Ministry of Economy and Trade

Integrated Impact Assessment of the Association Agreement on the Olive Oil Sector in Lebanon

Integrated Assessment and Planning for Sustainable Development

Second Review Meeting Geneva, September 21-22, 2005

Scope of the Project

The project aims to undertake an integrated assessment of the trade component of the Association Agreement (AA), with particular emphasis on key environmental factors economic, social and 1995 2002 2003 2004 2005 Barcelona Conference Association Agreement signed, ratified by Lebanese Parliament Interim Agreement went into effect EU Enlargement & European Neighbourhood Policy (ENP) To launch negotiations on Action Plan for ENP

Scope of the Project (2)

The olive oil sector was chosen as a pilot product based upon a set of criteria. The sector must have:

1 2 Strategic linkage with the EU (Association Agreement/ENP) The EU and Lebanon have a strong business, investment, and cultural relationship. And, under both the ENP and the AA, negotiations are expected regarding the bilateral agricultural policy Social implications 57% of all farmers are involved in the olive oil sector, very high tendency to youth migration, olive orchards are located in Lebanese poorest rural areas and across the country 3 4 Environmental implications In addition to pomace residues and poor agricultural practices, 1 ton of olive processing yields – on average - 1 m

3

of wastewater, … and a cooperative private sector / NGO community

What has been done so far

• • • • • • • Finalize background paper Assess the integrated impact of the Association Agreement (including planning process) Map and olive oil sector conduct an integrated needs assessment of the agro-food initially, and the Assess the initial impact of the elimination of tariff barriers with the EU Identify key challenges and priorities Conduct several meetings and focus groups Develop policy scenarios and analyse potential impact

Project Implementation

• • • • • • • •

Select a multidisciplinary team Collect available data and documents Identify key issues and stakeholders Establish a steering committee Conduct workshops, focus groups, consultations Conduct price, trend and cost analysis Derive main indicators, inter-linkages Identify 3 scenarios and impact on selected indicators Develop action plans and implementation process

Overview of Lebanese Olive Oil Sector

•    Cultivation represents 21% of total area and is spread all over the country Production fluctuates from year to year creating an irregular supply flow to sustain a level of export and domestic consumption The percentage of extra virgin oil in Lebanon (5%) is low compared to int’l practices (Spain 40% and in certain parts of France over 90%).

Few labs are capable of certifying olive oil in accordance with international standards & proper enforcement regulations are lacking

Overview of Lebanese Olive Oil Sector (2)

    Under Association Agreement, Lebanon can export duty-free up to 1,000 tons of olive oil while levying a 70% tariff rate (no change) on EU exports.

57% of all farmers are involved in the olive oil sector Average age of the farmer is in the high 50s and their level of education is very low Among the main derivatives of the olive oil production process with potential return: soap; compost ; eco-tourism

Overview of Lebanese Olive Oil Sector (3)

• Olive oil processing, as it stands, is a source of pollution: e.g., pomace , wastewater

Olive Oil Production Chain

Olive harvesting Cleaning By hand , or Beaten from the tree, or Mechanical tree shacking Leave stripping (if required) Olive washing Milling Stone mill (traditional) Metal toothed grinder Hammer mill Mixing

Olive Oil Production Chain (2)

Extraction Liquid extraction Olive oil separation Oil storage Oil distribution Refrigeration in containers Local market International

Stakeholders Actual Relationship Matrix

Farmers Millers Traders NGOs Govt.

SILO Farmers Millers Traders NGOs Govt.

