate technicians and local tractor drivers, shopkeepers, etc. Technical staff in extension total 45, most of whom hold a diploma in agriculture, except for 6 university graduates in agricultural engineering. Typically, each extension center operates in an area with about 1,000 farm holdings. The major extension activity continues to be the supply of inputs, of which the most important are fertilizers, seeds and tractor services. In 1976 chemical fertilizers were sold to farmers free of internal transportation charges; pesticides were distributed without cost; and tractor services were charged at the equivalent of about US$1.50/hour, as contrasted with full operating costs of US$6.50/hour. The private sector sells to farmers at full costs petroleum products, pumpsets, fertilizers and other agricultural chemicals, although volumes are small relative to sales by the extension service. Recently technical advice to farmers has been given greater emphasis, in part through establishment of more demonstration plots on farmers' fields. But limited back-up support and inappropriate training or aptitude of technical staff hamper the total extension effort. In general, most of Oman's agriculture operates with little significant input of technical advice from the research and extension programs.  - 12 - Table 17. GOVERNMENT SERVICES TO AGRICULTURE Activity 1971 1972 1973 1974 1975 Production and experimental farms (number) 6 7 8 13 13 Extension centers/subcenters 17 17 20 22 27 (number) Fertilizers distributed /1 Nitrogen (nutrient tons) 27 73 187 251 409 Phosphate (nutrient tons) 2 19 55 85 95 Potash (nutrient tons) - 6 18 85 106 Tractor hours rendered to farmers (number) - - 10,784 16,635 30,341 Northern Oman, Interior - - 1,753 4,324 8,828 Batinah - - 9,031 12,311 17,759 Dhofar - - - - 3,672 Khasab - - - - 82 /1 Made available to farmers at extension centers and departmental head- quarters. Due to storage losses and wastage, amounts actually applied by farmers may be less. In addition, small quantities of fertilizers are provided through private market channels. The figures for 1975 relate to 1,485 tons of ammonium sulphate and 600 tons of compound fertilizer of 18-15-15 or 15-15-15 analysis. About two-thirds of the ammonium sulphate was distributed in the Batinah Coast. Source: National Statistical Department. 32. Agricultural Marketing. Until recently, almost no effort had been made to improve the private sector-oriented marketing system for agricultural production. Mark-ups at all levels appear to be high relative to the whole- sale price and, for several commodities such as fruits and vegetables, wastage  - 13 - is extensive. 1/ No systematic investigation of the marketing system has been undertaken, although several studies mention the need for improvement. A study of banana marketing in Dhofar Province, undertaken in late 1976, suggested that spoilage losses may approach 40% of production. In 1975 the Government began to establish farmer cooperatives for the marketing of produc- tion inputs and output. Fruit and vegetable marketing has been stressed. By late 1976, 8 cooperative societies with about 2,000 members had been regis- tered. The program has benefitted from good leadership, but shortages of trained staff limit effectiveness at the field level. The government also is establishing wholesale market outlets in a few major urban areas to market output from its production farms. Government-owned date processing plants at Nizwa and Rustaq purchased about 1,500 tons of dates in 1976 (less than 4% of production) from farmers at guaranteed prices. 33. Agricultural Credit. Since the creation of the first extensiVen centers in 1971, a small amount of interest-free government credit has been made available to farmers for the purchase of motorized pumpsets. In 1974 the government began a program of credit to fishermen in Dhofar which permitted purchases of boats, motors and equipment on credit. The program was extended to Northern Oman in 1975. Terms of these loans include a grant element of 25%i with the balance repaid over 2 years without interest. The new Devel- opment Bank of Oman, chartered in 1976 with a share capital of OR 10 m but not yet operational, may become an additional source of institutional credit for agriculture and fisheries. 34. Aflaj maintenance. One of the most significant programs of gov- ernment assistance to agriculture is the grant fund available for aflal maintenance. Administered by the Irrigation Department, and relying upon local committees and field staff of the department, the program provides grants to repair and maintain the country's system of about 3,000 aflaj. The number of major repair jobs financed by the program increased from 30 to 70 in 1974-76 while government expenditure from the fund rose from OR 200,000 to OR 380,000. Despite this effort, a general view is that labor shortages, particularly of the skilled workers needed in the difficult, sometimes dan- gerous, task of 'aflaj maintenance, have-resulted in a gradual deterioration of the system. 1/ Surveys by the MAPFM's Department of Statistics provide sample prices for the Mutrah market in June 1976: Mark-up as Percent Commodity Wholesale Price Retail Price of Wholesale Price ------------OR per kg------------ Tomatoes 0.563 1.105 96 Cucumbers 0.360 0.578 60 Eggplant 0.131 0.315 140 Potatoes 0.249 0.388 56 Dry onions 0.077 0.211 174 Dates 0.211 0.398 89 Mangoes 0.450 1.322 194 Bananas 0.132 0.351 166  - 14 - 35. Omani farmers have demonstrated considerable eagerness to use modern production inputs. The volume of chemical fertilizer made available through government extension centers increased from 375 tons in 1972 to 2,100 tons in 1975. Hours of tractor services provided to farmers by government rose from nearly 11,000 to 30,000 in 1973-75 (see Table 17) while the number of citrus and date trees sprayed with insecticide by government teams nearly tripled in this period. 