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Agriculture and Rural Empowerment (ARE) Activity Contract No. 72026820C00001 Target Value Chain / Sub-Sector Prioritization and

Selection November 2020

Submitted to USAID Lebanon By Chemonics International, Inc.

This publication was produced for review by the United States Agency for International Development. It was prepared by Chemonics International, Inc.

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Table of Contents Table of Tables ............................................................................................................................................ iv Table of Figures ........................................................................................................................................... iv Acknowledgements ...................................................................................................................................... v Acronyms .................................................................................................................................................... vi Executive Summary ................................................................................................................................... viii

Overview and Methodology .................................................................................................................. viii Results and Recommendations ............................................................................................................... ix

ARE Activity Background ............................................................................................................................. 1 ARE Activity Context ................................................................................................................................... 1

Buyer-Led Approach ................................................................................................................................ 1 MSD Approach ......................................................................................................................................... 1 Sustainability Dimensions ......................................................................................................................... 2

Prioritization Analysis Objectives ................................................................................................................ 2 Methodology ................................................................................................................................................ 3

Sustainability Dimensions ......................................................................................................................... 3 Value Chain Analysis: Phase 1 – Preliminary Screening ........................................................................... 3 Value Chain Analysis: Phase 2 – In-Depth Analysis .................................................................................. 6 Cross-Cutting Themes ............................................................................................................................. 9 Additional Factors .................................................................................................................................. 11 Assumptions ........................................................................................................................................... 13

VC Analysis: Results and Recommendations ............................................................................................. 15 Cross-Cutting Themes ........................................................................................................................... 16 Fresh & Processed Vegetables .............................................................................................................. 19 Lebanese Vegan Foods .......................................................................................................................... 31 Fresh & Dried Herbs .............................................................................................................................. 37 Wine & Arak .......................................................................................................................................... 43 Table Grapes .......................................................................................................................................... 51 Stone Fruits ........................................................................................................................................... 61 Dairy Products ....................................................................................................................................... 69 Fodder Crops ........................................................................................................................................ 76 Potatoes & Potato-Based Products ........................................................................................................ 81 Alliums ................................................................................................................................................... 88

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Citrus ...................................................................................................................................................... 93 Sweet Spreads: Jams, Jellies, Honey .................................................................................................... 100 Berries ................................................................................................................................................. 109 Tourism ................................................................................................................................................ 116 Packaging .............................................................................................................................................. 126 Wood Products .................................................................................................................................... 132

Path Forward and Lessons Learned ......................................................................................................... 140 Path Forward ........................................................................................................................................ 140 Lessons Learned ................................................................................................................................... 140

References ................................................................................................................................................ 141 Annex 1: ARE Activity and Objective Level Results ................................................................................ 148 Annex 2: Report on VC Screening Analysis ............................................................................................. 149 Annex 3: Weighting and Scoring of Selection Criteria ............................................................................ 150 Annex 4: HS Codes Corresponding to Selected Products ...................................................................... 152 Annex 5: Labor Force Information .......................................................................................................... 157

Agri-Food Employment ........................................................................................................................ 158 Rural Tourism Employment ................................................................................................................. 158

Annex 6: Environmental Impact and Sensitivity ....................................................................................... 160 Environmental Impact: Water Footprint Calculations ......................................................................... 160 Environmental Sensitivity ..................................................................................................................... 161

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Table of Tables Table 1. VCs Identified through Screening Analysis ................................................................................................. 5 Table 2. Data Analysis Matrix ........................................................................................................................................ 7 Table 3. Quantitative Scoring Outcome per VC ..................................................................................................... 15 Table 4. Consolidated Recommendations Table ..................................................................................................... 15 Table 5. Identification of Cross-Cutting Themes by Implicated VC ................................................................... 16 Table 6. Common Table Grape Varieties and Features ........................................................................................ 53 Table 7. Common Orange Varieties and Features ................................................................................................. 96

Table of Figures Figure 1. Fresh Vegetables Value Chain Map ............................................................................................................ 22 Figure 2. Lebanese Vegan Foods Value Chain Map ................................................................................................. 33 Figure 3. Zaatar (Origanum syriacum) Value Chain Map ...................................................................................... 39 Figure 4. Wine & Arak Value Chain Map .................................................................................................................. 45 Figure 5. Grapevine Climate Change Maturity Groupings .................................................................................... 46 Figure 6. Table Grapes Value Chain Map .................................................................................................................. 53 Figure 7. Cherries Value Chain Map ........................................................................................................................... 63 Figure 8. Dairy Products Value Chain Map (Small Ruminant) .............................................................................. 70 Figure 9. Fodder Value Chain Map ............................................................................................................................. 78 Figure 10. Potatoes Value Chain Map ........................................................................................................................ 83 Figure 11. Alliums Value Chain Map ........................................................................................................................... 90 Figure 12. Citrus Value Chain Map (Akkar) ............................................................................................................. 95 Figure 13. Jam Value Chain Map ................................................................................................................................ 102 Figure 14. Honey Value Chain Map .......................................................................................................................... 103 Figure 15. Berries Value Chain Map (Imported, Fresh) ....................................................................................... 111 Figure 16. Packaging Value Chain Map ..................................................................................................................... 127 Figure 17. Wood Products Value Chain Map ......................................................................................................... 134

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Acknowledgements The target value chain (VC) prioritization and selection analysis was conducted for USAID/Lebanon as part of the Agriculture and Rural Empowerment (ARE) Activity, which is implemented by Chemonics International, Inc. This work was overseen by ARE’s Chief of Party, Brian King, and Deputy Chief of Party, Sami Khairallah. Joumana Brihi of Remark Consulting conducted research for Phase 1 of the prioritization and selection analysis. The Phase 2 analysis was undertaken with the contributions of Rachel Bahn (Team Leader for the VC prioritization and selection analysis), Gabriel Bayram (Value Chain and Market Systems Advisor), Bashar Berro (Agriculture Technical Advisor), and Bassem Hanna (Business Development Officer). Sabine Khairallah provided essential support for scheduling, logistics, and organizational tasks.

The authors wish to thank USAID/Lebanon and specifically its Office of Economic Growth for its guidance and input throughout the prioritization and selection exercise.

The authors wish to thank the experts who generously shared their time and insights to inform this analysis.

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Acronyms AFD Agence Française du Développement Anera American Near East Refugee Aid APS Annual Program Statement ARE Agriculture and Rural Empowerment Activity ATTAL Association of Travel and Tourism Agencies in Lebanon BDL Banque du Liban CCIA Chambers of Commerce, Industry, and Agriculture CCIAZ Chamber of Commerce, Industry, and Agriculture – Zahle CFVCD Champion Firm Value Chain Development Sub-Fund COVID-19 Coronavirus Disease 2019 EU European Union F2F Farmer to Farmer FAO Food and Agriculture Organization of the United Nations FDA Food and Drug Administration FTE Full-Time Equivalent GAP Good Agricultural Practices GCC Gulf Cooperation Council GDP Gross Domestic Product GOL Government of Lebanon HACCP Hazard Analysis and Critical Control Points HORECA Hotel and Food Service Industries IDAL Investment Development Authority of Lebanon KII Key Informant Interview LARI Lebanon Agricultural Research Institute LBP Lebanese Pound LED Lebanon Enterprise Development LIBNOR Lebanese Standards Institution LINQ Lebanon Investment in Quality LIVCD Lebanon Industry Value Chain Development LMT Lebanon Mountain Trail LMTA Lebanon Mountain Trail Association MDF Medium Density Fiberboard MENA Middle East and North Africa MOA Ministry of Agriculture and Culture MOE Ministry of Environment MOET Ministry of Economy and Trade MOI Ministry of Industry MOT Ministry of Tourism MRL Minimum Residue Levels MSMEs Micro-, Small-, and Medium-sized Enterprises MSD Market Systems Development NIVM National Institute of Vine and Wine PSDP Private Sector Development Program RMF René Mouawad Foundation

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SITSD Strategic, Innovation, Technology, and Sector Development Sub-Fund SMEs Small- and Medium-sized Enterprises USAID United States Agency for International Development USD United States Dollar USG United States Government UVL Union Vinicole du Liban VC Value Chain

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Executive Summary Overview and Methodology The Agriculture and Rural Empowerment (ARE) Activity is a multi-year activity funded by the United States Agency for International Development (USAID) Mission in Lebanon (USAID/Lebanon) to develop rural economies in Lebanon through support to the agro-food sector and other industries. ARE seeks to unlock local and export sales potential while also creating jobs and increasing farmers’ and workers’ incomes.

This target value chain (VC)/sub-sector prioritization analysis analyzes and provides recommendations for the VCs and sub-sectors wherein the USAID/Lebanon ARE Activity should focus its investments over the anticipated five-year activity lifecycle (three base years with two option years) in order to best achieve the desired ARE activity objectives. This analysis has considered both stand-alone (product-specific) agricultural VCs and a limited number of high potential, non-agriculture VCs that are relevant for rural communities.

The analysis has applied four critical sustainability dimensions (economic, social, environmental, institutional) and yielded a ranked list, based on clear quantitative and qualitative scoring criteria. Cross-cutting issues that affect multiple VCs are also highlighted within this analysis. Recommendations are made on the final number of targeted VCs, with a sound justification for the limits proposed.

The methodology underpinning this prioritization analysis included two phases. Phase 1 consisted of a rapid screening of approximately 75 agricultural and non-agricultural VCs currently existing in Lebanon, considering their respective (1) export potential, (2) import substitution potential, (3) innovation potential or potential to implement new technologies, (4) job retention or creation potential, and (5) value addition potential. Phase 2 then assessed the relative potential of the 16 long-listed VCs by examining the “quadruple bottom line” of sustainability (economic, social, environmental, and institutional), applying criteria with set indicators and corresponding weighting. Phase 2 built on desk review, as well as primary and secondary data collection. Key informant interviews (KIIs) with sector experts were conducted to support this analysis, and to identify current constraints and opportunities facing the VCs.

A number of cross-cutting themes were explicitly considered within the scope of this analysis. Cross-cutting themes included: innovation and technology; water management; post-harvest, transport, and logistics; access to finance; and gender and youth. Additional factors considered were prompted by the challenging and rapidly evolving context in Lebanon: COVID-19 impact; Lebanon’s economic crisis; Beirut blast impact; and the Journey to Self-Reliance that speaks to issues of sector, VC, and beneficiary independence and the long-term sustainability of donor investments.

The VC selection and prioritization exercise yielded quantitative scores, bounded from 1-5, for each of the 16 long-listed VCs. The quantitative scoring was then considered in tandem with the constraints and opportunities for each VC to arrive at final recommendations for prioritization under ARE. No fixed number of VCs, sectors, or clusters was a priori targeted to emerge from the in-depth analysis, rather the goal has been to present options for consideration with a candid assessment of the opportunities, constraints, strengths, and weaknesses that affect each. In some cases, VCs ranked high on most metrics, but due to the particular situation in Lebanon, investment in the VC may be beyond the capacity of ARE to produce desired impacts. The analysis also identified opportunities to consolidate selected VCs, given their clear relation and opportunity for complementary interventions.

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Results and Recommendations The analysis recommends that ARE prioritize VCs according to the following classifications:

• FOCUS: ARE will proactively prioritize and target the VC in its outreach (through announcements, public and individual meetings, road shows, etc.) and in a dedicated Annual Program Statement (APS) solicitation.

• CROSS-CUTTING: ARE will target the VC through its outreach and APS solicitation focused on cross-cutting themes that apply to a range of VCs.

• EMERGING OPPORTUNITIES: ARE will continue to research and analyze the potential for catalytic investments in these VCs. Given their nascent state of development in Lebanon they are not prioritized but because of global trends, there may be opportunities to further explore limited support to actors in these VCs. Investments would be made via the Strategic, Innovation, Technology and Sector Development Sub-Fund.

• EXCLUDE: ARE will not highlight the VC within its outreach and will not accept proposals targeting this VC under the APS solicitation. When appropriate, ARE will refer inquiries or proposals received to other, relevant donor-funded programs.

Based on the analysis presented in this report, it is recommended for ARE to concentrate its investments within the FOCUS VCs with the flexibility to support the CROSS-CUTTING VCs, notably through interventions that will target multiple VCs with respect to the cross-cutting themes.

Table I. Consolidated Recommendations Table

VC Type VC Recommendation Agricultural Fresh and Processed Produce (Fresh &

Processed Vegetables + Lebanese Vegan Foods + Fresh & Dried Herbs)

FOCUS

Agricultural Wine & Arak FOCUS Agricultural Table Grapes FOCUS Agricultural Stone Fruits (inc. relevant sweet spreads) FOCUS Agricultural Dairy Products + Fodder Crops FOCUS Agricultural Potatoes & Potato-based Products CROSS-CUTTING Agricultural Alliums CROSS-CUTTING Agricultural Citrus CROSS-CUTTING Agricultural Honey CROSS-CUTTING Agricultural Berries EMERGING

OPPORTUNITIES Non-Agricultural Tourism FOCUS Non-Agricultural Packaging CROSS-CUTTING Non-Agricultural Wood Products EXCLUDE

x

In addition, a number of cross-cutting themes have emerged as key constraints and opportunities for the promotion of improved VC performance, across multiple VCs. These are water management, post-harvest, packaging materials, and access to finance. In this case, it is recommended that ARE organize its interventions so as to allow for work across VCs including both FOCUS and CROSS-CUTTING VCs.

Table II. Cross-Cutting Themes by Implicated VC

VC Water Management

Post-Harvest

Packaging Materials

Access to Finance

Fresh and Processed Produce (Fresh & Processed Vegetables + Lebanese Vegan Foods + Fresh & Dried Herbs)

X X X X

Wine & Arak X X

Table Grapes X X

Stone Fruits X X X

Dairy Products + Fodder Crops X X X X

Potatoes & Potato-Based Products X X X

Alliums X X X

Citrus X X X

Sweet Spreads X X

Berries X X

Tourism X

Packaging X X

Wood Products X

Subject to the approval of USAID/Lebanon, ARE will move forward with strategic investments from the ARE Partnership Fund designed to ensure both focus and flexibility in supporting private sector firms and actors to increase their local and export sales potential, create jobs, and increase incomes for Lebanese agri-food in line with the overall development objectives of the activity.

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ARE Activity Background The Agriculture and Rural Empowerment (ARE) Activity is a multi-year activity funded by the United States Agency for International Development (USAID) Mission in Lebanon (USAID/Lebanon) to develop rural economies in Lebanon through support to the agro-food sector and other industries. ARE seeks to unlock local and export sales potential while also creating jobs and increasing farmers’ and workers’ incomes. In terms of performance indicators and targets, ARE will increase jobs; improve incomes; improve female participation and employment opportunities; increase domestic and export sales; increase private sector investment; improve access to finance; link value chain actors to domestic and international markets; and improve farm production through improved practices, technology, increased production volumes, and/or decreased costs of production.1

ARE’s theory of change states:

• IF high potential agribusinesses and rural value chain stakeholders have the capacity to access new markets,

• AND producers have the capacity to improve the quality of their products to meet this new demand,

• THEN rural and peri-urban communities will benefit from new economic opportunities at the farm, processing, packaging, and sales levels,

• RESULTING IN sustainable growth in sector competitiveness and reducing the need for further USG assistance in supported areas.

ARE Activity Context The Lebanese economy and agro-food sector face unique challenges during the current crisis period. Given the critical need for Lebanese medium-, small-, and micro-enterprises (MSMEs) and farmers to generate export earnings in light of the currency crisis, particular emphasis will be placed on the use of both buyer-led and market systems development (MSD) lenses to shape the overall analytical framework.

Buyer-Led Approach The buyer-led approach to VC analysis seeks business client/buyer success by identifying market opportunities, meaning understanding and assessing the market demand for the products and services under investigation at both the domestic and export levels. Only by understanding the market demand for the products and/or services produced in the respective value chain can we effectively understand where return on ARE investments can best be realized so that the supply meets the demand. Given the current constraints facing the Lebanese economy and the critical need to generate foreign exchange to mitigate the currency crisis, market demand will play a critical role in guiding the VC and sub-sector selection process. Once market and buyer demand are understood, ARE interventions can be designed to link upstream VC actors into higher value-added markets that generate more revenue and retain or create higher-value jobs at every level of the VC, from production to processing to marketing and access to markets.

MSD Approach The MSD approach aims to catalyze systemic change within a VC (or more holistically a market system) that will improve the lives and livelihoods of stakeholders throughout the VC at three levels:

1 Refer to Annex 1 for the tabulation of ARE activity and objective level performance indicators.

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• Micro-level: VC operator level • Meso-level: Supporting functions including industry information, labor, etc. • Macro-level: Public policy enabling sustainable development

Under the MSD approach, ARE will generate success stories based on the identification of needs, capacities, and incentives of existing stakeholders who are ready to behave differently and can in turn incentivize others to behave similarly. Based on market development theory and experience, ARE interventions will vary with each identified opportunity and may be as dynamic as the market itself. The approach therefore will focus on continuous analysis of markets and VCs selected through this prioritization exercise, while employing an adaptive management process that allows for opportunities to be seized as they arise and for faltering interventions to be amended or discarded in factor of more promising ideas. As such, utilizing an MSD lens for this analysis will set the stage for future, ongoing analysis of the selected VCs to continuously inform decision-making.

Sustainability Dimensions ARE seeks to support both long-term competitiveness and equitable economic growth. Sustainability is viewed across four dimensions, sometimes referred to as the quadruple bottom line: economic sustainability, environmental sustainability, social sustainability, and institutional sustainability.

Prioritization Analysis Objectives This target value chain (VC)/sub-sector prioritization analysis analyzes and provides recommendations for the VCs and sub-sectors wherein the USAID/Lebanon ARE Activity should focus its investments over the anticipated five-year activity lifecycle (three base years with two option years) in order to best achieve the desired ARE activity objectives.

The analysis yields a ranked list, based on clear quantitative and qualitative scoring criteria, that includes both stand-alone (product-specific) agricultural VCs and a limited number of high potential, non-agriculture VCs relevant to rural communities. Cross-cutting issues that affect multiple VCs are also highlighted within this analysis. Recommendations are made on the final number of targeted VCs, with a sound justification for the limits proposed.

This analysis lays the groundwork for further VC analysis2, including selection of “champion firms,” market-driven value chain improvements based on firm-level partnership plans, diagnosis of root causes of VC deficiencies, prioritized opportunities around private sector interests and resources, definition of key outcomes and actors involved, definition of potential solutions, and preparation of models to show potential solutions’ costs and benefits.

2 This further analysis may include diagnosis of root causes of VC deficiencies, selection of “champion firms,” and the identification of market-driven value chain improvements based on firm-level partnership plans.

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Methodology Sustainability Dimensions ARE has applied four critical sustainability dimensions into its analysis and ultimate scoring criteria for VCs and sub-sectors, as described below.

Economic sustainability: Economic sustainability is imperative for the success of any VC intervention and directly relates to the expected outputs under ARE Objective 1: Increase Domestic and Export Sales. By using a market/buyer-led VC approach, investments and deals facilitated by ARE will directly address bottlenecks that prevent firms from accessing new markets and/or expanding existing market channels. The core of this analysis will seek first to understand the economic incentives of end markets and buyers as well as the constraints these buyers face in increasing purchases from upstream actors within Lebanon’s VCs.

Environmental sustainability: Sustainable economic development is absolutely reliant on environmental sustainability over the long-term. While quick wins may be possible without regard to environmental consequences and externalities, truly sustainable economic growth must account for the scarcity of resources, population growth and consumption, potential environmental degradation, and the impacts of climate change.3 Furthermore, growth in green opportunities over the past years allows for both cost savings as well as environmental conservation. A full and in-depth exploration of the opportunities to take advantage of emerging green technologies was not possible within the current analysis, such opportunities may be explored in the future as part of the development of Partnership Framework Agreements with champion or key firms.

Social sustainability: Ensuring that the social dimension is accounted for in the analysis will allow issues of gender, youth, equity, equality, access to resources, participation and inclusiveness to inform decision making at the VC selection stage as well as throughout ARE implementation. Key aspects to be analyzed under the social dimension include: (1) inclusiveness of disadvantaged groups; (2) gender roles within prioritized value chains; (3) job quality and improved working conditions (not just new jobs, better jobs); and (4) the VCs’ social impact at different levels of society, from village to country.

Institutional sustainability: Institutional aspects primarily refer to the enabling environment4 and interactions and influences of government regulations and policies on the targeted VCs. Institutional factors may also include constraints and opportunities within key supporting sectors such as financial services. Institutional sustainability accounts for the “rules of the game” that shape market outcomes and govern market interactions for the value chain actors.

Value Chain Analysis: Phase 1 – Preliminary Screening To maximize time and resources, ARE has prepared and screened approximately 75 agricultural and non-agricultural VCs currently existing in Lebanon. This screening was undertaken between August-September 2020. This screening considered the following criteria, each assessed as high, medium, or low: (1) export potential, (2) import substitution potential, (3) innovation potential or potential to implement new

3 “Agriculture is one of the economic sectors most vulnerable to climate change as it is directly affected by fluctuations in temperature and rainfall. . . In general, the direct effects of climate on agriculture are mainly related to lower crop yields or failure owing to drought, frost, hail, severe storms, and floods; loss of livestock in harsh winter conditions and frosts; and, other losses owing to short-term extreme weather events” (Haddad et al., 2014: 10). 4 The business enabling environment consists of all formal and informal rules that define the context within which firms and other agents make their business decisions (Dunn, 2012).

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technologies, (4) job retention or creation potential, and (5) value addition potential. Additional influencing factors considered were the impacts of COVID-19, Lebanon’s economic crisis, the Beirut Port blast, and other donor programs. The screening analysis drew on secondary and primary data.

The screening identified a long-list of the 15 most promising VCs for more in-depth analysis, of which 12 are agro-food VCs and three are non-agro-food VCs. An additional VC was subsequently added at the request of USAID/Lebanon, bringing the total to 16 VCs. These VCs are indicated in Table 1. The short narrative report describing and justifying the rankings from the preliminary screening is provided as an attachment to this report (Annex 2).

