Morocco - Agro-industrial development : constraints and opportunities (Vol. 2 of 2) : Technical annexes

Report No.1 11727-MOR The Kingdom of Morocco Agro-Industrial Development Constraints and Opportunities (In Two Volumes) Volume 11 Technical Annexes 30 June 1994 Agriculture Division Country Department I Middle East and North Africa Regional Office FOR OFFICIAL USE ONLY 'Doa'mxmt of The WotW Baivk~~~~~~~~~~~~~~~~~~~~~~~K 7b0 domn1srwce?dsrbto n ybeue yfcpet 0y.n te, erbrmnc f hei oficil utis. tscorent (ny notot-er be4tsclosed.ithoul S" athorizailon  CURRENCY AND EXCHANGE RATE Curency Unit = Dirham (DII) 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 Proj. DH per USS, 6.27 8.06 9.55 9.62 8.71 7.80 8.21 8.12 8.04 8.15 8.5 End of Period DH per US$, 6.02 7.11 8.81 10.06 9.10 8.36 8.21 8.49 8.24 8.71 8.5 Period Average FISCAL YEAR January 1st - December 31st  POR OFFICIAL USE ONLY AKNOWLEDGEMIENTS This two-volume sector report was prepared following a June/July 1992 mission to Morocco. The report was written by Michel L. Debatisse (task manager; Technical Department for Europe, Central Asia, Middle East and North Africa Deparment), and Isabelle Tsakok (Maghreb Deparument, Agriculture Operations Division). The report is based on bank and consultanlts' reports. Michael "ch (Maghreb Department; Industry and Energy Division) produced the chapter on Finance. The consultants are: Bertrand Angleys (dairy); Gerard Deshayes (management of ente..prises and agricultural cooperatives); James Fry (cereals, oilseeds and swetteners); Paul Guigou (fruit and vegetables); Ena Harvey (standards and quality management); Marc Lepinay (spices and aromatic plants); Klaus Pasbjerg (logistics); Jean-Yves Plamondon (wine); and Jean-Pierre Vaysse (meat). The mission benefitted from secretarial support and logistical coordination by Sylvie Pittman (Agriculture Division, Maghreb Department). Nicole de Blaye (Agriculture Division) and Helene Talon (Country Operations) translated selected chapters. Christine How provided help on tables. Mely Agregado assembled and finalized the two-volume of the Green Cover Report. Syviengxay Creger was responsible for the processing of the final Grey Cover Report. While in Morocco, the mission received support from Messrs. Albert Sasson and Mohammed Anechoum (Ministry of Agriculture and Agrarian Reform, MARA); Mr. Abdelhek Bennani (MARA) was co-ordinator of the Moroccan team. Ihe mission also benefitted from support from Messrs. James Lowenthal and Charles Uphaus of USAID in Rabat. The Moroccan team was composed of Mmes/Messrs AbdelkaderElmazhor, Lahsenasslimi, Mohammed Rhaoussi (MARA); AbdellouahedRahmoun (Ministry of Commerce and Industry); Jamel Kilito, Zahra Maaflri (Ministry of Foreign Trade); Jamil Berdai (Ministry of Plan); Abdelrhni Nejjar (Ministry of Transport); Abdeljebar Lqadey (Ministry of Interior); Fettoume Ameur (Banque Nationale de Developpement Economique); Wafi Hamami, Ouafa Cheqrouni (Caisse Nationale de Credit Agricole); and Mohamed Lebbadi (Banque Mlarocaine du Commerce Exterieur). The peer reviewers were Brendan Horton and Shilpa Patel. This documnt has a resticted distnbution and may be used by recipients only in the peformance c - official dutes. Its contes may not othew be disclosed without World Bank authorization.  CONTENTS MAIN IPPORT Pap ABBREVIATIONS AND ACRONYM EXECUTiVE SUMMARY .............................. i-xx CHAPrER ....... 1 ROLE, PERFORMANCE AND GROWTiH POTENTIL OF AGRO-INDUSTRY IN THE MOROCCAN ECONOMY ......................... 1 SUMMARY .................1................ A. The Macro-Economic and Trade Framework: Implications for Private Sector Agro-Industrial Incentives ............... 3 B. Potential for Growth in Agricultural Supply and Agro-Industrial Demand .... .... 9 C. Main Features of the Moroccan Agro-Processing Secor .1.8........... is D. Key Macro and Trade Issues and Policy Re-orientations for Efficient Agro- Industrial Development ..................................... 24 CHAPIUER2 ........... .......................................... 27 THE TECHNICAL ENVIRONMENT FOR AGRO-INDUSTRIAL DEVELOPMENT ...... 27 SUMMnARY ..................................................... 27 A. Marketing Techniques ........................................ 29 Marketing Techniques ........................... 29 B. Preservation and Processing Techniques .............................. 