36. Expansion and improvement of these services is needed. The above tonnages df fertilizer imply applications in 1975 of about 55 kg per cropped ha, or less than one-fourth the amount which maximizes economic returns on cereals in Oman. In some cases fertilizer provided to extension centers is not distributed and allowed to deteriorate in warehouses. Not infrequently, inappropriate fertilizer application prevents realization of the full bene- fits. Spray teams are hindered by inadequate transport and problems posed by the large numbers of smallholdings with tree crops interplanted with other crops. Access to many of these holdings is difficult and low levels of farmer education limit efforts to mount safe, effective spray programs under their control. Income and Employment in Agriculture 37. At present productivity levels, agriculture increasingly is becoming a secondary source of income. Although sample size is small (270 families) and the accuracy of responses may be questioned, recent socio-economic surveys in Northern Oman suggest that frequently the portion of farm family income earned from agriculture is less than the income derived from non-agricultural activities. (See Table 18.) Total family income (cash plus farm-produced home consumption) varied widely among districts but averaged about OR 260 per year (or assuming 6.5 members per family, OR 40 per capita).  - 15 - Table 18. FARM AND OFF-FARM INC9MES IN NORTHERN OMAN (1973 OR)' District Barka/ Al Wadi Shinas Sohar Saham Masnah Iski Hamra Quryat Buraimi Dariz Number of Farms in Sample 21 27 31 54 32 26 19 28 32 Gross Farm Income Crop Sales 83 244 254 201 19 48 161 278 34 Livestock Sales 3 7 18 7 1 10 29 21 33 Other 1 17 10 2 - 8 - - I Total 87 268 282 210 20 66 190 299 68 Other Income Resident, Off-farm 264 494 579 215 98 133 32 475 156 Non-Resident 35 71 73 92 51 78 58 177 126 Total 299 565 52 307 149 211 90 652 282 Tocal Gross Income 386 833 934 517 169 277 280 951 350 Cash Farm Expenses 477 497 564 443 270 334 471 487 314 Net Family Cash Income -91 336 370 74 -101 -57 -191 464 36 Farm-produced Home Consumption- 150 150 150 150 150 150 150 150 150 Total Family Income 59 486 520 224 49 93 -41 614 186 Other Income as percent of Total Family Income 507 116 125 136 304 227 - 106 152 1/ The surveys were carried out in early 1974. The reference year was 1973, reportedly a very poor agricultural year, particularly for dates, limes and wheat. Information was derived through memory recall. The consultants noted a tendency to underestimate incomes and overestimate farm expenses. Results are best interpreted as indicating orders of magnitude. 2/ Mission estimate, assuming family consumption per annum of 25 kg. of meat, 120 kg. milk, 540 kg. dates (dry weight basis), 72 kg. limes, and 240 kg. other fruits and vegetables. Source: Basic data for the districts of Shinas, Sohar, Saham and Dariz were reported in ILACO, Water Resource Develop- ment Project, Northern Oman, Interim Report (January 1975), Vol. 3. Data for other areas are in Sir Alexander Gibb and Partners, Final Report, Phase I, Soils and Agriculture Studies, with Interim Water Resources Assessment (April 1975).  - 16 - 38. In the absence of a population or agricultural census, estimates of rural population, work force and migration are necessarily crude. Assuming a total country population in 1976 of about 800,000, a rural population of perhaps 485,000 is possible. On the basis of plausible labor force participa- tion rates, this implies a labor force in agriculture and fisheries of about 110,000 (of whom perhaps 10,000 are in fisheries). 39. Outmigration from rural areas occurred at a rapid pace in recent years, first in response to attractive job opportunities in neighboring states and more recently as a result of petroleum-induced development in Oman's non-agricultural economy. While considerable physical migration from agriculture and fisheries has occurred, the rapidly-expanding road network has permitted non-farm employment for some months of the year with permanent residence maintained on the farm. Some studies suggest that up to a third of the farm work force was employed in off-farm work in recent years, much of this in commerce, construction work and, frequently, in the defense force of neighboring states. The precise extent of rural-urban migration is not known. A working paper by the Development Council Secretariat suggests that this is in the order of 4,000 workers per year. IV. THE FIVE-YEAR DEVELOPMENT PLAN, 1976-1980 40. Comprehensive planning for agriculture and fisheries development is a new activity in Oman, dating essentially from the Economic Development Law of February 1975. Within the national development objectives of broadly-based income gains and increased emphasis on non-oil economic activity, The Five- Year Development Plan outlines an ambitious program for expansion of the agricultural and fisheries sectors. Together these sectors are projected to expand in real terms by 13.7% p.a. in 1976-80. Although growth rates for agricultural and fisheries are not separately estimated, rapid expansion in fisheries output is implied. No detail is provided with respect to yields and cropped areas. The proposed strategy for agriculture includes an expan- sion of cropped area through new land and water development as well as efforts to increase yields in already-cropped areas. The major emphasis is on yield increases. Strengthened research, extension, input supply services, and marketing programs are stressed as the means to higher yields. An agricultural development fund within the MAPFM is suggested to finance these activities. A major element in the strategy for fisheries development is assistance to tra- ditional fishermen through provision of cold stores, marketing and transport facilities, boats and other fishing gear. 41. Rapid increases are proposed for public and private investment in these sectors. Total investment in agriculture and fisheries would cumulate to OR 57 million in 1976-80. Government expenditure would total OR 41 m (OR 14.4 m for fisheries, OR 7 m for animal husbandry, OR 14.4 million for water resource development, and the balance - OR 5 m - largely for crop production.) This allocation for agriculture and fisheries constitutes a rapidly growing share of total public sector investment (1% in 1976 to 11.8% in 1980).  - 17 - Table 19. PROPOSED CAPITAL EXPENDITURE IN AGRICULTURE AND FISHERIES, 1976-80 (1976 prices) 1976 1977 1978 1979 1980 Total Public Sector Capital Expenditure Agriculture (mil. OR) 1.0 4.1 5.5 7.5 8.5 26.6 Fisheries (mil. OR) 1.6 1.8 3.0 4.0 4.0 14.4 Total (mil. OR) 2.6 5.9 8.5 11.5 12.5 41.0 Agriculture and Fisheries as percent of total public sector expenditure 1.0 2.3 4.6 8.5 11.8 4.4 Public and Private Sector Capital Expenditure for Agriculture and Fisheries 4.6 8.9 11.5 15.5 16.5 57.0 (mil. OR) Percent of Total Capital Expenditure 1.5 2.6 4.3 6.8 8.2 4.2 Source: Development Council, The Five-Year Development Plan, 1976-1980. 