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Table 1. VCs Identified through Screening Analysis

Number VC Sector Export Potential

Import Substitution Potential

Innovation Potential

Job Retention / Creation Potential

Value Addition Potential

1 Fresh & processed vegetables (tomatoes, cucumbers, chickpeas & their derivatives)

Agri-Food Medium-High High Medium-High Medium-High High

2 Fresh & dried herbs Agri-Food High Medium High Medium Medium 3 Potatoes & potato-based

products Agri-Food Medium-High Medium-High Medium-High Medium-High Medium-High

4 Alliums Agri-Food Medium-High Medium-High Medium Medium-High Medium-High 5 Stone fruits Agri-Food High Medium High High High 6 Wine & arak Agri-Food High High Medium High High 7 Dairy products (focus

on small ruminant products)

Agri-Food High High High High High

8 Fodder crops Agri-Food Low High High Medium High 9 Sweet spreads (jams,

jellies, molasses) Agri-Food High Medium-High Medium-High High Medium-High

10 Lebanese vegan foods Agri-Food Medium High Medium Medium High 11 Citrus Agri-Food High Medium Medium Medium Medium 12 Berries Agri-Food High High Medium Medium High 13 Table grapes5 Agri-Food High Medium High High Medium 14 Tourism (including local

& rural, focus on gastronomy & wine tourism)

Non-Agri-Food Medium-High Medium-High Medium-High Medium-High Medium

15 Packaging6 Non-Agri-Food 16 Wood products Non-Agri-Food Medium High Medium High Low

5 The table grapes VC was classified as a “close call” during Phase 1 of the analysis, but not originally assessed under Phase 2. It was added to the long list during Phase 2 at the request of USAID/Lebanon, given the extensive previous support for the table grapes VC under previous USAID assistance activities. 6 The packaging VC was added to the long-list at the outset of Phase 2 at the request of ARE with the concurrence of USAID/Lebanon, given that packaging issues were identified broadly across all VCs, in order to look at packaging more broadly than its treatment as a cross-cutting theme.

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Value Chain Analysis: Phase 2 – In-Depth Analysis To assess the relative potential of the 16 long-listed VCs, this analysis examines the “quadruple bottom line” of sustainability as described above, applying four criteria and their corresponding sub-criteria, with corresponding weighting. These weights are presented in Table 2. This methodology was presented to USAID/Lebanon and received approval prior to the launch of the VC analysis. The in-depth analysis was conducted through desk review as well as primary and secondary data collection.

Desk Review A review was conducted of relevant documents and reports, including earlier VC analyses, public reports, and evaluation reports of relevant donor projects working within the relevant sector. All reports consulted are indicated in the References section.

Data Collection Relevant statistics and quantitative data have been retrieved from secondary data sources including those presented in Table 2. Data sources that provided comparable figures across multiple VCs and thereby allowed for consistent treatment, such as the International Trade Centre’s Trade Map and official government sources, have been preferred when available. With regard to the economic indicators, trade values were used as a proxy to trade volumes, for which data was not consistently available across all VCs.

Where statistical or secondary data gaps were identified, primary data was obtained to fill those gaps. Primary data was collected via key informant interviews (KII) with relevant sector experts. KIIs were also used to identify opportunities and constraints, referred to also as “leverage points,” to the VCs in question, laying the groundwork to inform future interventions. Sector experts were pre-identified based on their renown, including through mention in earlier sector studies; through the authors’ and analysts’ networks; and through referrals from other experts. Key informants were drawn from across actor types, including input suppliers, primary producers/processors, traders/wholesalers, distributors (including exporters), business development service providers, industry associations, and donors. Government-affiliated actors were excluded due to political sensitivities. A list of 25 experts to target for KIIs was presented to, and approved by, USAID in advance of data collection. A total of 28 KIIs have been conducted, of which at least one addressed each of the 15 VCs. A complete list of the KIIs conducted is provided in Annex 7. KIIs were conducted between October 6 and October 19, 2020. KIIs were held both in-person and remotely via telephone or internet. The proportion of KIIs held remotely was higher than in normal circumstances, as a result of the rising number of COVID-19 cases in Lebanon during the data collection period. Notes and audio recordings were taken during all KIIs, subject to the acceptance of the corresponding expert, to facilitate revision and analysis. As the KIIs were focused on sectors rather than individual company performance, there was no guarantee of confidentiality or anonymity for KII participants.

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Table 2. Data Analysis Matrix

Criteria Sub-Criteria Data Sources E

cono

mic

50

%

Market size: size of global market (global imports), using most recent year for which data is available • ITC, 2020 • UNWTO, 2019

Market growth: annualized growth rate in quantity imported for the most recent 5-year period for which data is available, as an indicator of potential future demand

• ITC, 2020 • UNWTO, 2019

Lebanon’s market share in the world: current positioning of Lebanon in the global market (% of total exports in quantity)

• ITC, 2020

Current exports: current value (USD) of Lebanon’s exports • ITC, 2020 • UNWTO, 2019

Current imports: current value (USD) of Lebanon’s imports • ITC, 2020 Current production: current value (USD) of Lebanon’s production • MOA & FAO, 2016

• IDAL, 2020

Soci

al

20%

Scalability: potential to intensify or expand production with technologies to benefit a significant proportion of the targeted population, at an acceptable cost and economic return. The targeted population may include producers, rural households, and other VC actors, especially MSMEs. Scalability shall also account for impact on disadvantaged populations as well as assure scalability across all of Lebanon’s sectarian populations.

• Various • KIIs

Engagement of women: opportunities exist to engage women as change and support agents and/or to improve gender equity over control of productive assets, resources, and use of household income

• Farole & Konishi, 2017 • NIRAS, n.d.

Youth engagement: opportunities exist to engage youth with employment and entrepreneurship opportunities. Questions to consider include: Are such economic activities attractive to young people? Are there incentives in place, or the potential for such incentives, to attract young people to enter/engage with such economic activities?

• Various • KIIs

Env

iron

men

tal

15

%

Impact of the VC on the environment: extent to which the activity has a neutral impact on the environment or to which it is possible to mitigate potential adverse environmental impacts (soils, water, air, biodiversity, human health) easily by implementing good agricultural and best environmental practices, both at the production and post-production levels

• Mekonnen & Hoekstra, 2011 • Mekonnen & Hoekstra, 2010 • Qasemipour & Abbasi, 2019 • Schyns et al., 2017

Impact of environment, including climate change, on the VC: extent to which surrounding physical and human environment, as well as anticipate impacts of climate change, have an impact on the value chain

• USAID, 2016 • MOE & UNDP, 2011

Inst

itut

iona

l 15

%

Private sector, government, and/or donor investment: extent to which there is positive interest from the private sector, government, and/or donors; extent to which existing programs can provide synergies and complementary activities without duplication of effort

• KIIs

Institutional capacity to sustainably support VC development: extent to which local skills and processes have the potential to match the needs of the value chain

• KIIs

Reliance on conventional financial services: extent to which the VC is reliant on conventional financial services and whether the VC may benefit from special credit terms or other innovative financing solutions

• KIIs

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Value Chain Mapping 7 Based on the desk review and secondary data, the team extracted or updated existing value chain maps. One map is presented per VC (except for sweet spreads where jams and honey are presented separately). When necessary, maps have been amended based on the primary data collected, including direct feedback provided by the KIIs; as well as subsequent analysis by the team.

Data Analysis The in-depth analysis has synthesized all available data and information to assign each VC a score using a five-point Likert Scale, with a score of 5 resulting in a largely/strongly positive recommendation, a 3 resulting in a moderate or neutral recommendation, or a 1 for those value chains rated as small/limited potential or non-positive. A detailed explanation of the environmental criteria can be found in Annex 6. The institutional criteria were handled in an alternative fashion, as the methodology did not specify defined, quantitative indicators: After conducting the desk review and upon the conclusion of all KIIs, the team conducted a group discussion and analysis to assign and triangulate scores on the institutional criteria.

The weighting and scoring of selection criteria has been conducted as per the established methodology, using the table shown in Annex 3.8 Calculations were computed using Excel. The cumulative score per VC, aggregated across the 14 individual criteria, may range from 1 to 5.

Following the quantitative scoring exercise, the team discussed the constraints and opportunities for each VC to arrive at final recommendations for prioritization under ARE. No fixed number of VCs, sectors, or clusters was a priori targeted to emerge from the in-depth analysis, rather the goal has been to present options for consideration with a candid assessment of the opportunities, constraints, strengths, and weaknesses that affect each. In some cases, VCs ranked high on most metrics, but due to the particular situation in Lebanon, investment in the VC may be beyond the capacity of ARE to produce desired impacts. Accordingly, the analysis recommends that ARE prioritize VCs according to the following classifications:

• FOCUS: ARE will proactively prioritize and target the VC in its outreach (through announcements, public and individual meetings, road shows, etc.) and in its Annual Program Statement (APS) solicitation.

• CROSS-CUTTING: ARE will target the VC through its outreach and APS solicitation focused on cross-cutting themes that apply to a range of VCs.

• EMERGING OPPORTUNITIES: ARE may support specific value-chains and sub-sectors with promising potential through dedicated solicitations (Requests for Applications and/or APS) under its Strategic, Innovation, Technology, and Sector Development Sub-Fund (SITSD). This will allow ARE to opportunistically leverage previous USAID investments and strategically support high potential sectors and businesses ripe for innovation and/or support high potential, yet nascent, sectors in the Lebanese context.

• EXCLUDE: ARE will not highlight the VC within its outreach and will not accept proposals targeting this VC under the APS solicitation. When appropriate, ARE will refer inquiries or proposals received to other, relevant donor-funded programs.

The recommendation of FOCUS/CROSS-CUTTING/EXCLUDE is not solely based on the quantitative scoring exercise. Rather, this recommendation is also determined based on qualitative consideration

7 https://www.marketlinks.org/good-practice-center/value-chain-wiki/value-chain-mapping-process 8 This is largely but not completely consistent with the guidance of USAID rooted in Porter’s Five Forces analysis: https://www.marketlinks.org/good-practice-center/value-chain-wiki/organizing-sub-criteria.

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of the constraints and opportunities to the VC, as well as windows appropriate for time- and resource-limited interventions under the ARE activity. As a result, some VCs with a high qualitative score are not recommended as FOCUS, but rather as CROSS-CUTTING so as to allow for interventions via cross-cutting interventions.

This analysis therefore has produced recommendations for immediate prioritization and action but also provides alternative options that can receive later focus should investments in a selected VC not produce the expected return or for expansion during scale-up through ARE’s increased quantity options. For example, a VC could move from FOCUS to CROSS-CUTTING (and vice-versa) based on changes in the landscape or on the emergence of strong partner firms. In this way, the approach taken within this analysis is intended to deliver focused, yet flexible, prioritization for activity implementation.

The preliminary findings and recommendations of the value chain selection were presented to USAID/Lebanon prior to the delivery of this written report to USAID.

Cross-Cutting Themes A number of cross-cutting themes had been pre-identified as important for consideration within the VC prioritization and selection analysis. Accordingly, these themes were considered within both the desk review as well as primary data collection. These themes are briefly elaborated here.

Innovation and Technology Lebanon’s agri-food sector is, in some cases, lagging in the adoption and implementation of innovation and technology. Such lags may be linked to barriers including weak or costly infrastructure (e.g., electricity networks, internet networks), a lack of suitable or tailored solutions to local conditions, and/or the small scale of production and processing typically found in Lebanon. Efforts to promote agri-food innovation and technologies, including those promoted by incubation and acceleration service providers, have made an important contribution to the sector largely as a result of donor rather than government support and financing.

For example, under the SITSD Sub-Fund, ARE intends to launch agri-innovation challenges as a means to stimulate the development and/or application of technological innovations relevant across the spectrum of agriculture and agri-food sectors, and not necessarily tied to ARE’s focus value chains. The SITSD Sub-Fund also provides ARE with the flexibility to address emerging opportunities within non-FOCUS VCs should the innovative potential of the intervention be compelling.

Water Management Lebanon faces considerable challenges with regards to water management, related to the scarcity of water resources (including water of suitable quality for agri-food production) as well as wastewater management. For example, the Litani River is the longest river in Lebanon and a vital resource of drinking and irrigation water to the West Bekaa and the South of the country (Litani River Authority, n.d.a). These areas are major agricultural producing regions and have been challenged by water pollution for decades (Litani River Authority, n.d.b). This pollution reduces the quality of locally produced agricultural products and can serve to transmit harmful contaminants into the food chain. Lebanon’s government insufficiently controls water use and management in the country, resulting in the use of contaminated or unfiltered water sources (McKinsey, n.d.).

Water scarcity is expected to worsen in coming decades (McKinsey, n.d.) as a result of climate change, which is predicted to result in lower total levels of precipitation delivered over more intensive rainfalls. Accordingly, the responsible use of water resources and appropriate or improved handling of wastewater is a critical consideration for ARE implementation.

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Post-Harvest, Transport, & Logistics Lebanon’s agri-food sector performance is limited by gaps in post-harvest services (sorting, grading, and packing), which limit the ability of primary producers to monetize quality improvements in both local and export markets. While Lebanon has an advantage of relatively short internal distances due to the small size of the country, the poor quality of transportation infrastructure as well as high levels of traffic contribute to longer travel times and poorer travel conditions for the transport of agri-food products.

Lebanon faces gaps in its cold chain, both for local and export markets. Cold chain refers a range of services including pre-cooling facilities, cold storage, and refrigerated transport. Lebanon has (had) approximately 45 commercial cold storage providers operating in the market (Ruijs, 2017).

Packaging is another constraint at the post-harvest level, affecting both commodities and processed foods. Though Lebanon is home to a local manufacturing industry, its reliance on imported raw materials and its small scale limit the cost competitiveness and array of packaging options available on the market. Prices of imported packaging materials have jumped due to currency depreciation, while declining access to the financial system has impeded purchases.

Access to Finance Despite the historically strong position of Lebanon’s commercial banking sector, the agri-food sector (especially smaller producers and processors) have faced gaps in access to finance. The agricultural sector accounted for only 1% of credit, well below the international benchmark of 5% or even the sector’s contribution to GDP (McKinsey, n.d.). Government incentives to support lending to under-served sectors were routed through subsidized loans (e.g., Banque du Liban circulars) and through loan guarantees supported by Kafalat. Nevertheless, the agri-food sector had been marked by a reliance on private or informal credit arrangements offered by input providers or wholesalers. Access to finance has declined significantly since 2019, as a result of economic crisis, currency devaluation, and the widespread but informal capital controls applied by Lebanon’s commercial banking sector.

Since late 2019, Lebanese commercial banks have stopped extending loans and have imposed informal capital controls that have restricted access to deposits and to hard currency. This in turn has limited the ability of businesses (including agribusinesses and farmers) to import needed inputs including raw materials, packaging materials, and fertilizers/pesticides. In May 2020, the Banque du Liban (BDL or Lebanon’s central bank) issued Circular No. 930 to provide importers and manufacturers with hard currency for the import of food and raw materials for basic food production (BDL, 2020, May 22), but complaints about inadequate access to hard currency persist.

Most Lebanese farmers previously relied on informal credit arrangements from input suppliers to obtain seeds, fertilizers, and other imported inputs, repaying dollar-denominated costs at the end of the season (post-harvest). As the LBP has depreciated, farmers have been unable to repay their debts and input suppliers have withdrawn these informal credit arrangements. Without access to necessary inputs, farmers’ production is expected to decline in the upcoming growing seasons (Sewell, 2020, August 11).

Gender and Youth Gender disparities in Lebanon are observed in terms of employment, wages and earnings, and asset ownership. Women have a lower level of labor force participation than men, though women tend to be over-represented in the agricultural sector. Women in agriculture tend to work as laborers (especially non-Lebanese women) as well as in processing activities. Women generally play a less prevalent role than men in private sector firms, notably in management and leadership roles.

Youth in Lebanon face significant challenges in obtaining remunerative employment throughout the economy, and youth unemployment rates exceed average unemployment rates. The agri-food sector

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is generally not considered an attractive destination for Lebanese youth. However, agricultural labor (particularly for field crops) tends to be dominated by non-Lebanese (Syrian) youths.

Additional Factors A number of additional factors had been pre-identified as important for consideration within the VC prioritization and selection analysis. These factors are briefly elaborated here.

COVID-19 Impact The first confirmed case of COVID-19 was registered in Lebanon on February 21, 2020. Subsequently, the Government of Lebanon (GOL) imposed a lockdown of the country for two months in early 2020, with intermittent re-application as outbreaks re-emerged. These lockdowns – at least officially – were intended to have a disproportionate effect on non-essential activities including leisure, tourism, and restaurant services.

Recent reports by the United Nations, national bodies, and NGOs have highlighted the role of COVID-19 in alarming increases in food insecurity in developing countries, with worrying implications for all countries. Those who depend on the informal economy and remittances, especially in low- and middle-income countries, have been particularly impacted. Renewed calls have been made to address the underlying causes of household food insecurity, including conflict and a lack of economic opportunity, particularly among vulnerable communities (Beasley, 2020, September 17).

Lebanon’s Economic Crisis The Lebanese lira has depreciated significantly against the USD over the past year, moving away from the longstanding, official rate of 1507.5 LBP: 1 USD. As of late-October 2020, the official exchange rate is still used for selected transactions including imports of wheat and other critical items (medicines, fuel).

Lebanon’s Consumer Price Index (CPI) has increased significantly since 2019, with marked increases recorded in the first half of 2020. Inflation is widely attributed to the pass-through of the depreciation of the Lebanese lira. Food price inflation has outpaced the increase in CPI: Year-on-year food price inflation was 367% between August 2019 and August 2020, versus 120% for the CPI. While both the CPI and the prices of food and non-alcoholic beverages continue to increase, their respective rates of acceleration have slowed slightly in the past month.

The combination of economic contraction, currency depreciation, and disruptions associated with COVID-19 is undermining food access in Lebanon, particularly for the most vulnerable. Two-thirds of Lebanese households suffered from a reduced income in 2020 compared to 2019 (World Food Programme, 2020, June). The World Bank has projected a significant increase in poverty levels, reaching 52% of the Lebanese population by end-2020.

Analysis published earlier this year estimated that nearly one million people in Lebanon, of which more than 500,000 children, already lacked money to access essential goods including sufficient food as of mid-2020. The loss of purchasing power was attributed to rising unemployment, the economic crisis, and COVID-19. The analysis, which was conducted by Save the Children, cited an estimate that more than 60% of households in Lebanon had lost income as a result of the combined crises; more than 50% worried that they would not have enough food to eat; and that between 20% and 30% of families had skipped meals or gone an entire day without eating. Upon the release of the study, Save the Children’s acting country director warned, “We will start seeing children dying from hunger before the end of the year” (Save the Children, 2020, July 29).

As hunger rises in Lebanon and in other parts of the world, migration is expected to increase. The increase in hunger is attributed to a variety of factors including economic contraction and COVID-19.

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The World Food Programme estimates that every 1% increase in hunger is associated with a 2% increase in migration (Cheatham et al., 2020).

Beirut Blast Impact Destruction at the Port of Beirut due to a massive explosion on August 4, 2020, has introduced new challenges and disruptions to the import to (and export of) goods including food to this highly import-dependent country.

The Port of Beirut – Lebanon’s main seaport – was extensively damaged by an explosion on August 4. This damage was expected to limit imports and exports over the short-term, with negative impacts on food availability. The port handles approximately 80% of the country’s imports (Cornish, 2020, August 10). While alternative seaports are available in Tripoli and Saida, their lower capacity and the need to pay for local ground transportation were expected to add to the cost of imported food as well as the exports that generate hard currency inflows (AFP, 2020, August 7).

Damage to grain stocks at the Port of Beirut reduced the available supply within the country to only one month’s demand, though additional shipments were reportedly already in route to Lebanon (AFP, 2020, August 7). The World Food Programme (2020, August 12) also announced that it would deliver a three-month supply of wheat to Lebanon to ensure food reserves. Lebanon’s government does not maintain a public grain stockpile. As a result, no public resources were available to offset the loss of private stocks due to the explosion (El Dahan & Francis, 2020, August 7). Outside the Port of Beirut, Lebanon’s private grain millers maintain a storage capacity of 120,000 tons of wheat and are operating at full capacity to meet local demand.9

Explosion-Related Damage Potential Consequence Privately owned grain silos with 120,000-tons capacity

- Buyers may have to rely on smaller, private storage facilities for their wheat purchases

Grain stocks in silos and incoming ships, estimated between 15,000 and 31,000 tons, of which:

- 6,000 tons wheat - 24,000 tons corn - 7,000 tons soy - undefined quantity of barley

- Loss of commodities for human and animal consumption

- Increase (possibly temporary) in feed prices for poultry farmers

Sources: AFP (2020, August 7); El Dahan & Francis (2020, August 7); Sewell (2020, August 11)

Journey to Self-Reliance: Previous USAID Support and Other Donor Programs USAID and other donors have made significant investments in the Lebanese agricultural and rural economy in recent decades, with support ongoing in a number of cases.

• USAID/Lebanon is currently investing $5.9 million under the Lebanon Investment in Quality (LINQ) activity, which will run between September 2018 and November 2021. The objective of LINQ is to increase domestic and export sales and competitiveness of value-added agri-food products in Lebanon. LINQ partners with high-potential agribusinesses, processors, and growers to improve productivity, product safety, and quality; and create new market linkages to promote business and profit growth. LINQ initially targeted three sectors: fresh fruits (pome fruits), food processing, and small ruminant dairy. In addition, LINQ provided emergency support in response to COVID-19 and economic crisis in the form of vegetable and herb seedlings and potato seeds distributed to adversely impacted rural producers and cooperatives (Social Impact, 2020 September).

• USAID/Lebanon has invested $46.2 million under the Lebanon Industry Value Chain Development (LIVCD) activity between September 2012 and January 2019, with an objective

9 Business Echoes published the official announcement: https://t.co/YOAlDtmKHQ?amp=1

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to develop inclusive and competitive value chains to raise incomes of Lebanon’s rural Lebanese population. LIVCD initially targeted eight value chains: pome fruits, stone fruits (cherries and avocados), table grapes, olive oil, rural basket (including honey, eggs, pine nuts, and herbs), processed foods, rural tourism and handicrafts, and floriculture; handicrafts and floriculture were later excluded from the LIVCD portfolio during the implementation period (Social Impact, 2018 November).

