CHALLENGES & SOLUTIONS
As it stands, Lebanon has over 4,700 registered industrial firms, which exported products valued at USD 2.61 billion in 2017. One-quarter of these belong to the agrofood sub-sector, making it the country’s second biggest export. There are around 1,400 agro-food companies constituting the largest share of total industrial firms, with more than 45 percent of these located in Mount Lebanon and engaged in the production of dairy, confectionary, dried fruits and nuts, baked goods, olive oil and wine. Though these figures are quite promising, Lebanon and local F&B producers face the risk of serious regional competition. However, a number of solutions awaiting approval could limit and even eliminate the threat.
For a more accurate snapshot of Lebanon’s food-producing industry, HN talked with
Georges Nasraoui, founder and CEO of food manufacturing company Sonaco Al-rabih, Deputy Chairman of the Association of Lebanese Industrialists and Dean of Lebanese Food Industries
How would you describe the state of Lebanon’s food production market?
In the past, there were plenty of food items not subject to any kind of external competition due to their quality and price point. However, and unfortunately, the overhead cost of production, in the past couple of years, has risen significantly. This in turn, has driven the prices of these items higher, opening the window for regional competition in the local food market. Worse still, a substantial portion of the population automatically migrated to these cheaper and inferior quality products causing local producers to lose market share, which is unfair.
The main importing countries driving competition are Egypt, Syria, Jordan and Turkey who are selling their products at price-points equal to ours at production cost. This not only de-incentivizes local producers, but might also prompt them to consider other industries, in turn leaving more room for the local expansion of regionally manufactured foods.
What would one such example be?
When considering daily perishables, a box of locally produced canned beans, which is a popular food consumed by a large portion of the population, costs roughly USD 8. A box of imported Egyptian beans costs around USD 6. This USD 2 difference may be trivial, even insignificant, however, when considering the huge amounts consumed, a 25 percent markup is potentially disastrous.
Such a discrepancy, aside from lower production costs, is also due to a standing Lebanese-egyptian trade deal, which absolves the latter from the taxation of some F&B imported products. So, as more producers lower overheads by cutting staff or hiring cheaper labor, unemployment rates rise, thereby adding another layer of complexity to an already complex problem.
Not to sound pessimistic, but when you also factor the electricity bill (government and generators), cost of fuel, labor fees, import shipping charges on various elementary products used for bottling, canning and packaging, the overhead will prove quite high. If we were to compare Egypt’s F&B production costs with ours, we arrive at the conclusion that we pay 60 percent more than they do.
Turkey is another good example. Shipping containers carrying locally produced products, are exempt from an export tariff usually deducted out of the profit generated by the sale. Freight fees required for the transportation of these goods, is also partially covered by the government. That, in addition to the lower production costs they pay. Compounded, this again makes a huge difference.
Talking numbers, a 20-foot container in Lebanon costs USD 600-800 in processing fees. In regional countries, that cost drops to USD 150. The same amount almost applies to export costs.
What would some of the potential solutions be?
Given that there is no need for such products in Lebanon, one strategy would be to fairly tax these products to disincentivize regional producers from exporting them to Lebanon. While the application of such taxes will not eliminate the existing competition, it nonetheless will surely lessen its impact, which will increase sales of local products. Another solution the Lebanese government could take is to employ a tariff system quite similar to the one the American government recently introduced on Chinese imports. That, to a largely fair degree, will even out the playing field. In other words, the tariff added to a certain imported product in a certain category will have the local and foreign one priced equally. This will eliminate unfair competition and shift consumer focus to quality, not price.
At the moment, we have about 26 drafted propositions designed to protect local production of foodstuff based on extensive internal studies conducted. I have taken the time to discuss these at length with ministers of the economy and commerce who concur with my view, but explain their inability to legislate laws to resolve these issues.
In pointing out the obvious, I would like to say that we are not asking for government support as government has enough on its plate. What we are proposing is a strategy that would bring in money to the government’s treasury while simultaneously leveling the playing field.