38 C. Procurement .............................................. 42 Supply of Agricultura Raw Materials ............................ 42 Supply of Food Additives and other Food Ingredients .................. 43 Procurement of Various Non-Agricultd Supplies ................... 44 D. Support Services to Trade and ndustry ............................. 45 Marketing and Processing Cooperatives .................. ....... 4 Information on Markets, Technologies and Trade Regulations .46 Services to Enterprises .47 ClAPTrER3 ......... 50 OVERVIEW OF AGRO-INDUSTRIAL ENTERPRISE MANAGEMENT .... ........... 50 SUMMARY .............................................. SO A. Strategic Tbreats Generated by Changes in the Environment ..... ........... S Access to Free Trade Zones ........... ....................... 51 Liberalization of External Trade and Deregulation of Agro-Foodstuff Markes . . 51 B. Weaknesses in the Management of Agro-Industral Enterprises ..... .......... 52 Procurement of Raw Materials ................................ 52 Financing of the Enterprise ........... ....................... 54  Staffing of the Enterprise ................................... 54 Accounting and Monitoring of the Enterprise Management . ............. 55 Marketing of Products of the Enterprise .......................... 56 Organizadon of Enterprises, Management Styles, and Implementation of Strategies ........................................ 58 CHAPTIER 4 ................................................... 60 LOGISTICS AND INFRASTRUCTURAL ENVIRONMENT. 60 SUMMARY. 60 A. The Need for an Enabling Logistics and Infrastructural Environment .61 B. Selected Aspects of Road Transport .62 C. Selected Aspects of Sea Transport .70 D. Selected Aspects of Air Transport .73 E. Selected Aspects of the Use of Cold Storage Facilities .74 F. Packing Material, Handling and Storage Equipment .80 G. Norms and Shelf Life .82 CHAPT .ER S 83 QUALITY MANAGEMENT IN THE FOOD CHAIN .83 SUMARY . .83 A. Quality Management at the Institutional Level ..86 Role of Government Institutions .86 Mimistry of Agriculture and Agrarian Reform (MARA) .86 Veterinary Seivices .86 Direction de la Production Vegetale, du ContrOle Technique et de la R6pression des Fraude ........... 87 Etablissement Autonome de Contr6le et de Coordination d'Exportations EACCE) .88 Ministry of Public Health .89 Ministry of Commerce and Industry (MCI) .90 Mimistry of Fisheries and Marine Trade .91 Ministry of the Interior .91 The Inpectorate (MOHTASSBS') .91 Local Authorities .91 Role of Supporting Institutions .92 Institut Marocain de l'Emballage et du Conditionnement (IMEC) .92 Official Laboratory for Analytical and Chemical Research (LOARC) .92 King Hassan II nstitute of Agronomy and Veternary Studies (AV) .92 B. Quality Management at the Enterprise Level .......................... 93 Export Markets ................ 93 Domestic Markets ................ 93 C. Major Weaknesses ................ 94 Legislative Level ................ 94 Institutional Level ................ 95  CHAPT'ER 6 .................................................... 99 FINANCLAL NEEDS OF AGRO-PROCESSING ENTREPRISES AND BANKING SERVICES TO THE SECrOR .................................... 99 SUMMARY ................. 99 A. Financial Needs and Capital Structure . 102 Sector-Specific Financial Needs . .............................. 102 Indebtedness and Capital Structure . ............................ 104 B. Cost and Adequacy of Banking Services . ........................... 107 Access to Extra Financing ................................. 107 Cost and Conditions of Banking Services ......................... 108 Adequacy of Banking Services to Agro-Industrial Needs ................ 112 C. Agro-Processing as Banks' Credit Customer .......................... 113 Credit to Agro-Processing Enterprises at the National Level .... ......... 113 Credit to Agro-Processing Enterprises by Individual Banks .... .......... 114 Parameters of Credit Allocation ............................... 118 Promoting Bank Lending ................................... 120 CHAPTER 7 ................................................. 122 OVERVIEW OF AGRO-PROCESSING BY SUBSECTOR ........................ 122 SUMMtARY ................................................. 122 A. The Import Substitutes . ....................................... 