42. The project content of the Plan was to be provided in subsequent months by the MAPFM. At the time of the mission's visit in late 1976 work was underway to allocate these sums among various departments of the agricultural and fisheries directorates and to develop investment projects. In general, project work was at a preliminary stage. The proposals made by the various departments (but at the time of the mission's visit not yet approved by the Ministry or the Development Council) include: (i) Agricultural research. The major effort would be to strengthen work on the principal crops such as limes, dates and vegetables. Research on crop protection is to be improved. The major proposed capital expenditure is to establish a fruit research station at Sohar, improve laboratory facilities at Rumais and establish new facil- ities and research sites in Dhofar. The Agricultural Research Department plans to obtain the services of addi- tional expatriate professional staff. (ii) Agricultural extension. The Extension Department proposes to increase the number of local extension centers from 23 to 35 and to approximately triple the number of tech- nical staff to 150 by 1980. Because of the shortages of  - 18 - trained Omanis, virtually all of this increment will be expatriates. Acquiring expatriate staff in these numbers with the appropriate qualifications and experience is con- sidered difficult. The major capital program for the exten- sion service is the proposed construction of 6 regional extension centers, each to include offices, a cold store, veterinary clinic, vehicle repair and maintenance facili- ties, a parking shed for 150 tractors, seed and fertilizer stores. (iii) Agricultural training. The major program is the Bank- supported agricultural school at Nizwa. School construc- tion was to be completed by the end of 1977, although delays are envisaged. Three types of training will be offered: (1) a 3-year secondary school to produce 34 middle-level technicians annually (with the first output about 1981); (2) a one-year post-primary course to train 70 young farmers in agriculture, animal husbandry and farm mechanization; and (3) a 1-2 weeks' training course for 80-100 government staff employed in agricultural development work. (iv) Cooperatives and marketing. The Cooperative Department plans to establish 20-25 cooperative societies and 4 agricultural collection centers annually during the plan period. Expansion of agricultural market outlets in urban areas is being discussed. It is proposed to send 6 staff members abroad annually for training in cooperative methods and management. The shortage of qualified staff is seen as the major constraint to the proposed development program for cooperatives and marketing. (v) Livestock development. Three major capital projects have been proposed for the veterinary service: (1) Construc- tion and staffing of 6 regional veterinary hospitals and 22 smaller clinics; (2) construction of a veterinary diagnostic laboratory in the capital area; and (3) con- struction of a veterinary quarantine station. The required large increase in personnel with veterinary training is to be obtained abroad. Recruitment had not begun in late 1976. Concerning animal production, it is proposed to reorganize research activities, establish a second breeding/research facility in Dhofar and expand the production farm at Sohar both in cropped area and number of dairy cows. The Animal Production Department also proposes to strengthen programs of cross-breeding research and. distribution of improved animals to farmers and to initiate a poultry hatchery program. (vi) Irrigation and water resource development. In already- cultivated areas aflaj maintenance is to be given high priority. The collection and interpretation of water  - 19 - resource data, initiated by consultants in recent years, will be continued. Experimental work in aquifer recharge through the construction of dams is being considered. Drilling and testing of wells and small-scale land devel- opment in areas with unexploited agricultural potential is proposed. In late 1976 the Water Resource Department pro- posed a work program which provides for the development of about 1,100 ha over the next 3-5 years (beginning with 100- 200 ha each at Al Kamil and Ad Dariz, 200 ha at Wadi Quryat and 100 ha at Wadi Dank). Agreement has been reached between the Bank and government to utilize remaining funds in Loan 985-OM to support a limited program of water resource explo- ration and development near Sohar. The allocation of the OR 14.4 milion for water resource development among government agencies (in particular, the Water Resource and Irrigation Departments and the new National Water Resources Council) remains to be determined. (vii) Agro-industrial development. In the public sector, the government plans to increase output of its two date- processing plants from less than 1,500 tons in 1976 to 4,000 tons by 1980. Remodeling of these plants to permit small unit packaging is to be completed in 1977. The feasibility of a coconut processing factory in Dhofar is under examination. Expansion of dairy production from government farms in Dhofar and Sohar is planned. In the private sector the main activities include commissioning of the 4,800-ton flour mill in the capital area and expansion of production from the dairy products plant (based on the reconstitution of imported raw materials). Government has proposed the establishment of a privately- owned animal feed mill to support the dairy, beef and commercial poultry industries. (viii) Economic research and data collection. With assistance from FAO, a valuable effort was initiated in 1976 to conduct a 5% sample survey of the country's agricultural holdings. This is to be supplemented by a more compre- hensive farm management survey of 100 farms throughout the country. Completion of this work is proposed for the early years of the plan period, although this depends heavily upon continued FAO assistance and the availabil- ity of