SILO + X + + + + X + + + X X + X + + + + + X + + X + X + + + X X +: positive, 0 : neutral, ?: uncertain, X : conflict of interest & objectives SILO: Syndicate of inter-professional Lebanese olive oil producers

Policy Scenarios

Scenario 1: Baseline

Lebanon can export duty-free up to 1,000 tons of olive oil and still imposes 70% tariff rate on EU exports

Scenario 2: Quality improvement scenario

Package of incentives (introduced in 2005) to improve quality and exports of extra virgin olive oil to the EU

Scenario 3: Forward-looking scenario

Further bilateral and gradual liberalization of sector to be negotiated in 2008 + Scenario 2

Economic Impact

Scenario 1 Indicators Larger domestic market share (by locals) Exports of extra virgin olive oil No impact Minimal positive Employment Minimal positive National welfare Positive Scenario 2 Positive Large positive Positive Positive Scenario 3 Negative Positive Negative Negative to zero

Environmental Impact

Scenario 1 Indicators Waste water Negative Scenario 2 Positive Scenario 3 Positive Solid waste Negative Positive Positive

Social Impact

Scenario 1 Indicators Migration rural areas) (from No impact Income farmer of (Agricultural) Know how the Positive Positive Quality of life (health) of the farmer Positive Scenario 2 Minimal negative (no migration) Negative Positive Negative Positive Positive Scenario 3 Negative Negative

Impact of Scenario 1 on Stakeholders

Policy impact is limited since only a small portion of total production is exported to the EU.

Winners Losers  The few extra Virgin olive oil producers and traders  Seasonal labour low-quality oil unkilled producing • • Consumers choice, high price) (no Communities using the wastewater (irrigation, tap water)

Impact of Scenario 2 on Stakeholders

Policy impact is uncertain in short term but may be positive in medium to long-term with a shift towards premium oil and an increase in competitiveness Winners Losers • • • Skilled labor Extra virgin olive oil producers & traders Communities directly affected by the wastewater • • • Unskilled labor Women workers Consumers (high prices)

Impact of Scenario 3 on Stakeholders

Policy impact is no longer limited given the dynamic nature of the policy shock Winners Losers  Consumers  Communities directly affected by the wastewater • Domestic producers of olive oil • • Domestic traders Labor employed

Olive Oil Sector Inter-Linkages

Economic Production Un-sustainability Poor agricultural Practices High input costs Low prices Yearly fluctuations Low trade Social Poor Living Conditions Migration increase Income & employment loss Health problems Environment Environmental degradation Natural resources exploitation Ecological degradation Biodiversity impact Lack of planning

Secondary, Long-term Implications

Long term impact assuming no improvement in environmental indicators Social Implications Increase of income.

in migration, gradual olive disappearance oil of farming community, worsening of health conditions, and loss Economic Implications Negative impact on export, employment, and national welfare as quality worsens of, productivity decrease, and competitiveness is lost

Secondary, Long-term Implications (2)

Long term impact assuming better environmental conditions Social Implications • • Provide vocational training Improve heath conditions (reduces exposure to unsafe • and polluted waters) Contain rural migration Economic Implications • • • Sustain production Increase economic efficiency Increase exports

Secondary, Long-term Implications (3)

Long term impact assuming better social conditions Environmental Implications • Natural resource conservation • Better wastewater and solid waste management Economic Implications • More efficient production and management techniques • Increase in income volume of production and

Domestic Challenges

• • • • Limited control on the source of olive oil (e.g., black market) • • • Few laboratories located in Beirut (testing is expensive) No national taste panel No geographic indication for Lebanese oil Lack of data, and access to information is limited and centralized Absence of awareness marketing strategies raising and No leading role for the private sector

Enabling Conditions (pre-requisites)

    Olive oil sector considered as a strategic sector Government commitment to enforce relevant regulations Stakeholders partnership commit to a public-private Continuing technical assitance from the EU

Recommendations

• EU contribution: • Remove EU subsidies and simplify regulations • Technical and financial assistance • Lebanese Government contribution : • Upgrade and certify existing testing laboratories • • Disseminate information and build database Provide training and increase access to testing • • • • Improve intra-ministerial coordination Create an enabling environment Facilitate by-product management Provide access to capital

Recommendations (2)

• Private sector contribution • Organise to achieve economies of scale • • • • Promote fair competition (e.g., inputs, fertilizers) Disseminate information and proposals Maintain competitive edge Coordinate with NGOs and promote public- private partnership • NGOs contribution: • Raise awareness • Train farmers • Enhance intra-NGO networking • Disseminate information and coordinate with private sector • Facilitate public-private partnership