Lebanon is an upper middle-income, open market economy that relies largely on inflows of remittances from diaspora and foreign investment for its economic growth. The country currently faces a major economic and financial crisis. On 17 October 2019, a countrywide unrest was triggered by the austerity measures proposed by the Government to contain the crisis.
At the request of the Ministry of Agriculture, an FAO Mission visited Lebanon in February 2020 to assess the impact of the financial crisis on agriculture (in particular on agricultural input markets), evaluate the immediate needs of the sector and propose measures to intervene.
Farmers, who mostly farm on a part-time basis, face high input costs and low output prices.
Most inputs, including seeds, fertilizers, plant protection materials and feed ingredients are imported by private agri-business companies. National agricultural support programmes are limited and they do not necessarily target directly the poor farmers. As no formal agricultural credit is available, private agri-business companies have provided seasonal credit and extension services to farmers.
Given restrictions on foreign currency transaction in place since October 2019, the economy has been moving from credit to cash, and from US dollars to Lebanese pounds. Agri-businesses and importers had their credit facilities closed, and have no longer full access to their US dollar accounts. New imports need to be funded with “fresh money” (US dollars obtained after November 2019) and require advance payments to foreign suppliers due to the low credit rating of Lebanon.
Responding to the macro-economic situation, instead of selling on credit, as was customary in the past, importers and retailers selling agricultural inputs started to accept only payments in cash for their products. If customers lack US dollars in cash, importers accept payments in Lebanese pounds (LBP), but convert the amount using the exchange rates of the parallel market. As of mid-February 2020, the official exchange rate remained LBP 1 508 per US dollar (pegged since 1997), while on the parallel market USD 1 was traded for LBP 2 200. By early April 2020, LBP further depreciated on the parallel market to LBP 2 700 per 1 USD.
At the time of the Mission in February, no immediate shortages of agricultural inputs were reported. Traders estimated that their current stocks should be sufficient to supply markets for three to four months. Since cash payments are required and payments in Lebanese pounds carry a premium depending on the exchange rate on the parallel market, many farmers lack cash to purchase the necessary inputs in adequate amounts. As a consequence, farmers have moved to just-in-time purchases.
For the current season, cash strapped farmers have started to substitute, where possible, various inputs: manure or compost for compound fertilizer, saved seeds for certified ones. Overall, the agricultural sector has moved to a low input system, which is likely to result in lower yields and lower marketable production. On a positive note, the global economic slowdown resulting from the COVID-19 pandemic has compressed diesel prices, buffering some of the increased costs faced by farmers.
In the near future, it will be necessary to provide liquidity to farmers, particularly to those whose income comes mainly or exclusively from agriculture to protect their livelihoods and maintain the production potential of the whole sector. The key recommendation of the Mission is to consider establishing a special facility with the Banque du Liban to allow imports of agricultural input partly paid at the official exchange rate. A similar facility already exists for imports of raw material for manufacturing. Given the presence of a fully functioning, but liquidity-deprived private sector, the direct distribution of inputs is discouraged. In the longer term, the current situation is an opportunity to rethink the role of the agricultural sector in the economy and inform the preparation of a new agricultural strategy.
On 16 March 2020, the Government of Lebanon declared a State of General Mobilization in response to the COVID-19 pandemic, halting all non-essential commercial activity. The COVID-19 outbreak aggravates the already challenging situation and adds another layer to the existing structural problems the economy is facing.