enumerators, transportation facilities and other back-up support. (ix) Fisheries development. The objective is to expand pro- duction through assistance to Omani fishermen using traditional methods and joir.t ventures with foreign fishing interests which employ more capital-intensive techniques. The major investment program proposed is the  - 20 - construction or improvement of fishing harbor facilities at Rayzut, Sur, Sohar, Musandam, Salalah and Masira. Workshop facilities to repair boats, engines, fishing gear and vehicles are to be constructed at the main fishing ports. The Omani trawler fleet is to be increased from 3 to 10. Additional cold stores, ice factories and market- ing centers are proposed and a sardine and tuna canning factory, including a fishmeal facility, is under consid- eration. A Fisheries Development Fund of OR 2 million is to be established to provide credit to fishermen for the purchase of boats and gear. Training for Omani fishermen is to be provided through the existing Japanese-Omani joint venture and the regional training center in Kuwait. The annual production target for the next several years suggested by the Directorate of Fisheries is 200,000 tons, or approximately a four-fold increase from the present catch. An Assessment 43. After several years of relative neglect, the greatly increased allocation of public sector investment for agriculture and fisheries is to be welcomed. It is a clear manifestation of government's recognition of the need to accelerate income growth in the non-petroleum sectors and to improve the welfare of large numbers of the agriculture and fishing population, many of whom have benefitted relatively little from the petroleum-led urban-oriented development of recent years. 44. The proposed investment balance between agriculture and fisheries and the stress on fisheries expansion is consistent with potential in these sectors. Evidence suggests that Oman's fisheries resources are unusually rich and amenable to rapid development. Government assistance to traditional Omani fishermen is commendable and the joint ventures with foreign firms reflect realistically the limited reservoir of technical knowledge of modern fisheries in Oman and the need for international marketing experience. 45. Within agriculture more than half of the proposed public sector expenditure of OR 26.6 m is allocated for water resource development, more than a quarter for animal husbandry and the balance largely for crop produc- tion in already-cropped areas. An important question, discussed at greater length below, is the relative allocation between new land development and measures to improve yields on presently-cropped land. There is need to continue exploration of the country's water resources, as now planned for in the Sohar area, to ascertain the extent to which the arable land base can be expanded. But this must be done with due consideration for the economic soundness of any agricultural development which might result. The objective should be to locate areas large enough for development on economic terms. 46. The realism of the overall investment targets for agriculture and fisheries may be questioned. Public sector development expenditure for these sectors appears to have averaged about OR 2 m in-1973-76. The plan projects this to increase from OR 2.6 m to 12.5 m in 1976-80. Limited capacity within the MAFPM for project preparation and implementation raises  - 21 - serious doubts regarding the likelihood of achieving this increase. The use of expatriate contractors for, e.g., extensive civil works or construction programs related to land and water (or fisheries) development, of course, could absorb large capital sums very quickly. However, this may be inap- propriate. At this stage of the country's agricultural development, the government should focus on the strengthening of basic support services and administrative structures, i.e., activities which require government commitment, manpower and time, but relatively limited investment in physical infrastructure. Given these considerations, the plan targets for public sector capital expenditures in agriculture and fisheries may be too high. 47. Relative to the recent past, when aggregate output of agriculture and fisheries seems to have declined, or at best, stagnated, the implied combined annual growth rate for these sectors of 13.7% is ambitious. The investment program, even if it is fully implemented, would have a meaning- ful impact on output only toward the end of the plan period. Moreover, the labor migration from agriculture can be expected to continue and constrain agricultural growth. Even with rapid expansion in fisheries output, an annual aggregate growth rate for these two sectors averaging 13-14% may be difficult to achieve. V. DEVELOPMENT OPTIONS AND PROSPECTS Fisheries 48. Prospects for fisheries development in Oman differ markedly from those in agriculture. The fisheries resource is large and can be exploited efficiently with known technology. Present labor shortages pose no funda- mental problems and, in fact, foster the use of productive, capital-intensive approaches. A major consideration in the development strategy for fisheries is the future role of the traditional fishermen who now account for most of the industry's employment and output. Modern fishing methods, while generally efficient means to increased output, will not produce widely- distributed benefits to traditional fishermen or generate a significant number of new jobs. Boats of the class now operated by ARABCO are expected to yield a catch of about 100 tons annually per crewman. At these output levels, the country's estimated fish catch in recent years could be produced by fewer than 1,000 fishermen or less than 10% of those who now depend primarily upon fishing as a livelihood. 49. However, with careful planning, the simultaneous development of traditional and modern fisheries must go ahead because it contribute to Oman's output, diversification and income distribution objectives. Commer- cial financing is likely to be available for expansion of modern fisheries in Oman. But more extensive government involvement is required to develop the traditional sector. The objectives should be to assist these fishermen, first, by expanding market outlets and then providing them with the equip- ment, facilities and supporting services to supply those markets. Provision of appropriate shore installations and landing facilities would be needed.  - 22 - Important fishing villages should be provided with small cold stores and icemaking equipment. In some villages, without natural harbors, simple jetties could be constructed. The key to the development of the modern, export-oriented sector, which will require major investments, is the involve- ment of selected international companies with worldwide market outlets, in a joint venture with the Government or Omani private interests. 50. The outlines of a program for the mutual development of the tradi- tional and modern fishing are being defined by the Government with the assis- tance of the World Bank. This type of development, focusing on supporting services and infrastructure to expand demand and supplies of fish products, could be duplicated in subsequent years in other parts of the country. Successful implementation could increase traditional production and slow migration from this sector. These developments, together with expected production gains from modern fisheries activities, could be a major source of non-oil income in future years. Agriculture 51. The development problems of agriculture are more difficult. Basic resources of suitable land and available water appear to be inadequate to permit significant expansion to new lands. The economics of such expansion remain to be determined. Deterioration of soil and water quality threatens production in some cropped areas. Small farms, complex water rights and the predominance of scattered tree crops all operate to reduce possibilities for labor-saving technologies in the present labor-short environment. Despite recent progress, the present range and quality of government services to agriculture are inadequate to sustain rapid growth. 52. However, despite these difficulties, growth in the agricultural sector is both desirable and feasible from technical and economic viewpoints. Accelerated growth is desirable to provide improved incomes in rural areas, to slow migration to urban areas, and moderate the trend of a rapidly-growing dependence upon agricultural imports. Although the ambitious growth targets of the plan may not be achieved, with vigorous government support and appro- priate policies, it should be possible to gradually move away from stagnation in crop production. However, agricultural imports are likely to account for a growing portion of consumption, even with a reversal of production trends. 53. Accelerated agricultural growth requires some combination of increased yields in already-cropped areas and new land development. Rela- tively large increases in yields appear to be technically feasible. In general, actual crop yields in Oman are low compared to those attainable with proven cultural practices, or those achieved in other regions with  - 23 - similar soil, water and climate. 1/ This is not surprising in view of the relatively undeveloped system of supporting services for agriculture, in large part a reflection of shortages of trained manpower and the few years in which agricultural development has been of serious concern to the government. 54. The economics of attaining these yield increases through improved cultural practices appear to be attractive. Proper, timely application of fertilizers is among the most promising of these improved techniques. Yield increases of 30-50% and incremental benefit-cost ratios of at least 4:1 are possible from fertilizer use on farmers' plots planted to local wheat varie- ties. 2/ Fertilizer response to exotic varieties is likely to be even higher. 55. Improved plant spacing, time of planting, weeding, pest and disease control are other proven means to increase yields. All of these improved techniques promise quick returns to those producers who employ them. Several require relatively little expenditure by farmers. Proper plant spacing in 1/ A recent study provided the following estimates of actual crop yields in Oman and those considered achievable with proven cultural practices: Present average Potential Present yield as Crop yield yield percent of potential -----------tons/ha------------ Dates 4.5 10.0 45 Alfalfa 45.0 90.0 50 Wheat 1.25 2.25 56 Limes 1.0 (fresh) 1.5 67 Onions 3.0 15.0 20 Vegetables 5.0 15.0-30.0 17-33 Source: Sir Alexander Gibb and Partners, Water Resources Survey of Northern Oman: Final Report on Phase I Soils and Agricultural Studies (1975) 2/ At the Wadi Quryat Station in 1975-76, the application of 1 ton of nitrogen (from ammonium sulphate) would produce 10-11 tons of wheat (local .varieties) in the most promising trials. At present wheat and fertilizer prices, this yields an incremental benefit-cost ratio in excess of 5:1.  - 24 - vegetable crops and the application of inexpensive foliar sprays to treat trace mineral deficiencies in tree crops are examples. 1/ However, to achieve these potential gains in yields on a nationwide basis will require time, patience, farmer education and extension services. Cqnsequently, widespread results cannot be expected over the Plan period. However, with sustained efforts, agricultural production growth can be stepped up through higher crop yields over the longer term. 56. In contrast to the production possibilities from known yield- increasing technologies used on already-cultivated areas, the benefits from new land development involve much greater uncertainty. Water resources, while considered adequate for limited development, are not yet proven. Development of this water would be costly. Soil suitability in several areas where water is believed to exist also remains to be confirmed by detailed soil surveys. Supporting infrastructure would have to be provided in most areas of potential. 57. An important question concerns the operation of new farms. The financial performance of government production farms is generally unsatis- factory and improved managerial procedures would be required before this organizational approach could be recommended for new areas. Providing these lands as new farms to interested Omani farmers may be possible, although the present labor shortage makes this an uncertain prospect. 