• USAID/Lebanon supported the tourism sector under its Expanding Economic Opportunities in Lebanon rural development program between 2005 and 2008, promoting village-based tourism and cluster destinations (Abou Arrage, 2017).

USAID seeks to deliver development assistance that is supportive of the journey to self-reliance of private-sector firms and associated actors (e.g., associations, syndicates), working toward a time when foreign assistance is no longer necessary. “As partners on this journey, USAID is working with host country governments and our partners to achieve locally-sustained results, helping countries mobilize public and private revenues, strengthening local capacities, and accelerating enterprise-driven development” (USAID, 2020).

Assumptions A number of critical assumptions have been made in undertaking this selection and analysis.

Political Stability and Physical Security: A minimum level of political stability in Lebanon will ensure a minimum level of physical security that allows for the free movement of people and goods. It is assumed, however, that the tenuous political situation in the country will continue to hinder the adoption of sector-wide reforms and dampen prospects for longer-term investment.

Economic Outlook: Lebanon’s economic outlook will begin a slow and painful recovery from 2020, when it is projected to contract by 25% in real terms (IMF, 2020). This contraction is linked to rising rates of unemployment and poverty in Lebanon. Remittances, which are a major driver of consumer spending (Chbeir, 2019 August 30; Chbeir, 2020 January 17), have fallen as a result of economic contraction outside of Lebanon. Accordingly, prospects for firm-level growth are significantly diminished over the short term.

Currency Movements: Lebanon’s currency, the Lebanese pound (LBP) will be traded at a market rate that exceeds the official exchange rate maintained by the Banque du Liban. While the LBP may continue to appreciate (market exchange rate) in the short- to medium-term, this movement should generally be less volatile than was recorded between late 2019 and mid-2020. Currency depreciation should provide Lebanese businesses an opportunity to gain competitiveness in terms of import substitution and exports, though the achievement of these may not be either easy or straightforward.

Government Subsidy Policy: The Government of Lebanon will be forced to abandon its de facto subsidy for the import of key inputs including fuel through the provision of hard currency at a rate between the official exchange rate (1507.5 LBP : 1 USD) and the market exchange rate.

Financial Sector and Capital Controls: Lebanon’s commercial banks will continue to impose informal capital controls that restrict the ability of individuals and firms to access their deposits, with the tightest restrictions on USD-denominated deposits. The capital controls provide a strong incentive for private sector businesses to export their goods and services, and to deposit their export earnings in accounts held overseas.

COVID-19 and Public Health Outlook: COVID-19 will continue to circulate within the public, and public health measures will continue to be imposed to limit physical contact between humans but stopping short of full lockdown of economic activities including in the agri-food sector.

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Climate Change Impacts: Climate change exacerbates the existing challenges the agriculture sector is facing — undermining rural livelihoods and potentially leading to more fragility, displacement, and tensions. Climate change has affected and will continue to impact temperature and precipitation patterns in Lebanon, raising the risk of extreme weather events including droughts, floods, and heatwaves. The average temperature in the MENA region is expected to increase by up to 4.8oC by 2100, with a higher rate of warming in summer than winter. Total precipitation is projected to decline in the Mediterranean area (Lewis et al., 2018). Droughts will become more frequent and more intense due to the loss of biodiversity and a reduction in soil moisture, which are both linked to climate change (Bocci et al., 2019). In Lebanon, changes in agro-climatic conditions may include higher temperatures during the growing season, more days above threshold temperatures and during key plant development times, longer dry seasons, unpredictable rainfall, salt-water infiltration due to sea-level rise, decreased groundwater recharge, reduced surface water flows, lower soil moisture and soil carbon, and higher concentrations of carbon dioxide in the atmosphere (Lewis et al., 2018). Crop yields in MENA could fall by 10-20% by 2050 under worst-case scenario models (Lewis et al., 2018). Livestock productivity will fall due to less available animal feed, increased animal heat stress, and a higher risk of infection and disease (Lewis et al., 2018).

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VC Analysis: Results and Recommendations The VC selection and prioritization exercise has assessed the 16 long-listed VCs using the methodology presented above. The quantitative scores, which are bounded from a minimum of 1 to a maximum of 5, are tabulated below per VC. Based on the analysis presented in this report, it is recommended for ARE to concentrate its investments within the FOCUS VCs with the flexibility to support the CROSS-CUTTING VCs, notably through interventions that will target the cross-cutting themes as noted below.

Table 3. Quantitative Scoring Outcome per VC

VC Type VC Score Recommendation Agricultural Fresh & Processed Vegetables 3.95 FOCUS Agricultural Lebanese Vegan Foods 3.80 FOCUS Agricultural Fresh & Dried Herbs 3.75 FOCUS Agricultural Wine & Arak 3.70 FOCUS Agricultural Table Grapes 3.65 FOCUS Agricultural Stone Fruits 3.30 FOCUS Agricultural Dairy Products 3.25 FOCUS Agricultural Fodder Crops 3.25 FOCUS Agricultural Potatoes & Potato-based Products 3.90 CROSS-CUTTING Agricultural Alliums 3.80 CROSS-CUTTING Agricultural Citrus 3.30 CROSS-CUTTING Agricultural Sweet Spreads 3.10 CROSS-CUTTING Agricultural

Berries 2.60 EMERGING

OPPORTUNITIES Non-Agricultural Tourism 3.60

FOCUS

Non-Agricultural Packaging 3.40

CROSS-CUTTING

Non-Agricultural Wood Products 3.60

EXCLUDE

The analysis has also identified opportunities to consolidate some VCs into a single VC heading, given their clear relation and opportunity for complementary interventions. Consolidation is therefore recommended for Fresh & Processed Vegetables with Lebanese Vegan Foods and Fresh & Dried Herbs; for Dairy Products and Fodder Crops; and for Stone Fruits with Sweet Spreads (specifically jams and jellies derived from them). Therefore, a revised, final recommended table follows here reflecting this regrouping.

Table 4. Consolidated Recommendations Table

VC Type VC Recommendation

Agricultural

Fresh and Processed Produce (Fresh & Processed Vegetables & Herbs, includes Fresh & Processed Vegetables, Lebanese Vegan Foods, Fresh & Dried Herbs)

FOCUS

Agricultural Wine & Arak FOCUS Agricultural Table Grapes FOCUS

Agricultural Stone Fruits (includes Stone Fruits and Sweet Spreads derived from them)

FOCUS

Agricultural Dairy Products & Fodder Crops FOCUS Agricultural Potatoes & Potato-based Products CROSS-CUTTING

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Agricultural Alliums CROSS-CUTTING Agricultural Citrus CROSS-CUTTING Agricultural Honey CROSS-CUTTING

Agricultural Berries EMERGING OPPORTUNITIES

Non-Agricultural Tourism FOCUS

Non-Agricultural Packaging CROSS-CUTTING

Non-Agricultural Wood Products EXCLUDE

Detailed scorecard results and supporting information are presented below per VC, using the original long list of 16 VCs that was previously approved by USAID/Lebanon. This organization and presentation reflect the fact that scoring was conducted for the individual VCs as defined within Phase 1. The organization mirrors that of Table 3.

Cross-Cutting Themes Across multiple VCs, a number of cross-cutting themes were identified as key constraints and opportunities for the promotion of improved VC performance. These are tabulated and elaborated briefly below.

Table 5. Identification of Cross-Cutting Themes by Implicated VC

VC Water Management

Post-Harvest

Packaging Materials

Access to Finance

Fresh & Processed Vegetables X X X X Fresh & Dried Herbs X X Wine & Arak X X Stone Fruits X X X Table Grapes X X X X Dairy Products X X X X Fodder Crops X Potatoes & Potato-Based Products X X Alliums X X Lebanese Vegan Foods X X X Citrus X X Sweet Spreads X X Berries X X Tourism Packaging X X Wood Products X

Water Management The recently published Lebanon National Agriculture Strategy 2020-2025 highlights the need to enhance the use efficiency of irrigation water and make available more water resources for irrigation, including through the adoption of modern irrigation techniques (Programme 4.3) (MOA, 2020).

The use of irrigation is widespread across Lebanon’s agricultural VCs, though irrigation technologies are not always optimal. Poor irrigation practices are a central issue contributing to poor quality production of fruits and vegetables in Lebanon. For example, the use of flood irrigation can lead to poor yields from stone fruit trees. The use of largely imported drip and sprinkler irrigation systems offers better water use efficiency but requires higher investment and maintenance costs that may be

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difficult for smaller farmers to afford. For example, previous investments in drip irrigation to support table grape production were well received, but difficult to maintain due to the quality of the initial equipment (Social Impact, 2018 November). Moreover, water use efficiency does not automatically translate into a reduction in water withdrawals from groundwater or surface water resources, particularly if farmers benefit from higher efficiency to instead expand their irrigated production.

• Constraint: The old age and low education levels of many farmers limits their capacity to learn and apply new techniques (Social Impact, 2018 November), including for irrigation technologies.

As an alternative to open-field cultivation, greenhouse cultivation offers superior water use efficiency, making greenhouse cultivation a more attractive option to consider in semi-arid countries facing pressure to maximize water resources for the production of food (as well as non-food uses). Government- and donor-supported interventions have sought to demonstrate the application of modern horticultural techniques within greenhouses as an alternative both to traditional greenhouses and to open field cultivation (van Os et al., 2019).

At the processing level, water use and wastewater treatment may be problematic, particularly for the dairy sector. The proper handling of animal wastes from intensive rearing, as well as wastewater from dairy processing, are key to address under any intervention within the VC.

Post-Harvest The recently published Lebanon National Agriculture Strategy 2020-2025 highlights the possibility of supporting agri-food value chains through modernization of infrastructure, post-harvest handling systems, and wholesale and local markets (Programme 3.1). This work is explicitly linked to efforts that will seek to promote cooperatives, associations, and groups for the benefit of smallholder farmers and thereby enable participation in agri-food VCs (Programme 3.5) (MOA, 2020).

The strategic use of cold storage (chilling units) could allow Lebanese fruits and vegetables producers to reach export windows on lucrative markets including Europe, Russia, and the GCC. However, this requires careful timing to avoid direct competition with major producers including Egypt and Turkey (KII-Fady Sarkis).

Currently there is no single packing unit in the Bekaa Valley – Lebanon’s agricultural heartland – that performs sorting, grading, and packing functions, though refrigerating units and cold storage do exist. There is not a single packing line in the country for the potentially high-value avocado (KII-Fady Sarkis).

• Opportunity: Exporters who are earning fresh USD may be in a unique position to invest (co-invest) in post-harvest infrastructure, particularly if they have been able to gain from the reduced cost of labor linked to LBP depreciation (KII-Fady Sarkis).

• Opportunity: Post-harvest units could be tailored to rely on a mix of technology and labor that is well suited to Lebanese conditions. Regardless of the balance, the issues of training and control are essential to maintain proper conditions and standards. Notably, packing lines require semi-skilled workers who have been trained in proper handling (KII-Fady Sarkis).

Previous USAID experience found that partnering with private sector companies to provide post-harvest services was instrumental in developing the targeted VCs (Social Impact, 2018 November).

Interventions to support post-harvest could potentially reach VCs beyond those identified as FOCUS or CROSS-CUTTING within this analysis. Indeed, given the lack of specialization of post-harvest to a single crop in Lebanon (KII-Fady Sarkis), this seems likely. Moreover, a cross-cutting approach to post-harvest could serve the downstream stages of VCs where USAID has previously invested in primary

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production, and this has in fact previously been recommended as a way to maximize the value of these earlier investments (Social Impact, 2018 November).

• Opportunity: LIVCD previously made considerable and successful investments in the avocado VC focused on increases in production capacity. “An increase in avocado production is expected during the next few years when new orchards reach maturity. If domestic demand and export do not increase, avocado prices are likely to fall. Interventions aimed at improving the capacities of avocado exporters should be coordinated with other international development organizations that are currently planning activities” (Social Impact, 2018 November: 39-40).

Packaging Agri-food stakeholders have clearly identified packaging materials as a constraint to their production and their profitability. While packaging needs may vary by VC, the lack of locally produced packaging that is priced in local currency was reiterated repeatedly in KIIs. In some cases, the price of packaging now exceeds the price of the raw materials contained therein.

• Opportunity: Joint or bulk purchasing is a possible means to address this constraint over the near- to medium-term, particularly for items that are commonly demanded across multiple producers such as glass bottles, glass jars, and corks. Such an intervention will require that VC actors are willing to collaborate in this respect.

Due to the cost and time required to invest in the manufacture of packaging materials, however, such an intervention falls outside the scope of what ARE may reasonably achieve.

Access to Finance With regards to access to finance, “The nature of agricultural projects that usually require long-term financing, the general weak organizational and managerial skills of Lebanese farmers, and the conditions of bank credit pertaining to the availability of collateral, all hinder access of farmers to credit and thus hamper the establishment and development of agriculture-related businesses” (Hamade, 2017: 10). Farmers complain of unreasonable or impossible conditions imposed by commercial banks, including requirements for formal records of sales or collateral in the form of a house mortgage (Social Impact, 2018 November).

“The marginalization of poor farmers from access to commercial bank loans has led to the expansion of informal credit systems and networks, where the main actors are input suppliers who give credit to farmers often in the form of deferred payment. Even though such credit is usually accompanied by very high interest rates, it is sometimes the only option for farmers” (Hamade, 2017).

The recently published Lebanon National Agriculture Strategy 2020-2025 highlights the need to encourage private investment along agri-food value chains, to attract both domestic and foreign investments (Programme 3.2) (MOA, 2020).

USAID/Lebanon has previously supported efforts to expand access to finance for agri-food VCs under the LIVCD activity. Interventions undertaken included the development of feasibility studies to support loan applications by agri-food actors, which USAID instructed to stop; and training of farmers on available land products as well as training for commercial banking personnel on selected VCs, though this appeared to result in relatively few bank loan applications (Social Impact, 2018 November).

Since 2019, access to finance has been significantly reduced, including for agri-food producers of all types and across nearly all VCs. Working capital and trade finance are much less available than before, even impossible to obtain, due to the informal (illegal) restrictions put in place by Lebanon’s commercial banking sector. Earlier schemes to support access to finance including subsidized loans

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and loan guarantees, which were routed through the commercial banking sector, appear to have been withdrawn from the market.

• Opportunity: The current economic crisis in Lebanon has disrupted informal credit arrangements between farmers, input suppliers, and wholesalers. This disruption could paradoxically provide an opportunity to introduce alternative forms of credit that reduce the dependence of farmers on input suppliers and/or wholesalers, such that they are better able to make more independent and technically-based decisions about which inputs to use; or that they may shift from consignment relationships that undermine the transmission of both price and market information.

ARE is in the process of preparing a comprehensive financial sector mapping assessment that will focus on emerging access to finance constraints, which will in turn inform the development of potential financial products and services for agri-food and other VCs and sectors in Lebanon.

Fresh & Processed Vegetables 10 Selection Criteria Results

Criteria Data Source Weight Scoring 1 2 3 4 5

Economic (50%)

Market Size (Value, USD) (2019)

ITC, 2020

10% 5 Market Growth - Annual Growth (Value, USD) (2015-2019)

10% 2

10 For the purposes of this analysis, and to maintain consistency with Phase 1 of the selection and prioritization exercise, the Fresh and Processed Vegetables VC was defined to include tomatoes, cucumbers, and chickpeas; tomato-based products including sauces, pastes, and ketchup; and cucumber pickles and gherkins.

Cumulative Score: 3.95 Recommendation: FOCUS

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Lebanon's Global Market Share - % of Total Exports in Value (2019) 5% 2

Current Exports from Lebanon (Value, USD) 5% 5

Current Imports to Lebanon (Value, USD) 10% 5

Current Production (Value, USD) MOA & FAO, 2016 10% 5 Social (20%)

Scalability (Number of Firms) Interviews &

Reports

10% 5

Engagement of Women (%) 5% 5

Engagement of Youth (%) 5% 3 Environmental (15%)

Impact of the value chain on the environment (adverse)

Mekonnen & Hoekstra, 2011 10% 2

Impact of the environment, including climate change, on the value chain

MOE & UNDP, 2011 5% 3

Institutional (15%) Private sector, government, or donor investment

Interviews & Reports

5% 5

Institutional capacity exists to support the value chain 5% 5

Reliance on conventional financial services 5% 3

Economic The global market (global imports) for fresh and processed vegetables was valued at more than $35 billion in 2019, reflecting growth of 1.72% by value over the period 2015-2019. Lebanon accounted for 0.10% of global exports by value in 2019. Lebanon’s exports were valued at more than $35 million in 2019, slightly lower than the corresponding imports figure of $39 million (ITC, 2020). The latest estimate of national production for the fresh vegetables component of the VC was nearly $155 million (MOA & FAO, 2016).

The agriculture sector (including fresh vegetables production) accounted for 2.1% of GDP in 2018, and the manufacturing of food products accounted for another 2.1% of GDP that same year (CAS, 2020).

Social The number of producers of fresh and processed vegetables – including farmers, rural households, small and medium enterprises (SMEs), and other value chain actors – is estimated to exceed 20,000. This figure is comprised largely of the Lebanese farmers who are engaged in the production of tomatoes and/or cucumbers (MOA, n.d.).

While exact estimates of female participation in the fresh and processed vegetables VC are not available, women are understood to play a significant role, exceeding 40% of all actors in the VC, particularly for tomato production. Women’s labor is concentrated in several segments of the value chain, including field labor and in processing activities (NIRAS, n.d.; KII-Fady Daou). Indeed, the high potential to target women was a primary justification for the selection of processed foods within the earlier USAID LIVCD activity (Social Impact, 2018 November).

Exact figures on youth participation in the fresh and processed vegetables VC are not available, but estimates place this figure at approximately 30% (KII-Fady Daou).

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Environmental The fresh and processed vegetables VC has an average or medium impact on the environment, in terms of resource intensity and specifically water use: The water footprint associated with the fresh products produced is approximately 894 m3 per ton (Mekonnen & Hoekstra, 2011). Much of the fresh vegetable production in Lebanon is irrigated production (Mercy Corps, 2014b).

The production of fresh vegetables in Lebanon is associated with improper or excessive use of chemical inputs including pesticides, which have harmful effects on both the environment (soil and water quality, biodiversity) as well as human health (laborers and consumers). However, good agricultural and best environmental practices are available that could improve the handling and application of these chemicals.

The impact of the environment, including climate change, is estimated to be average or medium on the fresh and processed vegetables VC. The environment directly affects agricultural production of all types, though the use of semi-controlled environments such as greenhouses and irrigation can and do limit environmental impacts on Lebanese production of tomatoes and cucumbers. As for climate change, Lebanese tomato production is estimated to be moderately susceptible to its predicted effects (MOE & UNDP, 2011); comparable data is not available for cucumber production. The production of tomatoes and cucumbers has been highlighted as a potential response to climate change in dryland-mixed farming systems within the Mashreq region (Lewis et al., 2018).

Institutional Lebanon’s fresh and processed vegetables VC has received a large degree of support and investment from private, government, and donor sources relative to other VCs under consideration. The recently published Lebanon National Agriculture Strategy 2020-2025 highlights the possibility to support farmers by providing in-kind and cash assistance for inputs including high quality seeds, seedlings, fertilizers, small tools and equipment (including irrigation equipment), and greenhouse supplies (Programme 1.1.); and to support local production of seeds and seedlings as well as establish seed certification systems (Programme 2.1) (MOA, 2020).

The institutional capacity of the VC to support is estimated to be high, given the availability of local skills and processes to match the potential needs of the VC.

The fresh and processed vegetables VC tends to rely on conventional sources of finance, though this is less pronounced within the processing components of the VC than in the primary production segments. Fresh vegetables production has traditionally relied on informal credit arrangements between input suppliers, producers, and wholesale markets; these credit arrangements have shifted to cash-based operations due to Lebanon’s economic crisis.

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Value Chain Structure Figure 1. Fresh Vegetables Value Chain Map

Source: Bureau Leeters, 2018

Figure 2: Tomato Value Chain Map

Source: Mercy Corps (2014b)

Dom

estic

Pro

duct

ion

Pro

cess

ing

Export Market

Large Farmers 20+ donum

Medium Farmers 10 - 20 donum

Small Farmers 1-10 donum

75% of tomatoes

Som

e pr

ovid

e 50

% o

f pro

duct

ion

as re

nt

Wholesale Ferzol Market

Wholesale Qab Elias Market

Wholesale Baalbek Market

Wholesale Beirut, Tripoli

Retail Local Dukkane

Consumers Local

Exporters Bekaa, Beirut

Consumers Export (GCC)

2% of tomatoes (5,000 tons) Imported Syria, Jordan

22,000 tons (2013)

Processors Large SMEs

Processors Co-operatives

310,000 tons (2012)

30 - 60,000 tons (2013)

Distributors Beirut, Bekaa

Retail Hotel, Restaurant

Retail Supermarkets

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Production and Processing Vegetables account for a significant share of Lebanon’s total agricultural production. Tomato is Lebanon’s second most produced agricultural product by volume, amounting to 275,000 tons as of 2014. Cucumbers and gherkins are the third most-produced agricultural commodity by volume, amounting to 130,000 tons (McKinsey, n.d.; Mercy Corps, 2014b; Ruijs, 2017). Such crops offer relatively high value in relation to the area cultivated: While tomato accounts for approximately 1.7% of cultivated land, it contributes 9% of total value produced from the sector (McKinsey, n.d.). The latest available data on agricultural production show that the total area cultivated with tomato exceeded 5,300 hectares (HA) and with cucumber exceeded 3,700 HA as of 2016 (MOA & FAO, 2016).

In contrast to tomatoes and cucumbers, chickpeas are not listed among Lebanon’s top-produced vegetables (Bureau Leeters, 2018), despite the local consumption of chickpeas and their derivatives. The total cultivated area for chickpeas was approximately 1,900 HA as of 2016 (MOA & FAO, 2016). Local production appears to be used for animal feed, due to their small size and lack of consistent shape (Yee, 2020).