124 Cereals and Livestock Feeds ................................ 124 Oilseeds and Vegetable Oils ................................. 127 Sweeteners and their By-Products .............................. 128 Dairy Products . .......................................... 129 Meat Products ... a;. ................................. 131 B. The Import Substitutes and Exports............................... 133 Fresh and Processed Fruits and Vegetables ........................ 133 Spices and Aromatic Plants .................................. 136 Wine ............................................... 137 C. Key Sectoral Issues and Policy Re-orientations ........................ 138  Tables and F%gures in Text Table 1.1: Morocco - Trade Regime for Selected Agricultural Commodities, 1993 .... ... 6 Table 1.2: Morocco - Agricultural Performance and Production Structure, 1980-1990 ..... 10 Table 1.3: Morocco - Agricultural Yield Potential Over Actual for Selected Commodities . . 13 Table 1.4: Comparisons of Expenditure or Income Elasticities: Morocco & World .... .. 15 Table 1.5: Morocco - Imports and Exports - Relative Importance of Selected Countries or Trading Groups (1980, 1985-91) 17 Table 1.6: Morocco - Overview of Growth Rates of Agricultural/Food Exports, Imports and Food Balance .21 Table 1.7: Overview of the Moroccan Agro-Processing Sector Performance and Structure, 1981- 1990 . ............................................... 22 Figure 1.1: Agricultural Growth Rates (1980-1990) ........................... 11 Figure 1.2: Agro-Processing Growth Rates in Morocco (1982-1990) ................ 19 Table 2.1: Typology of Products and Markets .............................. 32 Table 2.2: Marketing Techniques for Moroccan Food Products ................... 34 Figure 2.1: Optimal Curve for Investment Decisions .30 Figure 2.2: Potential for Modification of Marketing for Moroccan Food Products .39 Figure 2.3: Agro-Industries Technological Framework .41 Table 3.1: Return on Assets alud on Equity of a Sample of Moroccan Agro-Industrial Enterprises .55 Table 3.2: Overall Framework of Moroccan Enterprise Management ... ............ 59 Table 4.1: Cost Structure for a Vehicle Opt rated for Public Transportation .... ....... 65 Table 4.2: Volume of Traffic (All Goods) In Moroccan Ports (1991) ............... 69 Table 4.4: Exports of Fruits and Vegetables by Sea .......................... 70 Table 4.5: Transit of Sea Containers ................................... 71 Table 4.6: Cold Storage Distribution of Capacity ............................ 74 Table 4.7: Expected Economies of Scale in Operating Cold Stores ................. 77 Table 4.8: Utilization Guidelines for Cold Stores ............................ 78 Figure 4.1: A Comparison of Moroccan and Energy-Saving Standard Layouts for Cold Stores 76 Table 6.1: Investments in Agro-Processing Enterprises (1986-1990) ................ 102 Table 6.2: Nationality of Investors in Agro-Processing Enterprises (1986-1990) .... ..... 103 Table 6.3: Enterprise Activity and Profitability ............................. 105 Table 6.4: Enterprise Indebtedness and Debt Structure ........................ 106 Table 6.5: Enterprise Capital Adequacy and Liquidity ......................... 107 Table 6.6: Financing of Investment Projects (1986-1990) ....................... 109 Table 6.7: Credit to Moroccan Entrprises (1986-1991) ........................ 114 Table 6.8: Credit to Agro-Processing Enterpiises by Commercial Banks (1991/92) .... ... 115 Table 6.9: Credit to Agro-Processing Enterprises by BNDE (1988-1991) .... ......... 116 Table 6.10: Credit to Agro-Processing Enterp. . -es by CNCA (1986-1991) .... ......... 117 Map of Morocco: IBRD No. 24657  CONTENTS Volume l Technical Amexes Page Abbreviations and Acronyms ANNEX 1 ROLE, PERFORMANCE AND GROWTH ?OTENTIAL OF AGRO-INDUSTRY IN THE MOROCCAN ECONOMY: TABLES ... .............................. 1 ANNEX 2 MARKETING AND PROCESSING COOPERATIVES .22 SUMM^ARY ..................................................... 22 A. The Status of Land Reform Cooperatives ......... 24 Overview of Land Reform Cooperatives ......... 24 Specific Problems of the Land Reform Cooperatives ......... 26 Weak Interest on the Part of the Members Resulting in a Precarious Financial Situation ......... 