58. The distribution of incomes within rural areas also would be affected by the choice of development strategy. Measures to increase pro- ductivity in cropped areas hold the potential to increase incomes of a large number of farmers. An extensive program of new land development could result in large public sector expenditure which benefits relatively few of the farm population. But if sizeable quantities of unused groundwater could be found, economies of scale might make some of this development economically worthwhile. 59. These considerations suggest a cautious program of land development, based upon reasonable assurances regarding water and soil suitability and economic viability. However, recent studies to identify such possibilities 1/ A specific case of the yield-increasing potential of these techniques relates to tomato production. Research in Oman under the Bank-supported technical-assistance project has produced experiment station yields of 50-60 tons/ha from earlier planting of a well-known imported variety. This, while realized on a small area, may be compared with the esti- mated national average yield of 14 tons. The improved variety was combined with 3 basic cultural practices: (1) closer plant-spacing to permit 36,000 plants/ha, compared with the usual 13,500; (2) direct seeding, together with proper fertilizer placement under the seeds; and (3) additional fertilizer application during the growing season. These techniques also would extend the current short production period, now an important constraint on income possibilities from. this crop.  - 25 - are not encouraging. 1/ There is need to continue a limited program of water resource exploration and development to determine if suitable areas can be identified of a size required to generate the necessary economies of scale. Planned exploratory work in the Sohar area should provide valuable information for making investment decisions in this regard. 60. Growth in agriculture is likely to be achieved most efficiently largely through measures to increase yields in cropped areas. This should be supplemented by carefully-developed programs for new land and water devel- opment where potential benefits provide a sound basis to expect expansion on economically-viable terms. Such an approach to development would require further strengthening of agricultural supporting services. A number of issues need to be considered in this regard, some of which are discussed below. 61. Agricultural research. In view of the number of studies already done in agriculture and the ongoing research activities, there is a need for a thorough review of the national research effort, focusing on the range and quality of existing work, the adequacy of existing facilities and the problems occasioned by the shortage of experienced staff. Of particular concern in such a review should be the adequacy of present and planned work in soil and water management, irrigation technology, date and citrus production, plant protection and the economic analysis of research results. Establishment of national research priorities is needed to prevent dissipation of scarce research expertise. 62. Agricultural extension. With good organization and discipline and with relevant research back-up in the form of technology packages and some specialist staff, effective extension services could be provided without large 1/ Bank efforts in 1976 to identify projects in the Batinah Coast for the development of new land areas of less than 100 ha suggested excessive costs (on the order of US$9,700/ha as capital investment, $5,200/ha in annual operating costs) relative to likely benefits. Development of larger areas might result in lower unit costs, but would require additional testing for water availability. Preliminary studies of development prospects on unutilized land in Dhofar failed to turn up a potential project with an economic return (evaluated at 1973 prices) in excess of 7%. (Sir William Halcrow and Partners, Surveys-and Inves- tigations of Land and Water Resources Development-in Dhofar: Draft Final Report, May 1975). The latest study in this regard (Hunting Technical Services, Ltd., Pre-feasibility Study to Investigate Alternative Means of Establishing Commercial Farming in Interior Oman: Final Report, October 1976) examined prospects in the Sharkiya, generally considered as having the greatest development potential from the viewpoint of soil and water availability. It estimated that initial investment costs would total OR 5,650/ha, with possible expansion at OR 900/ha. Economic rates of return were not calculated. A cautious pilot project of 20 farms at 4 ha each was proposed.  - 26 - numbers of highly-trained staff. Continuous supervision and on-the-job training of field staff are important. Salaries, allowances, and terms of service should be reviewed to ensure that adequate incentives exist to attract and retain qualified Omanis in extension work. Backstopping efforts should be strengthened, including the timely provision of input supplies to extension centers, adequate transportation, office facilities, demonstration and teach- ing materials, etc. The selection process for expatriate extension personnel should be improved to ensure that field staff have the technical training and aptitude for effective work with farmers. Field staff should be encouraged to increase their contacts with farmers, especially on the latters' farms. Of particular importance is additional fertilizer promotion and educational efforts to ensure that farmers use fertilizers and other modern inputs correctly. 63. Input supply. The distribution of fertilizers and the provision of tractor services by the extension service has reduced the time available for the dissemination of technical advice. Without remedial efforts, this problem is likely to become more acute. Government should consider measures to encourage the private sector to expand its role in providing these inputs and services. Fertilizer distribution, tractor and spraying services may now have reached a volume to interest private merchants. 