• Weakness: Lebanon’s chickpea production does not achieve the quality of imported chickpeas (Osseiran, 2018). Local production is weak due to elevated costs of production, low yields (1.2 tons per HA), and a lack of public support (Riachi, 2016).

Vegetable production is practiced throughout much of Lebanon, including in the coastal areas, the North and Akkar, Mount Lebanon, and the Bekaa Valley. Tomato production is geographically concentrated in the Bekaa Valley, with production clustered around Zahle, Baalbak, and Chaat (Mercy Corps, 2014b). The production of horticultural vegetables including tomatoes and cucumbers can be practiced in open fields or under greenhouses, allowing for year-round production and supply on the market (Ruijs, 2017).

Tomato production is practiced both in greenhouses and in open fields, most commonly for a single production season to allow for crop rotation. Previously, production costs for open field production were slightly higher than for greenhouse production, excluding the costs of the greenhouse itself. Another commonly used technology is low tunnels, which protect against frost, encourage plant growth, and support an early harvest. Irrigation (most commonly drip irrigation) is used in both open field and greenhouse production (Mercy Corps, 2014b).

Tomato producers vary in size, according to land size and scale of production. Larger farmers (> 20 dunums11 of tomato production) are typically sophisticated, securing seedlings, fertilizer, and pesticides from input suppliers; raising improved varieties of tomatoes; applying technologies including drip irrigation, low tunnels, and plastic mulch for weed control; and hiring full-time farm laborers. Medium farmers (10-20 dunums of tomato production) use improved irrigation, are willing to adopt new varieties and production techniques, and tend to have closer relationships to smaller farmers than do larger farmers. Smaller farmers (< 10 dunums of tomato production) are more likely to produce under greenhouse systems if they own their land; the prevalence of rental arrangements provides a disincentive for farmers to invest in improved production technologies needed to produce higher quality tomatoes (Mercy Corps, 2014b).

Lebanon lacks good quality seeds for local vegetable production, and high-quality seeds must be imported even for traditional or indigenous vegetables such as beans (Aysha khanum) (KII-Fady Daou). All vegetable seeds originate from input suppliers sourcing directly from international seed companies.

11 One dunum is 1,000 m2.

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The large input suppliers sell seeds to local distributors or directly to nurseries or farmers (Mercy Corps, 2014b; KII-Nadine Khoury). Most tomato farmers prefer to buy seeds, deliver them to a nursery for the germination stage, and then plant seedlings. Grafted seedlings that offer better disease and drought resistance are also available on the market, and used within greenhouse production (Mercy Corps, 2014b).

• Strength: Suppliers of seeds and planting materials tend to operate as the exclusive agents for international seed producers. Those producers typically provide high-quality training for the Lebanese agents, who are generally up to date on crop diseases, trends, and shifting consumer demand (KII-Nadine Khoury).

• Constraint: The combined effects of the rising costs of inputs (seeds) and lack of access to finance have resulted in under-planting of crops during the current summer season, especially in the coastal areas and under greenhouse production. Production for this season is estimated at 50% of capacity. Some farmers have also shifted to lower-cost and lower-quality planting material, such as for eggplant, which may deliver lower disease or weather resistance. The lack of local supply was already driving up market prices as of mid-October, notably for cucumber intended for fresh consumption, which will limit the ability of local consumers to continue to consume the product (KII-Nadine Khoury).

• Constraint: High-quality seeds production typically requires an extended period of time (not less than five years) and requires collaboration with research centers as well as private sector partners. Lebanon is home to the International Center for Agricultural Research in the Dry Areas (ICARDA), which might be a useful partner for such interventions (KII-Fady Daou). The country’s micro-climate and relatively strong level of human resources are also attractive for such interventions. However, Lebanon’s persistent lack of stability acts as a constraint to the engagement of European seed companies in local seed production (KII-Nadine Khoury).

• Opportunity: The economic crisis in Lebanon has broken the existing, informal credit arrangements offered by input suppliers to farmers. This has been disruptive to farmers’ operations in the short-term, although a shift to a cash-based system is better for farmers on the long term (KII-Nadine Khoury).

• Opportunity: While large farmers are able to cover their own input needs despite the crisis, and small farmers may be receiving support from FAO and other donors working to ensure continued access to planting materials, the medium-scale farmers (10,000-30,000 m2) are a segment of the market that needs assistance and represents an opportunity to support continued production (KII-Nadine Khoury).

Vegetable producers typically learn about production technologies and improvements in varieties and chemical inputs directly from input suppliers. Small farmers have less access to such information than do medium or large farmers. Lebanon’s public extension service is not considered to be present or effective in the field (Mercy Corps, 2014b).

• Weakness: Vegetable farmers including tomato farmers do not apply pesticides properly, with the most common problem being application too close to the date of harvest (typically not less than three days) (Mercy Corps, 2014b). The improper application of pesticides is attributed to the lack of public extension service and the reliance of producers on input suppliers who (may) have a commercial motive to promote their products rather than to objectively inform producers of the optimal application methods (KII-Fady Sarkis).

• Weakness: The problem of commercial agents acting as de facto extension agents may occur at the level of the agro-input suppliers or their distributors, who may seek to promote varieties that offer a higher profit margin (KII-Nadine Khoury).

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Lebanon’s vegetable production tends to be labor-intensive with limited use of mechanization. For example, tomato production relies on hand harvesting, which may be done by full-time farm laborers (usually Syrian laborers), daily laborers (usually female laborers), or family labor. Sorting for size and quality may happen at the harvesting stage, but this is not universally practiced, particularly for low quality production. After harvesting, better quality tomatoes are more carefully packed in small crates, while lower quality production is packed haphazardly into crates. Damage may occur during packing (bruising) or during transport (heat damage, softening of fruit). Cold storage and cooling are not commonly used for tomato (Mercy Corps, 2014b), or for any vegetables at the wholesale market stage (Ruijs, 2017).

• Weakness: Local chickpea producers lack the necessary machinery to filter dirt and pebbles from chickpeas, which slows down production (Osseiran, 2018).

Tomato farmers, especially small farmers, typically do not consolidate their production but instead sell production directly to the wholesale market (hisbeh) several times weekly throughout the harvest season. Market prices vary based on quality, size, and color. Greenhouse tomatoes typically earn higher prices due to better quality and size. However, exporters and traders seeking higher quality prefer open field Grade A tomatoes due to the color and taste. More than 90% of tomato trade (fresh and processed) passes through the wholesale market. Lebanese fresh market tomatoes are not branded and lack traceability to the farm level (Mercy Corps, 2014b). While sorting and grading exist to some extent, there is no system of quality regulations at either the wholesale or national level (Ruijs, 2017).

Exporters of fresh vegetables typically are not specialized but send mixed shipments containing multiple types of vegetables and fruits (Mercy Corps, 2014b).

Food processing, including the processing of vegetables, has been a driver of growth for the wider agribusiness sector over the past 15 years, outperforming the unprocessed segment (McKinsey, n.d.).

Processing of tomatoes draws exclusively on open field production, largely for the production of tomato pastes, and sauces. Most tomatoes are sourced on the wholesale market, though a very small number of commercial processors rely on contract farming or are vertically integrated to produce their own tomatoes (Mercy Corps, 2014b). While limited in scope, the contract farming model is present in the fresh and processed vegetables VC. Current models have farmers producing for processors, which in turn provide high-quality and expensive seeds as well as peat moss for planting. Lebanon does not currently have a robust commercial production of tomato paste, and most production is produced by cooperatives and households (KII-Fady Daou). The production of other high-value tomato products including tomato jam and sun-dried tomatoes is much more limited in volumes and tends to be offered by cooperatives. Inconsistent quantities and qualities of supply, as well as hygiene issues, constrain the supply of products like sun-dried tomatoes despite potential demand on the local market (Mercy Corps, 2014b).

• Opportunity: The shift to contract farming is a necessary shift but may prove difficult unless farmers can be shown that they will earn a fair profit from such arrangements (KII-Fady Daou).

Lebanese production of pickles is established, competitive, and already reaching export markets (KII-Fady Daou).

• Constraint: The lack of affordable glass jars and other packaging materials represents a key constraint to the production of processed vegetables (KII-Fady Daou).

The scale of most Lebanese agri-food processing typically requires smaller machines and semi-automated systems. Due to inflation and capital controls, investment in even smaller machines is out of reach for SMEs. Processors are instead investing in upgrading existing equipment to maximize

26

production (KII-Fady Daou). Long-term challenges for processors also include the lack of reliable and low-cost electricity, as well as declines in skilled labor (KII-Hassan Chbaro).

The distribution of processed foods has been impacted by the shift to cash operations almost across the board (excepting only the largest supermarket customers), requiring distribution networks to reach customers on a near-daily basis (KII-Hassan Chbaro).

Stakeholder Analysis Production of vegetables in greenhouses can be found across all farm types, including hobby, small, medium and large enterprises and comprising both owner-operated and rental-based business models. In 2010, there were approximately 170,000 farms, of which 8.6% were headed by women, accounting for 230,995 hectares (HA) nationally and with an average size of 1.36 HA. Greenhouses make up 3,800 HA or 1.6% of the agriculture land and are mainly located in Akkar (1,574 HA). About 70% of farms are smaller than 1 HA. The average farm owner’s age is 52 years, slightly higher for women farmers (Bureau Leeters, 2018). Most medium and large enterprises rely on paid laborers to cultivate, tend and harvest crops, the majority of whom are Syrian.

The major livelihood sources for Syrians, usually working as day laborers, are agriculture, including fruit and vegetable production. This has been the case for decades, particularly in farming, where Lebanese farmers traditionally draft in seasonal Syrian workers for harvesting, planting and crop maintenance during the summer season. Women play an important role as seasonal workers, albeit often with lower wages (ILO, 2017).

• Weakness: Lebanon’s vegetables and fruits production relies heavily on non-specialized laborers, who are ill suited to high-quality production. An alternative is to sign labor contracts (via the warshe) that ensure laborers who have been trained continue to work for the farmer/producer in question, and that the laborers earn a wage that incentivizes their return (KII-Fady Sarkis).

The agri-food processing industry is also an important employer in the Lebanese economy, employing roughly 20,000 people as of 2007, of whom more than 10% were directly attributed to processing and preserving fruit and vegetables (ILO, 2020).

Competition for jobs, particularly unskilled and skilled manual work, has increased and accelerated unemployment levels as the economy has stagnated and even declined. Young and low-skilled Lebanese men are most affected by reduced economic opportunities, directly impacting many rural household incomes. Since the beginning of the Syrian crisis, poverty in Lebanon has been on the rise and with it the fear of radicalization and unrest (ILO, 2020).

The aggregation model in which the aggregator or service center acts to control quality and also to bulk production for delivery to either the processor or to export markets is seen as an opportunity, one which is already proving effective in vegetables (carrots, avocados) and fruits (grapes, cherries, apples).12 This model is seen to offer the advantage of consistent engagement and follow-up with farmers, and at a technical level is better suited to farmers’ needs and understanding (KII-Fady Sarkis).

12 The topic of the aggregation model arose in the context of a discussion about fresh fruits and vegetables generally and can be applied to a range of VCs to address production challenges at the production and post-harvest levels.

27

• Constraint: Aggregation schemes require cooperation with farmers who are carefully selected for a minimum level of education and technological capacity, knowledge of agriculture, ability to invest, and willingness or ability to learn. The smallest and least capable farmers will not be suitable partners to improve production to meet export or even processing requirements (KII).

End Market Analysis Fresh and processed vegetable production reaches both the local and export markets. The majority (some 75%) of Lebanon’s agri-food exports are processed (McKinsey, n.d.).

• Opportunity: Small or mini cucumbers were previously identified as among the best opportunities for greenhouse vegetables targeting high-end local markets and niche export markets (Ruijs, 2017), though it is unclear to what extent this recommendation remains valid given shifting market dynamics.

Lebanon is a net importer of fresh vegetables (Ruijs, 2017). Chickpeas are among the main vegetable items imported to Lebanon, sourced largely from Mexico and the United States (Bureau Leeters, 2018). Local production faces tough competition from imports, including from Syria. The volume of Syrian products in the market increased significantly after 2011, due to disruption to that country’s domestic markets as well as overland access to export markets. Syrian production is generally lower price and lower quality that local Lebanese production (Mercy Corps, 2014b).

• Opportunity: While Lebanon has an ideal climate for the production of chickpeas, the country has over time shifted away from local production to import lower-priced chickpeas (Osseiran, 2018). Imports of chickpea were estimated at 14,000 tons versus local production of 3,500 tons in the period 2011-2014 (Riachi, 2016). A shortage of chickpeas on global markets and rising prices were reported in 2018, with speculation that Lebanese farmers could return to their production (Osseiran, 2018). It does not appear that this shift has taken place.

• Opportunity: Lebanon has unmet demand for frozen vegetables, including broccoli, peas, carrots, tomato, spinach, okra, and mlukhieh. Demand for local products is rising in light of the rising prices of imported products. While the investment in cold chain to produce frozen foods is high and technically difficult, this type of production benefits from the fact that it has a low requirement for packaging (thin plastic bags) (KII).

• Weakness: Cooperatives are generally unaware of market dynamics and unable to meet emerging market gaps in terms of quality, quantity, and timing of delivery (KII).

The majority of Lebanese fresh vegetable exports are sent to other countries in the Middle East (Gulf), with a tendency toward quality production (Ruijs, 2017). Export to retailers is seen as significantly more attractive and profitable than to international wholesale markets, though the specifications are also more demanding (KII). Of note, tomato was one of the crops identified as having high export potential and which was recommended for further cultivation within the Lebanon Economic Vision;

“Distributors call early in season. ‘I need two containers each week for three months, are you

committed?’ You have to say yes or no. What does it mean? Pesticides/MRL at requirement, packaging

at requirement, specs of packaging and of fruits and packing, structure to make the money transfer,

people to answer the phone call any time of the day. Logistics and roads, information to quote the

price. You have to know your costs – accounting and information systems for prices and for

traceability. If you commit, you need all of this when you commit. And to do that, based on my

experience you need one year to implement that. And a farmer needs 10 years to implement – so he

will never do it [himself], to reach this level” (KII).

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preliminary export markets included Azerbaijan, Bahrain, Bangladesh, Belarus, and Bulgaria (McKinsey, n.d.).

Exporting to Europe requires additional quality requirements, such as Global GAP and/or HACCP certification (Ruijs, 2017).

• Weakness: Fresh vegetable producers face challenges in meeting market access requirements, particularly for demanding export markets such as the European Union. Food safety requirements are a key challenge for many Lebanese exporters, but represent an increasingly common requirement for access to the EU and in Gulf countries (Ruijs, 2017).

• Weakness: Lebanon lacks a proper analysis lab to conduct testing for pesticide residues (“Minimum Residue Levels”), which is a requirement for export to Europe. Exporters currently must rely on international labs that charge in hard currency, but which deliver results in a very short period of time (KII).

As for processed foods, Lebanese retailers (supermarkets) are searching for lower-price products to maintain supply on store shelves. Consumers have become more price-conscious, prioritizing cost over quality and moving away from established brand loyalties. Demand for pickles has decreased in Lebanon in the past year, as pickles are largely demanded by restaurants (KII).

• Strength: Processed tomato-based products including sauces, pastes, and ketchup have a strong demand in the Lebanese kitchen. They are considered staple products for preparation of traditional and common meals (KII).

• Opportunity: The VC has an opportunity to pursue an import substitution strategy, particularly for processed vegetables, in light of currency depreciation that is driving up the cost of imported products. Already local manufacturers have sought out local production to provide lower-cost inputs and maintain supply on the market for local consumers (KII).

• Opportunity: Tomato paste, sauce, and ketchup have been identified specifically as processed food products that might shift towards local Lebanese production in the short-term (KII).

• Weakness: Demand for pickled cucumbers (pickles) has declined in recent months due to the temporary and permanent closures of restaurants, which are a major source of local demand for pickles. Instead, producers and distributors are seeking to shift demand from HORECA to consumer channels (KII).

Agri-food processors may be interested and willing to adopt a fair trade or social responsibility standard that would facilitate access to export markets, if such a standard were developed for the market (KII).

Business Environment Factors The environment for Lebanon’s exports of fresh and processed vegetables is, overall, not supportive. As for the wider agri-food sector, “There is no clear national vision on agriculture and no national export marketing strategy. Policies, legislation and regulations have critical limitations, such as lack of quality frameworks, quality standards and accredited labs. Connections between the public sector and the private sector are weak. Applied research, education and extension are below the level required to support businesses. Business support organizations lack sufficient staffing and funds to develop and deliver valuable export-related services to the private sector” (Bureau Leeters, 2018: 11). Of note, Lebanon lacks proper regulations on the labeling and use of pesticides, and what is present is not enforced (KII).

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The VC is also challenged by the limited availability and distribution but high prices of high-quality inputs, equipment, and technologies; as well as the limited and declining access to finance (Mercy Corps, 2014b).

Dynamic Trends Dynamic trends within the tomato VC that were identified in previous studies (Mercy Corps, 2014b) include the following, though the extent to which these trends are still valid is an issue for further exploration:

• Widespread adoption of improved tomato varieties, though among a limited selection, driven by input suppliers and/or lead farmers;

• Widespread adoption of drip irrigation and greenhouse production in Bekaa Valley;

• Increased water pumping costs and concerns over water availability;

• Increasing demand for high-quality, organic, dehydrated products among exporters and domestic distributors and retailers.

Cross-Cutting Themes All findings under ‘Cross-Cutting Themes’ that are specific to this VC are presented here. Please also refer to the broader discussion under Methodology, above.

Journey to Self-Reliance The agri-food processing industry in general has benefited tremendously from the rising interest of donors and international organizations in Lebanon’s food production industry. This is partially a result of the refugee crisis, with international governments seeing an opportunity for job creation in this industry, notably in factories and farming. One of the key programs in Lebanon was the USAID-funded Lebanon Industry Value Chain Development (LIVCD) activity, which focused on agri-food development, and which benefited many local companies. Al Rabih was one of those companies which was able to rebrand, launch a new website and develop marketing efforts thanks to LIVCD funds and technical support. Al Rabih offers a wide range of processed fruit and vegetables, including vegetables, beans and tomato-based products (Euromonitor International, 2019 November). The LIVCD final performance evaluation concluded that interventions to support processed food companies were among the most cost-effective undertaken (Social Impact, 2018 November). More recently, USAID/Lebanon has invested in the processed vegetables VC under the Lebanon Investment in Quality (LINQ) activity, which will run until 2021.

Other donors have also invested in the agricultural sector in Lebanon. The Agriculture and Rural Development Program (ARDP) supported by the European Union sought to improve extension services and access to finance; however, this support was not directly targeted to the fresh and processed vegetables VC (Mercy Corps, 2014b).

At the processing level, many cooperatives have received previous support from donors and development projects in the form of production training and basic equipment. Gaps remain with regard to a lack of marketing, poor labeling and branding, and non-differentiated packaging (Mercy Corps, 2014b).

Additional Factors There are no findings under ‘Additional Factors’ specific to this VC. Please refer to the broader discussion under Methodology, above.

Illustrative Interventions to Address Constraints and Opportunities Given Lebanon’s small scale of agricultural production, a longer-term strategy to promote the fresh and processed vegetables VC is to focus on value-added production with a focus on processed foods

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including tomato sauces and pastes, pickled cucumbers, and cornichons. Available evidence from previous USAID activities indicates that technical assistance can be particularly effective in supporting food processing firms (Social Impact, 2018 November; Social Impact, 2020 September).

A contract farming arrangement through key firms could be one mechanism to increase the production of fresh vegetables including tomatoes and cucumbers, increasing local supply available to processors seeking to pursue an import substitution strategy.

To support quality improvements in the sector, interventions could target the domestic production of currently imported inputs including seeds and soil amendments. These inputs are costly and, in light of the cancellation of informal credit arrangements, require cash payment that limits their demand and use by local farmers.

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Lebanese Vegan Foods 13 Selection Criteria Results

Criteria Data Source Weight Scoring 1 2 3 4 5

Economic (50%)

Market Size (Value, USD) (2019)

ITC, 2020

10% 5 Market Growth - Annual Growth (Value, USD) (2015-2019)

10% 2

Lebanon's Global Market Share - % of Total Exports in Value (2019) 5% 5

Current Exports from Lebanon (Value, USD) 5% 5

Current Imports to Lebanon (Value, USD) 10% 3

Current Production (Value, USD) 10% 5 Social (20%)

Scalability (Number of Firms) Interviews &

Reports

10% 5

Engagement of Women (%) 5% 4

Engagement of Youth (%) 5% 5 Environmental (15%)

Impact of the value chain on the environment (adverse)

Mekonnen & Hoekstra, 2011 10% 1

Impact of the environment, including climate change, on the value chain

MOE & UNDP, 2011 5% 3

Institutional (15%) Private sector, government, or donor investment

Interviews & Reports

5% 4

Institutional capacity exists to support the value chain 5% 5

Reliance on conventional financial services 5% 3

Economic The global market (global imports) for Lebanese vegan foods was valued at nearly $9 billion in 2019, reflecting growth of 2.04% by value over the period 2015-2019. Lebanon accounted for 0.71% of global exports by value in 2019. Lebanon’s exports were valued at more than $58 million in 2019, significantly higher than the corresponding imports figure of $4 million (ITC, 2020). There are no available estimates of the value of local production of Lebanese vegan foods, however, the value is reasonably assumed to exceed the value of exports.

The manufacturing of food products accounted for 2.1% of Lebanon’s GDP in 2018 (CAS, 2020).

13 For the purposes of this analysis, and to maintain consistency with Phase 1 of the selection and prioritization exercise, the Lebanese Vegan Foods VC was defined to include hummus, moutabbal, tahini, and ready meals using chickpea, hummus, or moutabbal.

Cumulative Score: 3.80 Recommendation: FOCUS

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Social The number of producers of Lebanese vegan foods – including farmers producing the agricultural inputs including chickpea and eggplant – is estimated to exceed 2,000. In addition, the VC involves a smaller number of other actors including importers of ingredients such as sesame seed (Kompass.com, n.d.) as well as food manufacturers.

Female participation in the Lebanese vegan foods VC is estimated at approximately 35% (MOI et al., 2010; PSDP, n.d.a; KII). Women are particularly dominant in the hand-made production and manufacture of such products (KII), for example through agro-processing cooperatives (PSDP, n.d.a).