26 A Serious Dispersion and a Weak Grouping of the Unions .27 Legal Difficulties .27 Potential Risks from the Withdrawal of the State .28 B. The Status of Cereal Cooperatives .29 Organization of the Cereal Market .29 The Role of the ONICL and of Other Market Agents .29 Storage and Marketing Schemes .29 Cereal Cooperatives .31 Cooperative Movement as an Lnstrument of Grain Policy of the State ... 31 Competition with Grain Retailers, Operating along Different Commercial Methods .32 A Weakened Financial Situation .33 The Perspectives of Liberalization and Its Difficulties .34 Liberalization Measures .34 Structural Difficulties .35 Institutional Difficulties .35 Organizational Difficulties .......... 36 Financial Difficulties .36 C. The Situation of the Cooperatives in Areas Outside of Land Reform .36 The Overall Situation .37 The Situation of the Dairy Cooperatives .37 Analysis of the Specific Situation of Dairy Cooperatives .37 Future Perspectives .38 D. General Problems of Cooperatives as Seen from the Perspective of the State's Withdrawal .39 Inappropriate Statutes ...................................... 39 Some Shortcomings on an Inapplicable Law Governing Cooperatives . .. 39 An Imperf3t Understanding of the Cooperative Logic .. 40 Concept of Administrative Assistance Focused on Producdon .. 41  APPENDIX 2.1 .......... , ........ ..... 46 Remarks on the Cooperative Law and the Resulting Statute .... ...... 46 ANNEX 3 CEREALS, OILSEEDS AND SWEETENERS .48 SUMMARY .48 A. Review of the Main Issues .52 Distortions in the Price System .53 Oilseeds .... ...... 53 Cereas .54 Sweeteners .55 Deficiencies in the Supply and Quality of Storage .55 Sugar .55 Cereals .56 Oilseeds .56 Inadequate Quality Standards .56 Cereals .56 Oilseeds .57 Sugar .57 The Suitability of Local Packaging Materials .57 Controls Over Levels of Output and Entry to a Sector .58 Sugar .58 Cereals .59 Oilseeds .59 Weaknesses in Financial Services and Infrastructure .59 Laws Affecting Foreign Trade .61 Import Barriers .61 Proposed Foreign Trade Law 13-89 .61 The Administration of Exports cf Processed Products .62 Export Certificates .62 Admission Temporaire .62 Drawbacks .63 Administrative Procedures .63 Maghreb Free Trade Area .63 The Application of Agricultural Reference Pricing .64 Proposed 'taux d'adequadon' for oilseeds, oils and meals .64 The 'aux d'ad&quazion' .66 Differences in Product Quality .67 The Storage of Domestic Supplies .68 Forward Purchasing of Imported Supplies .68 Risk Management ..... ..................... ....... 69 The Scope for a Price Band System . 69 Conclusions Regardin' the System of Reference Prices .71 A. The Cereals Subsector .71 Marketing and Food Processing of Cereal .71 B. Marketing and Food Processing of Wheat and Other Cereals .72  The Buying of Cereals and Ce. ea Quality ......................... 72 Importation ....................................... 75 Storage ................... ...................... 76 Estimates of Storage Capacity ........................... 77 Cereals Pricing ..................................... 78 Flour Milling ...................................... 79 Bread Production ................................... 82 Pasta Manufacture ................................... 82 Animal Feed . ........................................ . 83 C. Oilseeds and Vegetables Oils ................................... 85 Vegetable Oils and Oilseeds (excluding olives and olive oil) ................... 86 The Purchasing of Oilseeds and the Determination of Quality Norms . .. 86 The Storage of Oilseeds ............................... 87 The Pricing and Distribution of Oilseeds and Vegetable Oils .... ..... 87 End-Markets and New Uses ............................. 88 Olives and Olive Oil ...................................... 90 Olive Oil Quality ................................... 90 Domestic Demand for Olive Oil .......................... 91 The Pricing of Olive Oil ............................... 91 Tinned and Preserved Olives ............................ 92 D. Sweeteners and Their By-Products ................................ 92 Overview of the Sugar Subsector, and Policy Environment .... .......... 92 Main Constraints at the Agricultural Level .................... 96 Main Constraints at the Industrial Level ..................... 97 The Sugar Sector Optimization Plan ...... ................. 98 Sugar and Sugar By-Products ................................. 99 Sugar Quality and Methods of Delivery ..................... 9