64. Agricultural marketing. Marketing problems, evidenced by price instability, extensive wastage and high mark-ups, are particularly acute in the case of perishable products. The much-improved road network has reduced marketing costs but few of these benefits have been passed back to farmers. The cooperative development program is a useful step to organize producers, but meaningful benefits to them are likely to be some time away. The gov- ernment should also consider other measures to assure remunerative prices for farmers. One way would be to enter the market directly, in competition with the private sector, when prices fall below specified levels. Any such effort must be carefully planned, limited in terms of geographic and commodity coverage, and consistent with the availability of trained manpower. For some products additional wholesale-level storage or processing capacity is neces- sary to accommodate temporary market surpluses. 65. Rural credit. As agriculture expands and production processes become more complex, there is need to improve farmers' access to production credit and inputs as well as medium-term credit for such activities as equipment purchase and tree planting. Efforts should be made to strengthen institutional credit programs, possibly through the Development Bank, and to provide credit outlets in the most important production areas. Effective credit may replace some input subsidies. These subsidies should be examined to determine the extent to which they could be reduced or eliminated as a result of expanded credit programs. There is need to finalize administrative arrangements for effective use of the new Fisheries Development Fund, includ- ing determination of the respective role of the Development Bank and the Directorate of Fisheries. Village-level extension agents will be needed in the major fishing centers to introduce fishermen to the use of institutional credit and to supervise its use.  - 27 - 66. Data collection and planning. Economic planning in Oman is greatly handicapped by the serious deficiencies in the agricultural data base on production and prices and information on ownership of agricultural assets, labor utilization, etc. The on-going agricultural sample survey and farm management surveys planned for later months deserve strong support by govern- ment. They should be supplemented by regularly-collected information on production through systematic reporting by field-level personnel such as extension agents and rural schoolteachers. Similarly, sound planning for fisheries development requires information on number of fishermen, types and number of fishing vessels, and on the value, volume and species caught. 67. Water resource development. The skill with which Oman's water re- sources are managed is perhaps the most critical determinant of agriculture's future development. Formulation of a national water plan and regulatory measures to ensure that all existing and future water use is in the national interest are high priority activities which should be supported by the National Water Resources Council (NWRC). There is need to define carefully the respec- tive roles of the NWRC, the Irrigation and Water Resources Departments and other government agencies involved with water supply and use. To provide a more comprehensive picture of available water, it is essential to continue the monitoring and interpretation of information from existing rain gauges and aquifer testing systems. Of importance to the older agricultural regions, many of whom have little unutilized water available, is the continued mainte- nance and improvement of the aflaj system. Without vigorous efforts in this regard, there is danger that Oman's most efficient water distribution system will fall into permanent disrepair. 68. Longer-term development issues. Longer-term agricultural devel- opment strategy to increase productivity and earnings of rural labor would require basic changes. The most complex and politically difficult of these may be the consolidation of small plots of land to permit more efficient use of motorized farm machinery. Land consolidation and the introduction of new production techniques are difficult, time-consuming processes requiring extensive public education, continuous government support and technical assistance to farmers. The registration of land now being done mostly in urban areas, needs to be accelerated in the rural areas. There also is a need to address the issue of a system of water rights which meets the needs of modern agriculture. In some areas of aflaj irrigation, where land and water rights do not coincide, the existing system prevents the most efficient use of one of the country's scarcest resources. Livestock 69. In the livestock sector progress in expanding output depends heavily on the success of efforts to increase feed supplies and improve animal health and husbandry practices. These in turn relate to broader issues of agricul- tural research, extension and provision of basic inputs, and further devel- opment of veterinary services. Increased feed supplies are particularly important in the Batinah Coast, the Interior and the Salalah Plain where irrigated forage, frequently alfalfa, is the main feedstuff. Although alfalfa  - 28 - yields are more satisfactory in Oman, relative to potential, than are yields for most other crops, there is scope for further gains. Yields of 45 tons under typical farm conditions are only about half those achieved under similar agro-climatic circumstances in neighboring countries. Indigenous alfalfa varieties are well-adapted, but seed is in short supply and cultural practices could be improved. A simple low-cost technology, virtually unknown among farmers at present, is innoculation of seed at planting with nitrogen-fixing bacteria. Treatment of seed with rhizobium at the Wadi Quryat station doubled yield of local alfalfa varieties. 70. Because of their inherent productivity, the livestock and soil resources on Dhofar's Qara range warrant special development efforts. The development of more than 30 boreholes on the range in recent years has exposed large areas to year-round grazing and established the basis for in- creased livestock numbers. Without careful range management there is danger that overgrazing will reduce livestock production in the near term and damage the resource base for expansion in the future. Control of livestock numbers is an increasingly-important management task for this area. While the sale of young animals for fattening on the plain is a useful outlet, there is need to examine the economics of the fattening program and determine whether it is the soundest approach to utilization of the land and livestock resources on both the mountain range and the Salalah plain. It should be remembered that the plain is the only place in Oman, and perhaps in the Gulf area, where climate permits year-round production of vegetables. More inten- sive land use systems than those employed in the fattening program might produce higher economic returns. 