Exact figures on youth participation in the Lebanese vegan foods VC are not available, but experts estimate the presence of youth within the VC at approximately 90% (KII).

Environmental The Lebanese vegan foods VC has a large impact on the environment, in terms of resource intensity and specifically water use: The water footprint associated with the fresh products (chickpea, eggplant, and especially sesame seed14) used in their production is more than 4,000 m3 per ton (Mekonnen & Hoekstra, 2011).

Lebanon’s production of fresh vegetables including eggplant is associated with improper or excessive use of chemical inputs including pesticides, which have harmful effects on both the environment (soil and water quality, biodiversity) as well as human health (laborers and consumers). However, good agricultural and best environmental practices are available that could improve the handling and application of these chemicals.

The impact of the environment, including climate change, is estimated to be average or medium on the Lebanese vegan foods VC. The environment directly affects agricultural production of all types, though the use of semi-controlled environments such as greenhouses and irrigation can and do limit environmental impacts on Lebanese production of eggplant. As for climate change, detailed estimates of the impact on Lebanese vegan food production or the underlying agricultural crops are not available (MOE & UNDP, 2011). Of note, the production of chickpea and other legumes has been touted by some as a way to limit agricultural water use in light of lower precipitation associated with climate change.

Institutional The Lebanese vegan foods VC ranks above average, with respect to the degree of support and investment from private, government, and donor sources relative to other VCs under consideration. The recently published Lebanon National Agriculture Strategy 2020-2025 highlights the possibility to develop or promote the ready-to-eat processed food and traditional or artisanal food products (Programme 3.3) (MOA, 2020).

The institutional capacity of the VC to support sustainable development is estimated to be high, given the availability of local skills and processes to match the potential needs of the VC.

The Lebanese vegan foods VC is understood to have an average reliance on conventional sources of finance. This reliance is less pronounced within the processing components of the VC than in the primary production segments. Fresh vegetables production, including for eggplant, has traditionally relied on informal credit arrangements between input suppliers, producers, and wholesale markets; these credit arrangements have shifted to cash-based operations due to Lebanon’s economic crisis.

14 In fact, the high-water footprint associated with sesame seed production is not borne by Lebanese producers, as sesame seed is imported. However, even with the omission of the water footprint associated with sesame seed production, the VC reflects a relatively high-water footprint associated with the primary agricultural inputs.

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Value Chain Structure No map of the Lebanese vegan foods value chain is currently available. The VC – at least for Lebanese vegan foods that are primarily composed of eggplants – is assumed to have a similar profile to that of tomatoes. The key players within the VC are importers of inputs including raw materials (food and non-food components), local farmers producing raw materials, local wholesale markets for raw materials, processor-manufacturers, distributors (including exporters), and retail and HORECA customers.

Figure 2. Lebanese Vegan Foods Value Chain Map

Source: Mercy Corps (2014b)

Production and Processing The manufacturing of food products accounted for 2.1% of GDP in 2018 (CAS, 2020).

A number of processors are present in the market, preparing the raw ingredients, cooking or otherwise transforming them, packaging and labeling them, and preparing for distribution.

The raw materials for the production of Lebanese vegan foods are sourced both locally (eggplant, olive oil) and internationally (chickpea, sesame seed). The reliance on imported inputs limits the ability of food manufacturers to benefit fully from the depreciation of the LBP.

Food processing of raw ingredients such as eggplant demands production of raw materials that meets quality specifications (product sizes, food safety). These specifications can best be met through an aggregator, rather than working directly with small farmers (KII). On the positive side, the production of eggplant has been highlighted as a potential response to climate change in dryland-mixed farming systems within the Mashreq region (Lewis et al., 2018).

Tahini is a traditional sesame paste and an integral ingredient of hummus as well as being the appropriate condiment for falafel, one of the most common dishes in Lebanese cuisine. Tahini is also used as, or added to, salad dressings and is one of the most important components of the traditional dessert item halva (Euromonitor International, 2019 November).

Dom

estic

Pro

duct

ion

Pro

cess

ing

Export Market

Large Farmers 20+ donum

Medium Farmers 10 - 20 donum

Small Farmers 1-10 donum

75% of tomatoes

Som

e pr

ovid

e 50

% o

f pro

duct

ion

as re

nt

Wholesale Ferzol Market

Wholesale Qab Elias Market

Wholesale Baalbek Market

Wholesale Beirut, Tripoli

Retail Local Dukkane

Consumers Local

Exporters Bekaa, Beirut

Consumers Export (GCC)

2% of tomatoes (5,000 tons) Imported Syria, Jordan

22,000 tons (2013)

Processors Large SMEs

Processors Co-operatives

310,000 tons (2012)

30 - 60,000 tons (2013)

Distributors Beirut, Bekaa

Retail Hotel, Restaurant

Retail Supermarkets

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Processors face high costs of production, including water and electricity, as well as problems with packaging/labeling. In addition, some producers require new equipment to expand their production capacity, including for items like makdous (stuffed eggplant) (KII).

Processors may provide their own distribution (including export) (KII).

Distribution of sauces, dressings, and condiments (including tahini) is evenly split between traditional and modern grocery retailers, with these products having a wider appeal beyond just mid- to high-income consumers. Furthermore, consumers are more likely to frequent independent small grocers to top up on cooking ingredients than for other packaged food, with cold storage and refrigeration not typically required for these products. Nevertheless, supermarkets and hypermarkets remain popular with these being the most popular shopping destination for many Lebanese households, with these stores also typically offering a wider range and more affordable prices and promotions (Euromonitor International, 2019 November). Shelf stable ready meals are available in a variety of retail channels, including independent small grocers and supermarkets. In other ready meals categories, distribution is generally limited to supermarkets and hypermarkets in Beirut and this is because these are usually the only retail outlets with the required refrigerated storage and display facilities for these products (Euromonitor International, 2019 November).

Stakeholder Analysis Local player Al Wadi Al Akhdar SAL is the leading player in the sauces, dressings, and condiments category of packaged foods with its well-known eponymous brand. This brand offers one of the most popular brands of tahini. The brand is also perceived as offering healthy products by the local population, who also value its Lebanese roots. In 2018 the company ran its ‘What’s for Iftar?’ campaign which was focused on providing ideas for dishes to serve during Ramadan. The company also has a strong social media presence which it uses to promote its products, with over 400,000 Facebook followers and regular updates on Instagram. Another local player, Cortas Canning & Refrigerating, is ranked second in the category thanks to the popularity of its product range which includes tahini and pickled products. The company uses television adverts to promote its products, with a focus on their local roots and their use in family meals. The company’s products are also widely available through the leading distribution channels (Euromonitor International, 2019 November).

Domestic company Tony’s Food leads the ready meals category, offering a range of popular local dishes such as stuffed vine leaves and fatayer (pastry filled with spinach) as frozen ready meals. The company benefits from the perceived good quality of its products, while it also has an active social media presence which it uses to promote its products. Mezze is another local brand of ready meals that is popular in Lebanon (Euromonitor International, 2019 November).

End Market Analysis Lebanese vegan foods production reaches both the local and export markets.

The majority of hummus and other dips consumed in Lebanon are home-made, with packaged dips likely to continue struggling due to their high prices. Conversely, tahini is a popular product on the Lebanese market. Tahini is growing in popularity as stagnant income levels and the rising cost of living are encouraging increasing numbers of Lebanese people to prepare their own hummus and halva, among other food items which contain tahini (Euromonitor International, 2019 November).

With sales of ready meals and read-to-eat foods being quite low and with lifestyles becoming increasingly hectic among residents of Beirut and other urban areas in Lebanon’s densely populated coastal regions, there is huge potential for the further development of this category. However, two factors which could potentially prevent the category from evolving are the uncertain economic situation in the country, which is discouraging household spending on non-essential products, and the rather unhealthy image that most ready meals categories have. Most Lebanese people have a good

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understanding of what constitutes healthy eating and they are generally aware of the importance of maintaining a healthy diet. Moreover, as in all Mediterranean countries, local eating culture centers on the enjoyment of food with friends and family and this includes taking the time to prepare meals from scratch. This means that ready meals products are somewhat at odds with the prevailing attitudes towards food generally (Euromonitor International, 2019 November).

• Opportunity: There are many people in Lebanon who are familiar with shelf stable ready meals from having lived overseas and this group, along with the country’s expatriate community, forms the core consumer base for shelf stable ready meals (Euromonitor International, 2019 November).

• Opportunity: Demand for hummus had been projected to grow in Lebanon as recently as 2016, in response to consumer demand for alternative protein sources to animal proteins (Riachi, 2016).

Demand for processed foods has persisted on the local market over the past year, despite the declining economic situation (KII).

Demand for Lebanese vegan foods is rising on export markets, including in the United States (KII). Hommos, moutabbal, and tahini are generally well known on international markets, with a clear association with the Mediterranean and Levant regions. Lebanese products generally benefit from a positive reputation among consumers.

• Strength: The majority of Lebanon’s commercially produced hummus is destined for export markets, rather than consumed locally. For example, Al Wadi Al Akhdar was reported to export 80% of its hummus (Riachi, 2016).

Lebanese vegan foods producers benefit from established relationships and distribution links to export markets. However, competition is rising on international markets (KI-Bahij Khater).

Business Environment Factors The enabling environment for Lebanon’s production and export of vegan foods is, overall, not supportive. As for the wider agri-food sector, “There is no clear national vision on agriculture and no national export marketing strategy. Policies, legislation and regulations have critical limitations, such as lack of quality frameworks, quality standards and accredited labs. Connections between the public sector and the private sector are weak. Applied research, education and extension are below the level required to support businesses. Business support organizations lack sufficient staffing and funds to develop and deliver valuable export-related services to the private sector” (Bureau Leeters, 2018: 11).

The VC is also challenged by the limited availability and distribution but high prices of high-quality inputs, equipment, and technologies; and well as the limited and declining access to finance (KII).

Dynamic Trends Dynamic trends within the Lebanese vegan foods VC that were identified in previous studies include the following, though the extent to which these trends are still valid is an issue for further exploration:

• Chickpeas are experiencing global demand growth. To capitalize on this growth, a pilot could be conducted for chickpea farming with a leading processor such as Cortas or Al Wadi Al Akhdar, to plant, process and can, and export.

Cross-Cutting Themes All findings under ‘Cross-Cutting Themes’ that are specific to this VC are presented here. Please also refer to the broader discussion under Methodology, above.

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Journey to Self-Reliance USAID/Lebanon has invested in the processed foods VC, including production of ready meals, under the Lebanon Investment in Quality (LINQ) activity that will run until 2021.

Other donors have invested in the agricultural sector in Lebanon, though the extent to which they have supported the Lebanese vegan foods VC is not immediately clear.

Additional Factors There are no findings under ‘Additional Factors’ specific to this VC. Please refer to the broader discussion under Methodology, above.

Illustrative Interventions to Address Constraints and Opportunities Interventions to support the expansion of Lebanese vegan foods could include co-investment with a key firm to expand production lines and production capacity. The introduction of quality seals, hygiene certifications, and improved packaging could facilitate entry and expansion within export markets. Further support for marketing could include working with brand ambassadors to promote Lebanese vegan foods; development of alternative outreach or marketing materials (e.g., design and updating of company websites as an alternative to traditional trade shows that have been interrupted by COVID-19); and matchmaking, particularly to extend beyond the diaspora. Available evidence from previous USAID activities indicates that technical assistance can be particularly effective in supporting food processing firms (Social Impact, 2018 November; Social Impact, 2020 September).

Interventions that support increases in the production of Lebanese vegan foods that include chickpea as a raw material could have a positive knock-on effect on the local planting of chickpea.

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Fresh & Dried Herbs Selection Criteria Results

Criteria Data Source Weight Scoring 1 2 3 4 5

Economic (50%)

Market Size (Value, USD) (2019)

ITC, 2020

10% 5 Market Growth - Annual Growth (Value, USD) (2015-2019)

10% 3

Lebanon's Global Market Share - % of Total Exports in Value (2019) 5% 1

Current Exports from Lebanon (Value, USD) 5% 5

Current Imports to Lebanon (Value, USD) 10% 5

Current Production (Value, USD) MOA & FAO, 2016 10% 4

Social (20%)

Scalability (Number of Firms) Interviews &

Reports

10% 1

Engagement of Women (%) 5% 5

Engagement of Youth (%) 5% 5 Environmental (15%)

Impact of the value chain on the environment (adverse)

Mekonnen & Hoekstra, 2011 10% 5

Impact of the environment, including climate change, on the value chain

MOE & UNDP, 2011 5% 3

Institutional (15%) Private sector, government, or donor investment

Interviews & Reports

5% 5

Institutional capacity exists to support the value chain 5% 3

Reliance on conventional financial services 5% 2

Economic The global market (global imports) for fresh and dried herbs was valued at more than $50 billion in 2019, reflecting growth of 5.48% by value over the period 2015-2019. Lebanon accounted for 0.03% of global exports by value in 2019. Lebanon’s exports were valued at more than $14 million in 2019, significantly lower than the corresponding imports figure of $70 million (ITC, 2020). The latest estimate of national production for the fresh herbs component of the VC was approximately $9.5 million (MOA & FAO, 2016).

The agriculture sector (including fresh herbs production) accounted for 2.1% of gross domestic product (GDP) in 2018, and the manufacturing of food products accounted for another 2.1% of GDP that same year (CAS, 2020).

Social The number of commercial-level producers of fresh and dried herbs – including large collectors, medium- and large-scale spice and herb companies, and women’s cooperatives engaged in the

Cumulative Score: 3.75 Recommendation: FOCUS

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processing of manufactured traditional foods – is modest, estimated at less than 100 (Hamade, 2016; PSDP, n.d.a) While there are certainly farmers, rural households, and other actors involved in the value chain, no estimate of their number is currently available.

While exact estimates of female participation in the fresh and dried herbs VC are not available, women are understood to play a significant role exceeding 40% of all actors in the VC. Women’s labor is concentrated in several segments of the value chain, including field labor and in processing activities (NIRAS, n.d.; KII).

Exact figures on youth participation in the fresh dried herbs VC are not available, but estimates place this figure at well above 40% (KII). The field-level workforce for commercial herbs production particularly draws on Syrian youth (KII).

Environmental The fresh and dried herbs VC has a relatively low impact on the environment, in terms of resource intensity and specifically water use: The water footprint associated with the fresh herbs produced is approximately 310 m3 per ton (Mekonnen & Hoekstra, 2011). Fresh and dried herbs production, particularly when based on cultivation rather than collection, applies irrigated production techniques.

The production of fresh herbs (notably parsley) in Lebanon is associated with improper or excessive use of chemical inputs including pesticides, which have harmful effects on both the environment (soil and water quality, biodiversity) as well as human health (laborers and consumers). However, good agricultural and best environmental practices are available that could improve the handling and application of these chemicals.

The impact of the environment, including climate change, is estimated to be average or medium on the fresh and dried herbs VC. The environment directly affects agricultural production of all types, though the use of semi-controlled environments such as greenhouses and irrigation can and do limit environmental impacts on Lebanese production of fresh herbs. No evidence has been found exploring the impact of climate change on fresh and dried herbs production in Lebanon.

Institutional Lebanon’s fresh and dried herbs VC has received a large degree of support and investment from private, government, and donor sources relative to other VCs under consideration. The recently published Lebanon National Agriculture Strategy 2020-2025 highlights the importance of spices within Lebanon’s export basket. In addition, that document further highlights the possibility to support farmers by providing in-kind and cash assistance for inputs including high quality seeds, seedlings, fertilizers, small tools and equipment (including irrigation equipment), and greenhouse supplies (Programme 1.1.); and to facilitate market access for high value-added niche and traditional products including thyme and other aromatic plants (Programme 3.4) (MOA, 2020).

The institutional capacity of the VC to support is estimated to be average or medium, based on the availability of local skills and processes to match the potential needs of the VC. Gaps in the quality of locally produced fresh and dried herbs was referenced in KIIs.

The fresh and dried herbs VC tends to rely on conventional sources of finance, though this is less pronounced within the processing components of the VC than in the primary production segments. Fresh herbs production has traditionally relied on informal credit arrangements between input suppliers, producers, and wholesale markets; these credit arrangements have shifted to cash-based operations due to Lebanon’s economic crisis (KII).

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Value Chain Structure Figure 3. Zaatar (Origanum syriacum) Value Chain Map

Source: Hamade (2016)

Production and Processing The production of fresh and dried herbs in Lebanon includes a range of products, including zaatar,15 sumac, laurel, rosemary, sage, aniseed, and mixes or blends thereof.

Zaatar is a perennial crop and its production is done in two forms – wild collection and cultivation. Cultivation of zaatar is concentrated in South Lebanon, whereas collection is concentrated in North Lebanon, Akkar, and to a lesser extent Mount Lebanon (ICU, n.d.). Collection is practiced at the household level, but dominated by a dozen large scale collectors, most of them controlling access to relatively large areas of land in specific regions. These large-scale collectors are either processors or traders of zaatar mixes themselves or linked to a limited number of spice and herb traders not

15 Translated to English as thyme, Syrian oregano, or wild marjoram; the term also refers to the dried herb mix of which zaatar is a primary ingredient.

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necessarily specialized in zaatar production and trade (Hamade, 2016). Zaatar cultivation tends to be on small areas of less than 5 dunums (ICU, n.d.). Zaatar cultivation is reliant on labor-intensive techniques with limited use of mechanization. The costs of production of zaatar are relatively high, contributing to high market prices. The highest costs are the costs of irrigation infrastructure and operation (ICU, n.d.).

• Opportunity: Zaatar is a low-input crop that is well adapted to marginal lands, and which offers a suitable alternative to tobacco cultivation (ICU, n.d.).

After wild collection, zaatar branches, leaves, and flowers are dried. Branches are removed, then the flowers and leaves are ground. The ground zaatar is sold to processors, who produce zaatar mix (Hamade, 2016).

• Strength: Zaatar is well suited to production in rural areas as it is marketed in dry form and has a long shelf life independent of sophisticated storage requirements. Processing is a value-added activity that can be performed at the household level, without the need for high technology (ICU, n.d.).

The production of herbs is perceived by some stakeholders to be both “easy and cost-effective” in Lebanon (KII). However, local production of dried herbs lacks the necessary quality and quantity for processors, which limits their ability to source from Lebanese producers (KII).

At the processing and trading level, there are no more than 11 medium and large-scale spice and herb companies officially registered at the MOA. There is a significant number of small-scale informal spice and herb companies; however, they usually get their supplies from local collectors and their total production output is limited. Integrated processors and traders produce different types of herb mixes to be sold in the retail markets and to bakeries. As for zaatar, the quality of mixes inform price. Quality, in turn, is informed by level of grinding and the use of substitutes for authentic zaatar (other herbs, wheat milling products’ residues and colorant) (Hamade, 2016).

Wholesalers and exporters control most (60%) of local zaatar production, in addition to all imports (ICU, n.d.).

The suitability of zaatar for pharmaceutical or cosmetic purposes requires further study, including genetic analysis (ICU, n.d.).

Stakeholder Analysis Approximately 4% of Lebanese agri-food enterprises are involved in the production of grain, spices, and herbs (IDAL, 2020).

The majority of zaatar producers are farmers or retirees, who tend to practice cultivation rather than wild collection. Women (including widows) produce 12% of the market share, but their activities are more concentrated in wild collection. In terms of market value, however, wholesalers and exporters capture the greatest share (ICU, n.d.).

Zaatar production offers promising opportunities to improve the livelihoods of poor or smallholder farmers and rural women (as individuals or via cooperatives). Female engagement in the zaatar VC is estimated at 32%, with women’s roles greatest in collecting, post-harvest, and processing (ICU, n.d.).

End Market Analysis Fresh and dried herb production reaches both the local and export markets.

Bakeries are the main buyers of zaatar mixes in Lebanon. Mixes sold to bakeries are of a lower standard quality and usually contain limited amount of zaatar (Hamade, 2016). Lebanese zaatar producers face competition from imports, and Lebanon imports a limited quantity of pre-packaged

41

zaatar mixes from Syria and Jordan (Hamade, 2016). Imported volumes are approximately equal to the volume of local production (ICU, n.d.).

The demand for authentic zaatar mix (oregano, sumac, and sesame) is growing on the market, both locally and for export. Exports of zaatar have traditionally been strongest to countries with diaspora communities (Hamade, 2016). Consequently, the increased local production of zaatar is an advantage to processors (KII). Conversely, the market for essential oils produced from herbs and other aromatic plants is highly cost competitive. Lebanon faces a disadvantage due to its small scale, which limits opportunities for economies of scale (KII).

Total collection of zaatar is estimated at 1,000 tons (dried) per year. Approximately 30% of this amount is exported in either pure format or in the form of zaatar mixes (Hamade, 2016). Demand for fresh and dried herbs is particularly increasing on export markets including in Europe and the United States (KII).

• Opportunity: Lebanese fresh and dried herbs have the potential for a quality-based distinction and marketing, including on export markets. Opportunities exist to displace inauthentic or cheap substitutes with high-quality production provided there is an effort to raise consumer awareness and standards (KII).

• Opportunity: There is a perceived interest and potential demand for Lebanese dried herbs (including zaatar and sumac) beyond the diaspora. For example, exports of dried zaatar products are reaching non-diaspora customers in the United States and Europe (KII).

Of note, aniseed was one of the crops identified as having high export potential and which was recommended for further cultivation within the Lebanon Economic Vision (McKinsey, n.d.).

Business Environment Factors The enabling environment for Lebanon’s fresh and dried herbs VC is incomplete. As for the wider agri-food sector, “Policies, legislation and regulations have critical limitations, such as lack of quality frameworks, quality standards and accredited labs” (Bureau Leeters, 2018: 11).

Concerning zaatar and sage, concerns have been raised about the sustainability of wild collection, especially due to early collection, uprooting, and increasing urbanization. In 2012, MOA issued a decree regulating collection and export trade of zaatar (MOA decision 1/179 (2012) entitled “Decision related to the investment in and export of Zaatar and Sage”). This decree imposed the need to obtain a ministerial permission for collection and export; allowed for only one collection on a specific site between early June and end of October; and supported regeneration by limiting collection to only 2/3 of the plant population as well as 2/3 of the branches of each plant and prohibiting root removal. If collection takes place on public land, prior authorization from the municipality or any other relevant entity is needed; the MOA has generally refused authorization to harvest zaatar on public lands. This regulation is only partially implemented by the MOA and only partially respected by collectors. While MOA has requested prior registration of collectors and is imposing a control on exports, monitoring and implementation of the decree has proven hard to enforce on the field (Hamade, 2016).

Great effort has been made involving VC stakeholders and the Lebanese standards and norms institutions (LIBNOR) to develop production norms for zaatar mixes and to protect denomination. However, these efforts have not yielded results yet, as reflected in extreme differences in market prices for what claim to be comparable products (Hamade, 2016).

The VC is also challenged by the limited availability and distribution but high prices of high-quality inputs, equipment, and technologies; and well as the limited and declining access to finance (ICU, n.d.; Mercy Corps, 2014b). Due to the current economic situation in Lebanon, there has been a shift to cash-based operations including for payment of farmers by processors (KII).

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Dynamic Trends The lack of access to credit that was traditionally provided by input suppliers for the purchase of seeds and other inputs is causing farmers to forgo production, consequently reducing incomes, especially for small farmers in Akkar (KII).

Cross-Cutting Themes All findings under ‘Cross-Cutting Themes’ that are specific to this VC are presented here. Please also refer to the broader discussion under Methodology, above.

Journey to Self-Reliance USAID/Lebanon has invested in the fresh and dried herbs VC under its LIVCD activity and Lebanon Investment in Quality (LINQ) activity that will run until 2021. LIVCD supported the ‘rural basket’ VC that included herbs (Social Impact, 2018 November). Zaatar distribution for cultivation by rural and vulnerable households was applied under LINQ’s emergency response assistance after COVID-19.

Other donors have invested in the agricultural sector in Lebanon; however, this support was not directly targeted to the fresh and dried herbs VC.

Additional Factors There are no findings under ‘Additional Factors’ specific to this VC. Please refer to the broader discussion under Methodology, above.

Illustrative Interventions to Address Constraints and Opportunities A contract farming arrangement through key firms could be one mechanism to increase the production of fresh and dried herbs including zaatar and sumac, notably for producers seeking to improve the quality and quantity of production available for export.

The fresh and dried herbs VC could benefit from quality-based improvements at the primary production and processing stages, which could potentially be facilitated through a labeling and certification scheme.

Lebanon’s fresh and dried herbs VC could also benefit from attention to issues of branding, packaging, and marketing to better target export markets as well as to leverage the ‘Made in Lebanon’ brand or its positioning as a traditional producer of dried herbs.

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Wine & Arak Selection Criteria Results

Criteria Data Source Weight Scoring 1 2 3 4 5

Economic (50%)

Market Size (Value, USD) (2019)

ITC, 2020

10% 5 Market Growth - Annual Growth (Value, USD) (2015-2019)

10% 2

Lebanon's Global Market Share - % of Total Exports in Value (2019) 5% 1

Current Exports from Lebanon (Value, USD) 5% 5

Current Imports to Lebanon (Value, USD) 10% 5

Current Production (Value, USD) 10% 5 Social (20%)

Scalability (Number of Firms) Interviews &

Reports

10% 1

Engagement of Women (%) 5% 5

Engagement of Youth (%) 5% 5 Environmental (15%)

Impact of the value chain on the environment (adverse)

Mekonnen & Hoekstra, 2011 10% 4

Impact of the environment, including climate change, on the value chain

MOE & UNDP, 2011 5% 1

Institutional (15%) Private sector, government, or donor investment

Interviews & Reports

5% 5

Institutional capacity exists to support the value chain 5% 5

Reliance on conventional financial services 5% 3

Economic The global market (global imports) for wine and arak was valued at more than $43 billion in 2019, reflecting growth of 2.57% by value over the period 2015-2019. Lebanon accounted for 0.04% of global exports by value in 2019. Lebanon’s exports were valued at more than $19 million in 2019, and only slightly lower than the corresponding imports figure of $19.6 million (ITC, 2020). There are no available estimates of the value of local production of wine and arak, however, the value is reasonably assumed to exceed the value of exports.

Social The number of commercial-level producers of wine and arak – including wineries and the major commercial producers of arak – are relatively small in number, generally estimated at not more than 100 (Chbeir, 2019 March 15; Euromonitor International, 2020 September; Griffith, 2020; Saadeh, 2016 August 12). However, arak production is a traditional practice with many households in the North and Bekaa Valley producing it in small quantities. While the number of farmers producing wine grapes

Cumulative Score: 3.70 Recommendation: FOCUS

44

and aniseed for wine and arak production are certainly greater in number, no reliable estimate is currently available.

While exact estimates of female participation in the wine and arak VC are not available, women are understood to play a significant role exceeding 40% of all actors in the VC. Women’s labor is concentrated in several segments of the value chain, including field labor for harvest (KII).

Exact figures on youth participation in the wine and arak VC are not available, but estimates place this figure at well above 40% given the dominance of (Syrian and female) youth in the field labor force (KII).

Environmental The wine and arak VC has a below-average impact on the environment, in terms of resource intensity and specifically water use. The water footprint associated with wine production is approximately 478 m3 per ton (Mekonnen & Hoekstra, 2011).

The impact of the environment, including climate change, is estimated to be large on the wine and arak VC. The environment directly affects agricultural production of all types, and wine grapes and aniseed production are not generally produced in the semi-controlled environments such as greenhouses that can limit environmental impacts on Lebanese production, though irrigation may be used particularly for wine grapes production. As for climate change, MOE and UNDP (2011) estimate that Lebanese wine grapes production is moderately susceptible to its predicted effects; comparable data is not available for aniseed production. However, other studies point to the highly detrimental effects of climate change on the production of wine grapes due to increasing temperatures, which are already at the limit for quality wine grapes production in Lebanon (Jones, 2015).

Institutional Lebanon’s wine and arak VC has received a large degree of support and investment from private, government, and donor sources relative to other VCs under consideration, notably for the establishment of new wineries over the past several decades. Of note, private investors have driven the rapid increase in the number of wineries operating in Lebanon in recent decades. The recently published Lebanon National Agriculture Strategy 2020-2025 highlights the importance of duties on wine imports from the European Union (30%) and elsewhere (70%) in spurring the growth of the wine sector over the past 15 years (MOA, 2020). Moreover, the document also highlights the possibility to develop or promote Lebanese wine (Programme 3.3) (MOA, 2020).

The institutional capacity of the VC to support is estimated to be high, given the availability of local skills and processes to match the potential needs of the VC.

The wine and arak VC tends to rely on conventional sources of finance, though this is less pronounced within the processing components of the VC than in the primary production segments.

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Value Chain Structure Figure 4. Wine & Arak Value Chain Map

Source: Authors

Production and Processing Manufacturing of beverages and tobacco accounted for 1.0% of GDP in 2018 (CAS, 2020).

Lebanon boasts an exceptional terroir with natural advantages that support wine grape and wine production. This terroir reflects natural factors including weather (days of sunlight, precipitation patterns, humidity), soil quality and conditions, and altitude (KII).

Arak production relies on aniseed, which is primarily imported from Syria. Aniseed is currently priced on the local market at the black-market exchange rate (approximately $5.25/kg for Grade 1). In Lebanon, local aniseed production has been almost non-existent, however, there have been efforts by wineries to successfully produce aniseed in marginal lands in the northern Bekaa Valley (e.g., Deir El Ahmar) (KII).

Grape and wine production are vulnerable to the impacts of climate change, notably temperature increases. In a maturity classification shown in Figure 5, Jones (2005) related climate and ripening potential for different varieties based on average growing season temperatures – cool, intermediate, warm, and hot climates – that were derived from the benchmark climates of the world’s premium quality wine producing regions. The Bekaa Valley, Lebanon’s main wine grapes growing region, would be classified as hot, averaging about 20 degrees Celsius during the April to October growing season.16 This average puts it in the higher optimal temperature range for many varieties found in that area.

16 Calculation made via Weatherspark.org.

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Figure 5. Grapevine Climate Change Maturity Groupings

Source: Jones (2015)

Lebanon’s major wine products include dry red wines and (to a lesser extent) dry white wines based on well-established French varietals, though there is also more limited production based on less known French varietals (e.g., Cinsault) as well as indigenous varietals (e.g., Merwah, Obeidy). The wine sector draws on grape production that is clustered in the Bekaa Valley and to a lesser extent Batroun and selected areas of Mount Lebanon (Griffith, 2020).

• Weakness: Lebanon lacks a signature wine or indeed distinctive or unique offerings to the market (Griffith, 2020).

Lebanon’s winemakers are seen to be innovative, with the ability both to produce wine as well as to act as ambassadors for the entire sector (Griffith, 2020).

• Opportunity: The wine sector has a long history that could lend itself to international marketing campaigns. The recently publicized discovery of a Phoenician wine production facility near Saida and the release of the documentary film Wine & War: The Untold Story of Wine in the Middle East are examples of how Lebanon’s history can be used to promote the sector.

Wine is firmly established as a value-added product (Griffith, 2020).

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The costs of wine production including land, water, and imported raw materials were perceived to be high (Griffith, 2020), and this is almost certainly exacerbated by the continued depreciation of the LBP. Indeed, the high cost of imported packaging materials (glass bottles) and raw materials (aniseed for arak production) are challenging the profitability of local producers (KII).

Some wineries may have a weak prospect for financial success, as they appear to have been opened by wealthy investors (including returned expatriates) who view their ventures as a pastime more so than a sustainable business venture (Griffith, 2020).

Stakeholder Analysis Approximately 6% of Lebanese agri-food enterprises are involved in the production of alcoholic beverages (IDAL, 2020).

Though there are relatively few sizeable commercial producers of arak, there is a natural pathway for Lebanese wineries to produce arak, as the first stage of production is indeed the fermentation of grapes into wine (Saadeh, 2016, August 12).

The potential of the wine sector to generate employment is unclear. Employment within wineries appears to be small and highly seasonal, with higher-paid and stable employment limited to the roles of winemaker and sales personnel. Wineries and/or vineyards tend to employ large numbers of migrant laborers, many of whom are non-Lebanese, on a seasonal basis for the grape harvest. However, wineries that diversify their offering to include tourism and hospitality services may have a greater potential for job creation including for employment of Lebanese (Griffith, 2020).

End Market Analysis Wine and arak production reaches both the local and export markets.

Alcoholic drinks and tobacco make up a minor share of Lebanese households’ total spending. Non-essential spending (including on alcoholic drinks and tobacco) were projected to increase by 5.4% annually between 2019-2023 (Chbeir, 2019 August 30), though this projection was made before the current economic crisis. Lebanese consumers have a generally limited awareness of wine as a beverage (Griffith, 2020).

Total domestic consumption of wine is estimated at 6-7 million bottles, of which 2.5 million bottles are imported. Those imports come heavily from France (80%), followed by Italy, Spain, and other producers. Per capita wine consumption is approximately two liters per person per annum, well below consumption levels in European countries like France, Germany, or the United Kingdom (Griffith, 2020).

• Opportunity: Local demand for arak is rising rapidly, as consumers shift from imported alcoholic beverages like whisky and vodka, which have dropped significantly due to LBP depreciation (KII).

Exports account for approximately 50% of total wine production, at some 4-5 million bottles among 9 million bottles. A major destination for exports is restaurants, particularly Lebanese restaurants, as well as boutique wine retailers (Griffith, 2020). As for arak, an estimated 20-25% of production was exported pre-crisis, largely targeting diaspora and expatriate consumers in the United States, UAE, and Iraq (Saadeh, 2016, August 12).

The wine sector is limited by low production and export volumes, as well as marketing gaps. While many wineries have interesting or compelling stories with which to market their products, the sector does not offer a coordinated or compelling identity (Griffith, 2020). Moreover, there is a need for promotion and marketing of Lebanon’s smaller, boutique wineries (< 150,000 bottles annually), which

48

are unable to cover their own costs of international promotion, unlike the largest and most dominant wineries.

• Opportunity: Due to the depreciation of the LBP, Lebanese wines may have a price advantage on the export market. This advantage would need to be carefully exploited so as not to undermine the perceived quality of Lebanese wines.

• Opportunity: Lebanese wineries have previously engaged in collaborative efforts to reach export markets (e.g., efforts to penetrate the UK under the leadership of Serge Hochar in the early 2000s). Until today there is a degree of willingness for wineries – particularly smaller wineries – to collaborate in terms of export promotion. However, this willingness may be limited, particularly if collective marketing would undermine individual wineries’ earlier production or marketing strategies (KII).

Business Environment Factors IDAL has identified the wine sector as one of the most promising opportunities for investment within the agri-food sector (IDAL, 2020), though it is not immediately clear what legal support or investment incentives are currently being provided to facilitate investment in the sector.

The enabling environment for Lebanon’s exports of wine and arak is, overall, not supportive. As for the wider agri-food sector, “There is no clear national vision on agriculture and no national export marketing strategy. Policies, legislation, and regulations have critical limitations, such as lack of quality frameworks, quality standards and accredited labs. Connections between the public sector and the private sector are weak. Applied research, education and extension are below the level required to support businesses. Business support organizations lack sufficient staffing and funds to develop and deliver valuable export-related services to the private sector” (Bureau Leeters, 2018: 11).

Lebanon only loosely regulates household or unlabeled arak production, raising competition between low-quality and high-quality production in venues, including restaurants. Poor quality arak may contain methanol or harmful ingredients due to improper distillation (Saadeh, 2016, August 12).

The VC is also challenged by the limited availability and distribution of high prices of high-quality inputs (including glass bottles, corks, aniseeds); equipment, and technologies; as well as the limited and declining access to finance (KII).

Additional miscellaneous weaknesses challenging the wine sector include (Griffith, 2020):

• Lack of coordination within the sector • Limited government / NIVW support • Lack of regulatory controls • Outdated Wine Law 216 / 2000

Dynamic Trends Lebanon’s wine sector has reported strong growth in recent years, and the outlook for future growth is positive despite the current economic crisis that is expected to reduce investment in the short term. The number of wineries has increased significantly since 1990, from only five to more than 60 as of 2020. The four largest producers – Kefraya, Ksara, Musar, and St. Thomas – account for 70% of the production volume. Lebanese wine is generally of good quality, allowing it to perform well in international markets and earn acceptable prices. Lebanon’s wine sector yields a positive trade balance (Griffith, 2020).

Wine consumption tends to decline during recessionary periods (Griffith, 2020), and therefore domestic wine consumption is expected to fall significantly in 2020. However, arak consumption is trending higher, as consumers switch from higher priced, imported spirits into local production (KII).

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Threats to the wine sector include (Griffith, 2020):

• Liquidity and currency crisis prevent imports of essential inputs – bottles, corks • Rising stocks of unsold wine • Declining local purchasing power • Instability leads to blocked logistics • Cheap, lower-quality imported wines

Cross-Cutting Themes All findings under ‘Cross-Cutting Themes’ that are specific to this VC are presented here. Please also refer to the broader discussion under Methodology, above.

Journey to Self-Reliance USAID/Lebanon has not previously invested in the wine and arak VC, though it has made investments in table grapes production.

Other donors have invested in the agricultural sector in Lebanon; however, this support was not directly targeted to the wine and arak VC.

Additional Factors There are no findings under ‘Additional Factors’ specific to this VC. Please refer to the broader discussion under Methodology, above.

Illustrative Interventions to Address Constraints and Opportunities Illustrative interventions to address constraints and opportunities within the wine and arak VC could include actions directed to the production stage. Interventions could target efforts to coordinate or consolidate purchases of costly imported materials, such as glass wine and arak bottles, in an effort to reduce the costs of purchase. Interventions could fall under a cross-cutting approach that extends to other VCs similarly in need of consolidated purchases of packaging materials.

Arak production could be supported via a contract farming arrangement for aniseed production in cooperation with a key or champion firm. On the consumption side, arak could be promoted on the local market as a winter drink, to expand demand beyond its traditional season.

Potential interventions in the wine VC could focus on expanding wine production and sales (including exports), improving and expanding marketing activities, educating consumers, and improving regulation of the wine industry and marketing at the domestic level (Griffith, 2020). Specific ideas are to:

• Experiment with local grape varieties • Define the uniqueness/distinctiveness of Lebanese wine • Improve coordination within the sector, especially for marketing and sales, for example by

developing a digital marketing strategy to support the industry and by attracting social media influencers in the wine trade to promote/visit/explore the sector

• Increase local wine consumption • Market Lebanese wines to diaspora consumers • Support linkages between wineries and grape farmers, and for wineries with tourism offers,

potentially linking them to other local food producers • Develop a commercial vineyard map oriented for tourist use • Strengthen key institutions: UVL and MOA/National Institute of Vine and Wine • Develop a cost and pricing model to facilitate investment into the sector

The marketing of Lebanese wines – and particularly the production of smaller, boutique wineries – could be pursued via a cluster approach. This could include support for Lebanese wine on export

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markets, possibly establishing an appellation d’origine for Lebanese wines.17 Earlier analysis (Griffith, 2020) recommended to establish an appellation system, possibly beginning with a West Bekaa appellation that could be developed with Kefraya, Marsyas, Terre Joie, and two others. This recommendation could build on a survey conducted in 2014, which confirmed characteristics of three terroirs: 1) clay and limestone on a limestone basis, 2) clay and sand, and 3) clay and silt. Lebanon’s Law 2016 of 2000 (paragraphs 12-14) announce the creation of appellations and their criteria.18 The next step is for winegrowers and wineries to create a map of their vineyards, establish traceability of their grapes, specifications, and authorized international or local grape varieties.

Lebanon’s wine sector could diversify into tourism and hospitality services, drawing visitors to Lebanon’s rural areas. Already, a number of wineries offer tours and tastings, though many only allow for this by request or with a prior reservation. Several wineries also offer on-site restaurants (some year-round, some seasonal) (Griffith, 2020).

17 Expertise France has recently offered training seminar on the importance of the appellation d’origine in promoting exports, and one of the sectors that was targeted was the Lebanese wine sector. It remains unclear whether the sector is currently prepared to pursue an appellation as a sector, independently or with donor support; and whether a public or private mark is available or preferred. Appellation d’origine or geographical indicators as a quality mark for agri-food products are typically registered by multiple private actors at a national level and require international recognition to be effectively used as a branding and marketing tool. Member countries of the World Trade Organization and adherent to TRIPS must provide a minimum level of protection for geographical indicators by other party states (Menapace & Moschini, 2014). 18 The MOET project to establish the appellations envisioned that they would extend to a range of products including olive oil, apricots, peaches, and labneh (MOET, n.d.).

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Table Grapes Selection Criteria Results

Criteria Data Source Weight Scoring 1 2 3 4 5

Economic (50%)

Market Size (Value, USD) (2019)

ITC, 2020

10% 5 Market Growth - Annual Growth (Value, USD) (2015-2019)

10% 2

Lebanon's Global Market Share - % of Total Exports in Value (2019) 5% 1

Current Exports from Lebanon (Value, USD) 5% 5

Current Imports to Lebanon (Value, USD) 10% 2

Current Production (Value, USD) MOA & FAO, 2016 10% 5 Social (20%)

Scalability (Number of Firms) Interviews &

Reports

10% 5

Engagement of Women (%) 5% 5

Engagement of Youth (%) 5% 5 Environmental (15%)

Impact of the value chain on the environment (adverse)

Mekonnen & Hoekstra, 2010 10% 4

Impact of the environment, including climate change, on the value chain

MOE & UNDP, 2011 5% 2

Institutional (15%) Private sector, government, or donor investment

Interviews & Reports

5% 3

Institutional capacity exists to support the value chain 5% 4

Reliance on conventional financial services 5% 2

Economic The global market (global imports) for grapes19 was valued at more than $10 billion in 2019, reflecting growth of 1.90% by value over the period 2015-2019. Lebanon accounted for 0.09% of global exports by value in 2019. Lebanon’s exports were valued at nearly $10.7 million in 2019, as compared to imports of only $1.7 million (ITC, 2020). The latest estimate of national production for the grape VC (including table and wine grapes) was nearly more than $76 million (MOA & FAO, 2016).

Social The number of producers of table grapes (including farmers and workers for those farmers) is estimated at more than 15,000 (Natagri SAL, 2016b).

19 This figure includes fresh and dried grapes, not disaggregated by table grapes versus wine grapes.

Cumulative Score: 3.65 Recommendation: FOCUS

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Female participation in the table grapes VC is estimated at more than 50%, with women playing a significant role as laborers both in field activities and in post-harvest packing activities (KII).

Youth participation in the table grapes VC is estimated well above 50%, as youth dominate both field activities and most post-harvest activities including packing (KII).

Environmental The table grapes VC has a lower than average impact on the environment, in terms of resource intensity and specifically water use: The water footprint associated with table grapes is approximately 334 m3 per ton (Mekonnen & Hoekstra, 2011).

The impact of the environment, including climate change, is estimated to be higher than average on the table grapes VC. The environment directly affects agricultural production of all types, and table grapes are not generally produced in the semi-controlled environments such as greenhouses that can limit environmental impacts on Lebanese production, though irrigation may be used. As for climate change, MOE and UNDP (2011) estimate that Lebanese table grapes production is moderately susceptible to its predicted effects. However, other studies point to the detrimental effects of climate change on the production of table grapes due to increasing temperatures, though to a lesser extent than wine grapes (Jones, 2015). Indeed, while grapes are indigenous to the Eastern Mediterranean (Natagri SAL, 2016b), they may be adversely affected by climate change and specifically rising temperatures.

Institutional Lebanon’s table grapes VC has received a fair degree of support and investment from private, government, and especially donor sources relative to other VCs under consideration. The recently published Lebanon National Agriculture Strategy 2020-2025 highlights the possibility to support farmers by providing in-kind and cash assistance for inputs including high quality seeds, fertilizers, small tools, and equipment (Programme 1.1.) (MOA, 2020).

The institutional capacity of the VC to support sustainable development is estimated to be higher than average, given the availability of local skills and processes to match the potential needs of the VC.