71. Until significant progress in expanding feed supplies and improved animal husbandry is achieved, the introduction of improved local or exotic breeds will provide few benefits. The forage development program requires fertilizer trials on legumes and grasses and performance testing of exotic forage species, particularly saline-tolerant varieties. Extension efforts should focus on proper fertilization and simple cultural practices such as seed innoculation. Government should undertake steps to ensure a reliable supply of high-quality grass and legume seed, particularly alfalfa. Care- fully-supervised alfalfa seed production on a government farm or through contract arrangements with reputable private growers may be useful. 72. The veterinary service should be expanded to provide diagnosis and treatment for simple ailments of livestock. Faciities and staff, typically veterinary assistants or others with practical, relevant training, should be made widely available for this purpose. Methods of producing poultry under small-scale, village conditions could usefully be demonstrated at extension centers, with emphasis on housing, management and feeding with use of locally- available feedstuffs. Closer working arrangements should be encouraged among veterinary, animal production and agricultural extension field staff. 73. In Dhofar, fertilizer and forage variety trials on the plains and the Qara range should be strengthened. New range management systems should be introduced, possibly through a pilot ranching program. Components of the program could include animal health, forage development, rotational grazing, hay production and feeding systems to retain young animals on the range for longer periods before shipment to the plains for finishing.  - 29 - CHAPTER TEN HYDROCARBONS, MINING AND MANUFACTURING I. OIL AND GAS History 74. The history of Oman oil in its present phase began in 1937 when the Iraq Petroleum Group (I.P.C.) was granted the last concession in their Arabian group of concessionary areas. This original concession, subsequently trans- ferred to a new company, Petroleum Development (Oman and Dhofar) Limited (P.D.O.), was for a period of 75 years. In April 1960 all the partners in the original IPC group withdrew from the venture except Royal Dutch Shell and Partex, with a new shareholding of 85% and 15% respectively. The main reason for the withdrawal was the high cost of an operation that had so far met with no success. 75. In 1967, the company relinquished a major part of the three miles of territorial waters acreage of its concession situated on the East Coast which was taken up by a German Consortium headed by Wintershell A.G. as part of a much larger offshore concession area. In June 1967, Partex concluded an agreement with C.F.P. whereby C.F.P. purchased 10% of the share capital of P.D.O. from them. Exports of oil from Oman commenced in August 1967. 76. On December 4, 1973, the Oman Government signed a participation agreement with P.D.O. whereby, as of January 1, 1974, the Government would acquire a 25% share in P.D.O. Compensation payment was put at $72 million. In July 1974 an agreement was reached with P.D.O. raising the Government's share in the operating company to 60% retroactive to January 1, 1974. Com- pensatory payments were set at $34 million, raising total Government compensa- tion payment to $106 million. The present composition of the shareholding in P.D.O is Government (60%), Shell (34%), CFP (4%) and Partex (2%). 77. The first drilling in Oman took place at Fahud in January 1956. Oil indications were found but not in commercial quantity. In 1962, P.D.O. began its drilling programme in Yibal, where gas and oil were discovered. In itself, however, the quantity of oil did not yet allow commercial production. This success was followed by the discovery of an oil accumulation at Natih. These discoveries led the geologists to believe that oil could also exist in the Fahud structure. Subsequently, it was the Fahud structure that proved to be the largest accumulation, and today is therefore the best known. 78. In 1972, three new fields were discovered in the Ghaba area, and in Dhofar a limited quantity of heavy oil has been found. Two other fields (Saih Rawl and Al Haboor) were also discovered in Northern Oman near its border with UAE. The oil in Dhofar is low gravity crude (16-18 API) with high sulphur content. City Services had already relinquished the area and the Government decided in 1977 to exploit the Dhofar oil fields.  - 30 - 79. The concession area of ELF-ERAP (offshore) in Musandam in the Strait of Hormuz contains small reserves and is shared equally with Iran. It contains high proportions of gas condensate and it is estimated that only 20% of the 500 million bbl of probable reserves are recoverable. ELF-SUMITOMO is planning to drill one well in the concession area South of Fahud in 1977. Sun Oil has drilled two wells in its concession area in Masira Island. Quintana, an inde- pendent U.S. Company is prospecting in Oman near the UAE border and shows some optimism in its search. The company plans to drill two wells in 1977. In addition to these activities, there are three additional new areas in Dhofar which are open for bidding. Oil Reserves and Production 80. Total recoverable oil reserves in Oman as of January 1, 1975 were 1.1 billion barrels based only on primary recovery methods. Other more optimistic figures in Oman for oil reserves estimated by other consultants, were 3 billion barrels which would be equivalent to 24 years of production at the 1975 rate. However, as a result of the increases in oil prices and the application of secondary and tertiary methods, plus some new oil fields coming into production in 1975 and 1976, proven recoverable reserves as of end 1976 were estimated at 5.8 billion barrels (including secondary and tertiary re- covery methods). Except for the Dhofar area, the oil found in Oman is light (34