The table grapes VC has traditionally depended on conventional sources of finance to source key inputs, including the use of informal credit arrangements extended by suppliers of fertilizers and pesticides (25% down payment, 75% payment at the end of the production season. Similarly, packaging materials typically required a down payment (20%) with the remainder due on delivery (Natagri SAL, 2016b). It is understood that this reliance has come under strain due to Lebanon’s financial and economic crisis.

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Value Chain Structure Figure 6. Table Grapes Value Chain Map

Source: Abou Arrage (2018 May)

Production and Processing As of 2013, approximately 9,500 HA were dedicated to the cultivation of table grapes in Lebanon. This represents a downward trend over the period 2004-2013, though average yields were largely stable over the same period (Natagri SAL, 2016b). Yields are below global benchmarks (roughly 50th percentile) (McKinsey, n.d.). Investments in table grapes production in the areas of Kaa and Ras Baalbak were expected to increase the area dedicated to table grapes production in recent years (Natagri SAL, 2016b); since table grapes require six years from planting to reach optimal production a large amount of land is required to be reserved for this production (Abou Arrage, 2018 May).

Grapes may be classified as table grapes or wine grapes. Table grapes are characterized by relatively larger berries with thinner skins and contain lower levels of sugar. Wine grapes are characterized by smaller berries with thick skins, larger seeds, and higher levels of sugar (Natagri SAL, 2016b). Lebanon produces multiple varieties of table grapes, including local varieties (Baytamouni, Tfeifihi) and international varieties (Red Globe, Black Pearl, Crimson Seedless, Superior). As of 2016, the majority of cultivated areas were planted with local Baytamouni and Red Globe (Natagri SAL, 2016b). As Lebanon is not a member of the International Union for the Protection of New Plant Varieties (UPOV), Lebanese producers have limited access to new, patented varieties of plants such as table grapes (Raux, 2017).20

Table 6. Common Table Grape Varieties and Features

Variety Features Tfeifihi Berry color: Red

Berry shape: Rounded Harvest period: Mid-August until end-November Average yield: 2.0 tons/dunum Seeds: Seeded

Baytamouni Berry color: Green-gold

20 Lebanon was not a member as of February 2020 (https://www.upov.int/edocs/pubdocs/en/upov_pub_423.pdf).

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Variety Features Berry shape: Elongated Harvest period: August until end-November Average yield: 4.0-4.5 tons/dunum Seeds: Seeded Characteristics: sensitive to oidium

Obeidi Berry color: Green-gold Berry shape: Rounded Harvest period: August until mid-September Average yield: 2.0 tons/dunum Seeds: Seeded Characteristics: high sugar content makes it suitable for processing into arak and wine

Red Globe Berry color: Red Berry shape: Rounded Harvest period: Mid-July until mid-October Average yield: 4.0 tons/dunum Seeds: Seeded Characteristics: resistant to diseases, requires few and uncomplicated farming practices

Black Pearl Berry color: Black Berry shape: Rounded Harvest period: Mid-September until mid-November Average yield: 4.0 tons/dunum Seeds: Seedless

Crimson Seedless Berry color: Red Berry shape: Elongated Harvest period: Mid-September until end-November Average yield: 2.5-3.0 tons/dunum Seeds: Seedless

Superior Berry color: Green-yellow Berry shape: Elongated Harvest period: Early Average yield: 1.5-2.0 tons/dunum Seeds: Seedless Characteristics: sensitive to powdery milden, sensitive to zinc and iron deficiencies

Source: Natagri SAL (2016b)

Farmers producing table grapes can be divided into small-, medium-, and large-scale farmers. Small-scale farmers producing on average less than 1.5 HA represent some 80% of table grapes farmers by number. Medium-scale farmers cultivate lands >1.5-7.0 HA, and account for 17% of table grapes producers; these farmers dominate the local market for table grapes, supplying 80% of table grapes to the local wholesale market. Large-scale farmers (>7.0 HA) represent a minor share of producers but control the majority of the area cultivated. Large-scale farmers often play the role of aggregator, buying grapes from smaller farmers for sale on the wholesale market. Some large-scale farmers have integrated post-harvest operations to include packing and exporting to international markets, notably the GCC (Natagri SAL, 2016b).

Regardless of production scale, Lebanon’s table grapes VC is generally marked by low-technology production. Traditional and unsophisticated materials are used, notably in mechanization and irrigation (Natagri SAL, 2016b). The timing of harvesting tends to be based on experience rather than technical measurement of fruit sugar content.

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Table grapes producers rely on agricultural inputs including nurseries that provide rootstocks and cultivars (plants and grafted plants); suppliers of fertilizers, pesticides, and irrigation systems; and machinery suppliers. Both local and international varieties are produced and grafted locally, and the Lebanese Agricultural Research Institute (LARI) offers testing and certification of table grapes transplants. In some cases, large farmers act as mechanization service providers to small- and medium-scale farmers (Natagri SAL, 2016b).

• Strength: The availability of multiple input suppliers (nurseries, chemical input suppliers) has fostered competition between them, driving down prices and providing an incentive to extend informal credit (Natagri SAL, 2016b).

• Weakness: Lebanese farmers tend to misuse (over-use) pesticides, leading to excessive MRL and the inability to reach export market standards. The misuse of pesticides is rooted in the fact that there is no public or independent extension service, rather guidance on pesticide application and handling is provided by the input suppliers and their distributors who have a commercial incentive to recommended over-application. Moreover, even basic information on the proper use of pesticides (e.g., which pesticide for which crops) is missing from labels (KII). “This leads to irrational pest control programs and an excessive use of pesticides and fertilizers; environmental problems, pest resistance and high residue levels have emerged” (Natagri SAL, 2016b: 34).

• Weakness: Small-scale farmers who lack the financial resources to invest in agricultural machinery and equipment typically outsource mechanization services for soil preparation, canopy management, and the application of pesticides and fertilizers (Natagri SAL, 2016b).

• Opportunity: Investments in mechanized technology for improved chemical treatment could enhance the quality of table grapes produced in Lebanon. Mechanized sprayers offer a more homogeneous application of product, yielding more consistent color and sizing of grapes and protection from pests and diseases (Natagri SAL, 2016b).

• Opportunity: Technologies are available to improve (drip) irrigation performance, and to calculate exact vine needs based on soil moisture and weather conditions (Natagri SAL, 2016b).

Table grape producers rely on seasonal, largely foreign (Syrian) workers for tasks including formative and maintenance pruning, manual weeding, and harvesting. Workers are typically contracted through a foreman (warshe) who is responsible for the workers. To ensure that the same workers are committed throughout the production season, a farmer may have to reach a contractual agreement with the warshe and/or offer benefits like on-site accommodation (Natagri SAL, 2016b).

• Weakness: The level of semi-skilled labor for grape production is declining in Lebanon, which makes it even more important to secure agreements with the warshes or the laborers themselves to ensure that trained laborers continue to work for the farmer in question (KII).

Packing of grapes is typically done in the field by farmers, or by exporters. Grapes are typically graded in three classes (Grade I, Grade II, Grade III) on the basis of physical appearance, maturity, physiological defects, and insects and disease damage. Grading is done visually. When destined for the local market, crates of grapes will typically contain both Grade I (top layers) and Grade II (bottom layers). The lack of uniform quality reinforces loose, bulk sales without a quality distinction between the two grades on the local market for fresh consumption (Natagri SAL, 2016b).

Aggregators (damman) act as an intermediary between farmers and wholesale or end-markets (Raux, 2017). Aggregators have detailed knowledge of demand and prices. They may operate on two models or approaches: Under the first, aggregators intervene at the end of the production season to buy-sell

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and have no influence on production techniques. Under the second, aggregators intervene at the beginning of the production season to request grapes that adhere to certain agricultural practices, notably with regard to pest control or fertilization, to meet specific quality requirements (Natagri SAL, 2016b).

• Opportunity: Aggregators have been able to reach lucrative European markets by working carefully with selected farmers to reach a high quality of production at the volumes and on the schedules demanded by clients, but this requires a serious investment of time and resources to bring farmers up to export compliance (KII). Indeed, two LIVCD beneficiaries who previously worked as aggregators-exporters reported “they would not engage in a similar project again since following up with smallholders is too complicated and expensive” in terms of the supervision costs by agronomists (Social Impact, 2018 November: 4).

Lebanon has seven (7) wholesale markets which trade in table grapes, of these, three are located in the Bekaa Valley (Ferzol, Qab Elias, Baalbek). The Ferzol market is most important for the table grapes VC, due to its proximity to the areas dominating table grapes production: Nearly 80% of the grapes production is marketed through this wholesale market. The wholesale channel relies on consignment sales, in which the wholesale agent does not absorb the risk for unsold merchandise. Lebanon’s wholesale markets are marked by a lack of transparency, organization, and infrastructure. Grapes are typically sold in bulk in plastic crates (capacity 12 kg) without prior sorting (Natagri SAL, 2016b).

• Weakness: Wholesalers have a strong incentive to sell perishable table grapes early in the day, even if this requires a price reduction. This price competition, and the fact that wholesalers work on a consignment basis, undermines a quality-based premium sale, to the disadvantage of table grapes farmers (Natagri SAL, 2016b).

• Weakness: Without proper infrastructure, logistics, and organization, wholesale markets contribute to a deterioration in the quality and value of fresh fruits including table grapes. Fresh fruits spend at least six (6) hours and up to 72 hours in open areas exposed to dust, heat, and sunlight (Natagri SAL, 2016b).

• Weakness: Lebanon generally lacks pre-cooling capacity for all vegetables and fruits, including table grapes. The lack of pre-cooling capacity leads to sub-optimal post-harvest handling, reductions in grape quality, and reduced shelf life (Natagri SAL, 2016). One exporter – Medigardens – was previously identified as operating a pre-cooling and cold storage facility, and two other companies had launched construction of similar facilities (Raux, 2017); however, it is unclear if these facilities were fully constructed and/or if they remain in operation.

• Opportunity: Under LIVCD, USAID previously invested in a cold storage and packing unit located in Hasbaya (Abou Arrage, 2018 May). It is unclear if this investment continues to operate, and whether or not this investment can serve as a model for future investments in post-harvest.

Distributors provide logistics services, typically buying fresh fruits (including but not limited to table grapes) from the wholesale market, or directly from farmers, and selling to supermarkets, hotels, restaurants, and/or caterers. Distributors typically intervene when food retailers or HORECA customers do not have a dedicated purchasing department (Natagri SAL, 2016b).

A large number (approximately 60) of exporters deliver fruits (including table grapes) and vegetables to external markets. Integrated exporters (20% of total) produce, pack, and export their own table grapes. The non-integrated exporters (80% of total) source grapes from small- and medium-scale farmers and the wholesale market for export. Exporters typically rely on cold storage (owned or

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rented) to store grapes and earn the highest possible market price; rental rates depend on the volume and/or the duration of the cold storage. Three companies provide sea shipping for table grapes: Maersk, Seagoline, and CMA-CGM. Additionally, multiple companies offer air shipping for table grapes, including Middle East Airlines, Qatar Airways, and Emirates Airlines (Natagri SAL, 2016b).

• Opportunity: Lebanon’s integrated exporters are both producers and in direct contact with end-markets, and therefore better placed to provide high quality products that comply with international market standards for fruit quality, pesticide use and MRL, and packaging requirements (Natagri SAL, 206b).

• Weakness: Lebanon’s non-integrated exporters typically lack consistency in the quality and quantity of the table grapes they provide, which limits their ability to commit to international customers. This gap has damaged the reputation of Lebanese producers and suppliers: “Lebanese exporters have lost their credibility among international importers especially in the GCC market and the Lebanese products are being replaced by table grapes imported from India, South Africa, Egypt, Chile, Italy, Australia, and USA” (Natagri SAL, 2016b: 19).

Importers are responsible for bringing in table grapes off-season (Natagri SAL, 2016b).

The retail market for table grapes has four major categories: traditional grocery stores that source from wholesalers or distributors, accounting for some 67% of the local market for table grapes; supermarkets or large retailers, accounting for 17% of the local market for table grapes; high-quality or premium greengrocers in urban areas; and hotels, restaurants, and caterers that account for 14% of table grapes sales (Natagri SAL, 2016b).

Lebanese table grapes may be consumed fresh, or processed into raisins, molasses, vinegar, or wine and arak. While vinegar is considered low value-added, raisins, molasses, and wine and arak are considered high value-added. Only the small share of table grapes production that is surplus and remains unsold on the market (Grade III) is directed for processing uses (Natagri SAL, 2016b). There are an estimated 10 commercial processors of grape molasses in Lebanon, and a handful of cooperatives that produce raisins (Raux, 2017).

Stakeholder Analysis The table grapes VC is dominated by intermediaries (damman and wholesaler). The relatively large number of intermediaries between farmer and consumer results in little of the value added reaching the table grapes producer. Moreover, farmers have relatively little market power due to the perishable nature of their product. The dominance of intermediaries limits the flow of market (price) information between farmers and consumers (Natagri SAL, 2016b).

• Opportunity: The depreciation of the Lebanese lira and the continued payment of agricultural laborers in local currency has allowed some exporters of table grapes to earn a higher profit in 2020. While some of this profit might be invested in improving operations, savvy exporters must also pass along part of this benefit to their agricultural workers or risk losing any labor they have trained or skilled over the medium-term (KII).

• Weakness: Sales to intermediaries on a commission basis – which is the predominant model in the GCC – result in very little power for either the farmer or even the aggregator/exporter (KII).

The labor force for table grapes production is typically illiterate Syrian workers (Natagri SAL, 2016b). Many of these are underage, beginning to work as young as 12 years. Men may be preferred for field labor, while women are typically preferred for work in packing houses. Women (girls) work as agricultural laborers until their early 20s, when they leave the labor force to marry and have children; afterwards some will return to the agricultural labor force when their children have grown. There are

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specific roles in the table grapes VC such as packing that are preferred for older women who are more careful and organized in their work (KII).

• Weakness: Laborers involved in the core agronomic activities for table grapes production typically lack technical training. Unprofessional work raises the costs of production, increases losses, and may contribute to lower production volumes (Natagri SAL, 2016b).

While women may play a significant role as laborers within the table grapes VC (KII), their role appears to be concentrated in non-ownership positions. For example, under LIVCD, only 12% of beneficiaries within the table grapes VC were female (Social Impact, 2018 November).

Table grape processors include commercial producers as well as rural women’s cooperatives (Natagri SAL, 2016b).

End Market Analysis Lebanon’s table grapes production is largely consumed locally, though a significant share (approximately 25%) is exported (Natagri SAL, 2016b).

The local market for table grapes is divided into two segments: urban consumers with higher purchasing power who are willing to pay a premium for higher quality, pre-packed fruit and who tend to shop at supermarkets and specialty stores; and consumers with lower purchasing power who prioritize price over quality and who prefer to purchase loose grapes (Natagri SAL, 2016b). Lebanon imports a relatively small volume of table grapes (less than 5%) to meet local demand (Natagri SAL, 2016b). As local table grape production already dominates the local market, there is little realistic opportunity for import substitution.

Table grapes are an important component in Lebanon’s export basket. Despite the country’s small land area, Lebanon was among the world’s top 25 table grapes exporters as of 2013.21 The majority of table grapes exported are sold to the GCC and other MENA countries, with a small but lucrative share directed to European markets (Germany, UK). GCC markets have been working to increase their quality standards over time, emulating European standards, and demand for pre-packed table grapes is rising in these markets. Other MENA markets tend to focus on price over quality, with little or no standards in place. Conversely, the European market imposes the strictest product quality and packaging standards but pays higher prices for this value added (Natagri SAL, 2016b).

• Weakness: Lebanon’s small area limits its ability to compete for export markets solely on the basis of volume or price competitiveness. Instead, penetration of international markets depends on a combination of differentiated quality and price competitiveness (Natagri SAL, 2016b).

• Weakness: Lebanese table grapes face tough competition on export markets, notably the GCC. Competition is particularly strong from India, South Africa, Egypt, Chile, Italy, Australia, and the United States (Natagri SAL, 2016b).

• Opportunity: Exporters targeting the European market could make use of more advanced pre-harvest, post-harvest, and packing operations such as pre-cooling to meet quality (color, size, sugar content) and food safety standards (Natagri SAL, 2016b). Thus far, “Only integrated producers, packers and exporters are able to comply with the European standards and quality requirements” (Natagri SAL, 2016b: 46).

21 In 2019, Lebanon ranked 20th among all exporters globally for fresh grapes by volume but 26th by value (ITC, 2020).

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• Opportunity: Lebanese exporters can currently benefit from the depreciation of the LBP and the fact that labor is paid in local currency, to gain a price advantage over other exporters (KII).

Lebanon’s export window for table grapes generally runs from March until October, but can extend until December to reach European markets (Natagri SAL, 2016b).

• Opportunity: Identifying specific window markets when major competitors are not (yet or still) present in the market may be an approach for Lebanese exporters of table grapes (and many other fresh fruits and vegetables) to enter the market (KII). A previous study identified a potential window for seedless grapes to be sold to Europe before the peak of South African supply (this window is from late October-December).

Most of the grape molasses produced in Lebanon is sold on the local market (Raux, 2017).

Business Environment Factors The table grapes VC benefits from limited support from the public sector. Support from the MOA is limited to agricultural extension in different fields and some financial support through the provision of pesticides and some transplants. LARI offers advice and laboratory analysis at reduced prices; the Kfarshima Laboratory provides pesticide residue tests free of charge, while LARI offers reduced-cost water, soil, and disease analysis. Kafalat’s suite of loan guarantees were previously offered to agricultural producers including producers of table grapes. IDAL has granted subsidies for the export of fruits including table grapes. The subsidies, conditioned by a quality control compliance, helped Lebanese exporters to enhance their competitive advantage in the international market; however, farmers were not positively affected by these subsidies (Natagri SAL, 2016b).

• Weakness: The necessary laboratory tests to establish an MRL for export to Europe are currently not fully available in Lebanon, are not considered trustworthy (labs lack accreditation), and return results too slowly to be useful for exporters (KII). Complaints about the limited capacity or timeliness in processing requests for certificates for export persist (KII; Social Impact, 2018 November).

Lebanon’s chambers of commerce, industry, and agriculture (CCIA) are private institutions whose main role is to issue certificates of origin for exporters; they also offer extension programs regarding technical agronomic activities for farmers and quality standards and legislation for exporters (Natagri SAL, 2016b).

Dynamic Trends The demand for seedless table grapes is a global trend (Natagri SAL, 2016b).

Global GAP standards are increasingly required by international importers, but this certification is costly to obtain and therefore limited to large-scale farmers. An estimated 10 table grape farmers held Global GAP certification as of 2016 (Natagri SAL, 2016b). However, Global GAP certification is not in and of itself sufficient to maintain access to lucrative export markets (KII).

Cross-Cutting Themes All findings under ‘Cross-Cutting Themes’ that are specific to this VC are presented here. Please also refer to the broader discussion under Methodology, above.

Journey to Self-Reliance USAID/Lebanon has previously invested in the table grapes VC. Under LIVCD, investments to support this VC included on-site training for small-scale farmers to improve their farming practices; co-investments for the establishment of new vineyards featuring new varieties and new production techniques (trellises, electrostatic spraying systems); co-investments for the introduction of drip

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irrigation systems by small-scale farmers; establishment of market linkages between small-scale farmers and table grape exporters; and co-investment and establishment of linkages for service providers to deliver mechanization and labor services (Natagri SAL, 2016b). New vineyards supported under LIVCD were projected to come online as of 2019. The investments in table grapes were determined to have a positive benefit-cost ratio (Social Impact, 2018 November), as a result of quality and quantity improvements that both increased selling prices and reduced costs of production (Abou Arrage, 208 May).

Other donors have invested in the agricultural sector in Lebanon, including in the table grapes VC. Notably, Expertise France has undertaken investments in the VC in recent years, working with 800 table grape producers (KII).

Additional Factors There are no findings under ‘Additional Factors’ specific to this VC. Please refer to the broader discussion under Methodology, above.

Illustrative Interventions to Address Constraints and Opportunities Interventions to support the table grapes VC are evident at the production stage, though not in terms of expanding plantation. Rather, investments in human capital, improved farm management and certifications and machinery can be made in cooperation with a service provider to support the improved handling and application of pesticides to support worker safety, fruit quality improvements, and expanded access to higher-value markets. Co-investments in appropriate post-harvest infrastructure, notably pre-cooling and cold storage, represent another opportunity to facilitate access of higher quality products to the export market. Options to consider could include centralized investments or small-scale, village-level investments managed by farmers prepared to act as local service providers.

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Stone Fruits 22 Selection Criteria Results

Criteria Data Source Weight Scoring 1 2 3 4 5

Economic (50%)

Market Size (Value, USD) (2019)

ITC, 2020

10% 5 Market Growth - Annual Growth (Value, USD) (2015-2019)

10% 2

Lebanon's Global Market Share - % of Total Exports in Value (2019) 5% 1

Current Exports from Lebanon (Value, USD) 5% 5

Current Imports to Lebanon (Value, USD) 10% 3

Current Production (Value, USD) MOA & FAO, 2016 10% 5 Social (20%)

Scalability (Number of Firms) Interviews &

Reports

10% 5

Engagement of Women (%) 5% 1

Engagement of Youth (%) 5% 5 Environmental (15%)

Impact of the value chain on the environment (adverse)

Mekonnen & Hoekstra, 2010 10% 1

Impact of the environment, including climate change, on the value chain

MOE & UNDP, 2011 5% 3

Institutional (15%) Private sector, government, or donor investment

Interviews & Reports

5% 3

Institutional capacity exists to support the value chain 5% 4

Reliance on conventional financial services 5% 2

Economic The global market (global imports) for stone fruits was valued at more than $13 billion in 2019, reflecting growth of 3.41% by value over the period 2015-2019. Lebanon accounted for 0.09% of global exports by value in 2019. Lebanon’s exports were valued at more than $12 million in 2019, significantly higher than the corresponding imports figure of $2 million (ITC, 2020). The latest estimate of national production for the fresh stone fruits component of the VC was nearly $111 million (MOA & FAO, 2016).

22 For the purposes of this analysis, and to maintain consistency with Phase 1 of the selection and prioritization exercise, the Stone Fruits VC was defined to include cherries, plums, peaches, nectarines, and apricots. While avocadoes are not explicitly included within the VC analysis presented here, they could be included insofar as they face similar needs for post-harvest interventions.

Cumulative Score: 3.30 Recommendation: FOCUS

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Social The number of producers of stone fruits may be approximately 15,000 (Abou Arrage, 2018 August; Bayram, 2012; MOA, n.d.).23 This figure does not include other value chain actors including wholesalers, distributors, exporters, and retailers.

Female participation in the stone fruits VC is understood to be low, less than 10% (NIRAS, n.d.). While an exact estimate of female participation in the VC is not available, proxy evidence supports this finding. For example, under LIVCD, only 6% of beneficiaries in the cherry VC were female (EnCompass LLC, 2016).

Exact figures on youth participation in the stone fruits VC are not available, but estimates place this figure well above 50% (KII).

Environmental The stone fruits VC has a higher than average impact on the environment, in terms of resource intensity and specifically water use: The water footprint associated with fresh stone fruits is approximately 1,495 m3 per ton (Mekonnen & Hoekstra, 2010). Much of the fresh stone fruits production in Lebanon is irrigated production, including the use of flood irrigation techniques.

The production of fresh stone fruits in Lebanon is associated with improper or excessive use of chemical inputs including pesticides, which have harmful effects on both the environment (soil and water quality, and biodiversity) as well as human health (laborers and consumers). However, good agricultural and best environmental practices are available that could improve the handling and application of these chemicals.

The impact of the environment, including climate change, is estimated to be average or medium on the stone fruits VC. The environment directly affects agricultural production of all types, though the use of semi-controlled environments such as irrigation can and do limit environmental impacts on Lebanese production of stone fruits. As for climate change, Lebanese stone fruits production (notably cherry) is estimated to be moderately susceptible to its predicted effects, with orchards located below 1,300m of altitude the most significantly affected by rising temperatures (MOE & UNDP, 2011). However, orchards may adapt to climate change by shifting to higher altitudes for production (USAID, 2016).

Institutional Lebanon’s stone fruits VC – specifically cherries – has received a fair degree of support and investment from private, government, and donor sources relative to other VCs under consideration. The recently published Lebanon National Agriculture Strategy 2020-2025 highlights the possibility the possibility to support farmers by providing in-kind and cash assistance for inputs including high quality seeds, fertilizers, small tools, and equipment (Programme 1.1.); and to facilitate market access for high value-added crops including cherries (Programme 3.4) (MOA, 2020).

The institutional capacity of the VC to support sustainable growth is estimated to be above average, given the availability of local skills and processes to match the potential needs of the VC.

The stone fruits VC tends to rely on conventional sources of finance. Fresh fruit production has traditionally relied on informal credit arrangements between input suppliers, producers, and wholesale markets; these credit arrangements have shifted to cash-based operations due to Lebanon’s economic crisis.

23 Data on the number of producers available from MOA (n.d.) does not clearly indicate the number of unique producers. It appears likely that there is a degree of overlap, as producers may produce more than one type of stone fruit.

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Value Chain Structure Figure 7. Cherries Value Chain Map

Source: Natagri SAL (2016a)

Production and Processing Stone fruits farmers tend to hold lands that have been inherited, and which are already planted with orchards. Farmers are typically of two scales: Small farmers owning orchards of 0.1-1.0 HA, and medium farmers owning orchards of 1.0-3.0 HA (Natagri SAL, 2016a). Cherries dominate stone fruit production in Lebanon.

An investment in a stone fruit (cherry) orchard can be considered a long-term investment, which requires a minimum of 10 years to earn its return (Natagri SAL, 2016a). Lebanon’s stone fruit orchards are already established, which is an advantage in the sense that the major investment cost is already sunk. In addition, these orchards are generally perceived to constitute good varieties offering high-quality fruits (KII).

Stone fruits production is practiced at a minimum altitude and in different areas of Lebanon. For example, cherry production is concentrated in Baalbak-Hermel (64%) and Bekaa (26%), with remaining production in Mount Lebanon, North Lebanon, Nabatiyeh, and Akkar (Natagri SAL, 2016a). Plums production is concentrated in North Lebanon (60%), Shouf, and the Bekaa Valley. Apricot production is concentrated in the northern Bekaa Valley (Raux, 2017).

• Opportunity: The security situation in Baalbak-Hermel previously prohibited interventions to support the stone fruits (cherry) VC in this area, which is traditionally a major area for cherry production (accounting for 65% of cherry cultivated areas as of 2010) (Social Impact, 2018 November). However, the security situation has improved in recent years, which may offer a window for donors to intervene in supporting production in this area.

Stone fruits (cherry) production depends on weather conditions at high altitudes. The risk of spring frost is particularly problematic. Sprinkler system technology can prevent frost damage, but this is not

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widely used in Lebanon. Irrigation typically relies on flood irrigation rather than more efficient drip irrigation technologies. Improved technologies for the management of irrigation water are available (tensiometers) and particularly relevant considering shifting precipitation patterns linked to climate change, but not widely used (Natagri SAL, 2016a). Damage and destruction of stone fruit trees has been a challenge in recent years.

There are four local cherry varieties used for commercial production in the Bekaa Valley: Taliani, Feraouni, Moukahal, and Banny. Six imported varieties are also produced, though in smaller quantities (20% of total production). Yields are on par with China and the European Union, but well below those of Turkey, Central Asian countries, and the United States (Natagri SAL, 2016a). Some farmers have introduced new varieties of cherries, including Skina and Sweet Early. Traditional orchards dominate Lebanese production, and there is little use of intensive production through trellises (Natagri SAL, 2016a). LIVCD established 12 demonstration plots for high-density production systems based on trellising that led to limited replication by farmers; replicability was low due to the high costs of investment and the need for farmers to observe production quantities before they were convinced to replicate this production system (Social Impact, 2018 November).

For plums a number of varieties are cultivated in Lebanon including Japanese varieties and European varieties; the former have been gradually replacing the latter in recent decades; in Mount Lebanon, the replacement of European plum varieties has also shifted to other crops such as apples. Preferences appear to favor Japanese plums that offer black skin and red pulp, or red skin and pulp; and which have better qualities for storage. While Japanese plums are best suited to planting from 700-900 m altitude (Bekaa, middle Akkar), European varieties are best suited to higher altitudes (high Akkar, Dinnieh). Most plum orchards are irrigated, typically using river or water sources (instead of pumped groundwater) (Raux, 2017).

Like cherries, average yields for apricots are below global benchmarks (below 50th percentile) (McKinsey, n.d.).

Farmers source inputs including plants and grafted plants, pesticides, fertilizers, and agricultural equipment from agricultural input suppliers. While chemical inputs are largely imported, most plants and grafted plants are produced locally. Large equipment tends to be imported, though smaller pieces of equipment may be manufactured locally (Natagri SAL, 2016a).

Stone fruits production relies on several outsourced services, including mechanization services (particularly for small farmers) and hired labor (Natagri SAL, 2016a). Stone fruits production is limited by improper pruning practices as well as incorrect or non-optimal application of pesticides.

• Weakness: The incorrect application of pesticides limits the ability of Lebanese stone fruits to reach export markets (KII). While there are several testing laboratories in Lebanon that offer soil, water, residue, and disease analysis (of which some government-supported laboratories offer testing for free, others charge a low fee) (Natagri SAL, 2016a), local laboratories may lack the full range of tests needed by exporters (KI).

Aggregators or dammans are small-scale collectors acting as middlemen in the stone fruits VC. They may purchase small farmers’ production at the end of the season, or they may approach farmers at the start of the season and play a significant role in farmers’ production throughout the season. Some aggregators are themselves farmers. For cherries, there are less than 50 aggregators working in the VC (Natagri SAL, 2016a).

Lebanon has seven wholesale markets for fruits and vegetables, and the Ferzol wholesale market is the most important aggregation point for cherries as it is closely located to the main production areas. Prices are set at the wholesale market on the basis of supply-demand as well as fruit quality and freshness. Some re-packing of fruit is performed at the wholesale market. For cherries, sorting and

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(visual) grading are typically performed on-farm, however. Wholesale markets typically work on a consignment system and, before Lebanon’s economic crisis extended credit to farmers at the start of the season so that they could invest during the season (Natagri SAL, 2016a).

The stone fruits VC needs improvements in post-harvest sorting, packaging, and grading. Lebanon’s wholesale markets are not modern, and lack transparency, organization (no reception procedures), and good quality infrastructure (few cold storage spaces) (Natagri SAL, 2016a).

• Weakness: There are no specialized cooling facilities for stone fruits in the Bekaa Valley that can properly control temperature and humidity to optimize fruit quality. Gaps in post-harvest include the lack of sorting machines and hydro cooling capacities. (Natagri SAL, 2016a). Under LIVCD, USAID previously invested in the installation of pre-cooling and cooling equipment for cherries (Social Impact, 2018 November), but the operational status of this equipment is not immediately known.

Distributors purchase stone fruits from farmers or from the wholesale market and sell them on to the wholesale market, retailers, or HORECA buyers. Distributors may be companies or individuals (Natagri SAL, 2016a).

Exporters typically sell stone fruits as part of a diversified basket of goods destined for export markets. There are no exporters who are specialized only in the export of stone fruits. Exporters may own or rent the warehouses and cold storage facilities needed to make their shipments, though these facilities are not usually specialized to the storage/handling of stone fruits. Exporters use cold storage strategically to take advantage of daily price fluctuations on the market. Exports typically move by sea or air, due to the short shelf life of the products (Natagri SAL, 2016a). Low-quality stone fruits (e.g., third grade cherries) cannot be sold directly to consumers, and instead are used for processing to produce jam or dried fruit. However, this accounts for only a minor share of production, estimated at less than 1% of production by volume (Natagri SAL, 2016a).

The production of dried fruits requires drying in the sun or in specialized drying ovens. For light-colored fruits such as apricots and peaches, a sulphuration process (sulfur dioxide) is also performed during drying to prevent discoloration. Fruits can be dried whole, in halves, or in slices. After drying, fruits can be chopped or transformed into pastes, kamareldine (apricot fruit leather), concentrated juices, or molasses (Yared, 2015 April).

• Weakness: The supply of raw fruits (notably apricots) is low, limiting opportunities for processors to produce jams (Yared, 2015 April).

• Weakness: The improper (excessive) application of sulfur dioxide can reduce food safety and serve as a barrier to exporting (Yared, 2015 April).

Stakeholder Analysis The key actors in the stone fruits VC are farmers, agricultural input suppliers, aggregators, wholesalers, distributors, exporters, importers, processors, retail markets, and governmental and non-governmental actors (Natagri SAL, 2016a). More than 75% of stakeholders in the stone fruits VC are connected via smartphones, meaning they can access mobile applications such as the AgVisor application that provides information (prices, agents, etc.) and notifications.

Stone fruits farmers rely heavily on hired labor for pruning, weed control, and harvesting. Laborers are typically hired through a foreman and are most commonly foreign (Syrian). Many laborers are unskilled and illiterate with no education (Natagri SAL, 2016a).

Female entrepreneurs including cooperative members located in rural areas produce processed foods from stone fruits, including jams and dried fruits. These products are typically sold at a premium, as

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homemade, natural, or organic items. Such producers face challenges in developing or expanding their production, marketing their products, and establishing robust distribution channels (Yared, 2015 April).

End Market Analysis Stone fruits production reaches both the local and export markets.

The bulk of cherry production is sold for local consumption (84% of production by volume as of 2013). The market absorbs all qualities of production (Grade I and Grade II, excepting Grade III which is directed to processing). Lebanon has a high per-capita consumption of cherries compared to other countries in the region. Lebanon’s cherry producers face limited competition from imports, typically in the off-season (Natagri SAL, 2016a).

• Opportunity: Lebanon’s current economic crisis and currency depreciation could provide an opportunity for local producers of stone fruits to pursue import substitution. As the cost of imports rises, many households are expected to find imported fruits too expensive.

Lebanon’s limited scale of production argues for a strategic approach to exports, either through targeting window markets, niche markets, or value-added production. Windows exist for early or late season sales on export markets. For example, the majority of Lebanese cherry production (Bekaa) comes to market at the same time as French, Italian, and Turkish production (KII): Lebanese cherry production typically extends from May until August (Natagri SAL, 2016a). However, by using late varieties at high altitudes (1,000-1,800m), Lebanese producers could reach export markets late and earn premium prices (KII). However, this is a long-term strategy that requires the planting and maturation of new orchards.

• Opportunity: Lebanese stone fruits may currently enjoy a cost advantage on the export market due to LBP depreciation. Moreover, demand for stone fruits is high in the European Union (KII).

Cherries are an important export crop. The major export markets for cherry production include the GCC, Egypt, and Russia. The GCC market in particular recognized Lebanon as a high-quality product based on shape and taste. The Russian market requires a higher degree of compliance with standards for washing, sorting, and absence of physical defects or disease (Natagri SAL, 2016a). Of note, however, cherries were one of the crops identified as having limited export potential and which was not recommended for further cultivation within the Lebanon Economic Vision (McKinsey, n.d.).

Most of Lebanon’s local consumption of dried fruits is imported, and Lebanon faces strong regional competition for the production and export of dried fruits: Turkey and Iran dominate global production of dried apricots. Prunes are primarily imported from Thailand (though this may be a transshipment point, as global prune production is dominated by the United States, Chile, France, and Argentina). China is the main supplier of imported cherries to Lebanon (Yared, 2015 April). Moreover, “The majority of dried fruits exported from Lebanon is not produced locally, but rather imported and packaged locally before being re-exported” (Yared, 2015 April: 17).

Rising health consciousness among consumers has contributed to growing demand for dried fruits as an alternative to sweets or junk food. Demand for dried fruits has risen in Eastern Europe; the European market is also facing higher demand for higher-quality, organic dried fruits (Yared, 2015 April). Accordingly, the production of items such as dried apricots could represent an alternative to the production of apricot jam, as jams are increasingly viewed as unhealthy given their high sugar content (Euromonitor International, 2019 November).

Dried fruit has faced increasing demand on the Lebanese market over the past decade, driven by consumption among Syrian refugee households (Yared, 2015 April).

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Processed (dried) stone fruits are demanded commercially by roasteries, pastry shops, and bakeries (Yared, 2015 April).

Business Environment Factors The enabling environment for Lebanon’s exports of stone fruits is, overall, not supportive. As for the wider agri-food sector, “There is no clear national vision on agriculture and no national export marketing strategy. Policies, legislation, and regulations have critical limitations, such as lack of quality frameworks, quality standards and accredited labs. Connections between the public sector and the private sector are weak. Applied research, education, and extension are below the level required to support businesses. Business support organizations lack sufficient staffing and funds to develop and deliver valuable export-related services to the private sector” (Bureau Leeters, 2018: 11). The stone fruits VC does not generally receive significant support from the MOA, which offers only limited extension services and financial support. The sector did previously benefit from export subsidies offered by the Investment Development Authority in Lebanon (IDAL), though the benefits were principally captured by middlemen rather than farmers (Natagri SAL, 2016a).

Farmers generally do not hold either organic or Global GAP certifications. Farmers may be unaware or unwilling to hold such certifications (Natagri SAL, 2016a).

The VC is also challenged by the limited availability and distribution but high prices of high-quality inputs, equipment, and technologies; and well as the limited and declining access to finance (KII).

• Weakness: The desire of Lebanese exporters to sell on the export market and earn hard currency has made them willing to accept nearly any payment or pricing terms, including on less favorable commission terms offered by wholesale markets (KII).

IDAL has identified the dried fruits and nuts sector as one of the most promising opportunities for investment within the agri-food sector (IDAL, 2020), though it is not immediately clear what legal support or investment incentives are currently being provided to facilitate investment in the sector.

Dynamic Trends No dynamic trends specific to the stone fruits VC have been identified in this analysis.

Cross-Cutting Themes All findings under ‘Cross-Cutting Themes’ that are specific to this VC are presented here. Please also refer to the broader discussion under Methodology, above.

Journey to Self-Reliance USAID/Lebanon has invested in the stone fruits VC, specifically cherries, under LIVCD. The LIVCD final performance evaluation concluded that interventions to support cherry farmers were among the least cost-effective undertaken, and that the cherry farmers who were supported enjoyed limited or no income improvement as a result of their participation (Social Impact, 2018 November). Notably, LIVCD had sought to build a refrigerated unit to allow cherry farmers to store their produce (Natagri SAL, 2016a).

Other donors have also invested in the agricultural sector in Lebanon, specifically the stone fruits VC. Under the PSPD, training and certification for integrated crop management (ICM) were delivered to farmers of stone fruits. In addition, a private label was established for cherries (and grapes). The René Mouawad Foundation (RMF) has been active in the stone fruits value chain, specifically targeting cherry producers in the Bekaa, investing around $800,000 to support 30 farmers. In October 2020, it was announced that RMF and the American University of Beirut have signed a 15-month partnership agreement to develop harvest and post-harvest practice parameters and guidelines for crops including cherries (AUB, 2020, October 13).

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Additional Factors There are no findings under ‘Additional Factors’ specific to this VC. Please refer to the broader discussion under Methodology, above.

Illustrative Interventions to Address Constraints and Opportunities Interventions in the stone fruits VC should not target investment in new orchards, given the cost and time requirements to do so as compared to the period of ARE performance (limited to three base years). Alternatively, interventions could focus on improved orchard management, including in the form of co-investment with aggregators or exporters willing to work with farmers to upgrade performance to meet export requirements (e.g., production volumes, production timing, and proper pesticide applications). The identification of export windows and matchmaking could further facilitate access to (export) markets.

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Dairy Products Selection Criteria Results

Criteria Data Source Weight Scoring 1 2 3 4 5

Economic (50%)

Market Size (Value, USD) (2019)

ITC, 2020

10% 5 Market Growth - Annual Growth (Value, USD) (2015-2019)

10% 2

Lebanon's Global Market Share - % of Total Exports in Value (2019) 5% 1

Current Exports from Lebanon (Value, USD) 5% 1

Current Imports to Lebanon (Value, USD) 10% 5

Current Production (Value, USD) MOA & FAO, 2016 10% 5 Social (20%)

Scalability (Number of Firms) Interviews &

Reports

10% 5

Engagement of Women (%) 5% 3

Engagement of Youth (%) 5% 1 Environmental (15%)

Impact of the value chain on the environment (adverse)

Mekonnen & Hoekstra, 2011 10% 1

Impact of the environment, including climate change, on the value chain

MOE & UNDP, 2011 5% 3

Institutional (15%) Private sector, government, or donor investment

Interviews & Reports

5% 4

Institutional capacity exists to support the value chain 5% 4

Reliance on conventional financial services 5% 2

Economic The global market (global imports) for dairy products was valued at more than $79 billion in 2019, reflecting growth of 3.48% by value over the period 2015-2019. Lebanon accounted for 0.001% of global exports by value in 2019. Lebanon’s exports were valued at a mere $772,000 in 2019, while imports were measured at more than $280 million (ITC, 2020). The latest estimate of national production for the fresh (milk) component of the VC was nearly $206 million (MOA & FAO, 2016).

The agriculture sector (including dairy production) accounted for 2.1% of GDP in 2018, and the manufacturing of food products accounted for another 2.1% of GDP that same year (CAS, 2020).

Social The number of dairy producers – including farmers, rural households, small and medium enterprises (SMEs), and other value chain actors – is estimated to fall in the highest scoring category; small ruminant producers alone are estimated at more than 5,000 by number (Hamade, 2015).

Cumulative Score: 3.25 Recommendation: FOCUS

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Exact estimates of female participation in the dairy products VC are not available, however, women account for approximately 25% of all actors in the VC. While women are generally not engaged in herding of animals under extensive small ruminant dairy production, they do play a role in household production including milking and processing activities. Moreover, women’s cooperatives are engaged in the small-scale collection, processing, and sale of artisanal dairy products (NIRAS, n.d.).

Exact figures on youth participation in the dairy products VC are not available, but estimates place this figure at less than 10%. Young agricultural engineers are reported not to be interested in joining the small ruminant dairy sector (KII), though youth (even children) may be involved in household herding activities for extensive small ruminant production (KII).

Environmental The dairy products VC has high impact on the environment, in terms of resource intensity and specifically water use: The water footprint associated with the dairy products is approximately 3,939 m3 per ton (Mekonnen & Hoekstra, 2011).

Intensive rearing of dairy animals in Lebanon is associated with high volumes of animal waste, which have the potential to harm waterways if not properly handled or disposed of. Similarly, the production of dairy products in Lebanon is associated with improper wastewater management, which can have harmful effects on the environment (notably water quality if deposited into waterways without proper treatment). However, good agricultural and best environmental practices are available that could improve the handling of these waste materials.

The impact of the environment, including climate change, is estimated to be average or medium on the dairy products VC. Climate change is understood to limit the available grazing land for extensive small ruminant production, though organized grazing is reported to reduce the risk of forest fires linked to climate change and preserve forest biodiversity (NIRAS, n.d.).

Institutional Lebanon’s dairy products VC has received an above average degree of support and investment from private, government, and donor sources relative to other VCs under consideration. The recently published Lebanon National Agriculture Strategy 2020-2025 highlights the possibility to support farmers by providing in-kind and cash assistance for inputs including dairy cows and fodder (Programme 1.1.); and through improvements in animal health, breeding, and nutrition as well as development of livestock production and small ruminant dairy (Programme 2.1). The Strategy also proposes to develop or promote the dairy and cheese industries (Programme 3.3) (MOA, 2020).

The institutional capacity of the VC to support is estimated to be above average, given the availability of local skills and processes to match the potential needs of the VC.

The dairy products VC tends to rely on conventional sources of finance, though this is less pronounced within the processing components of the VC than in the primary production segments.

Value Chain Structure

Processing

Export Market

Retail Local Dukkane

Consumers Local

Exporters Bekaa, Beirut

Consumers Export (GCC)

Labneh in olive oil

Imported Europe

Distributors Bekaa, Beirut

Retail Hotel, Restaurant

Retail Supermarkets

Domestic Production

Producers Dedicated Herder

Producers Mixed Activity

Collectors Hallabs

Key Market Actor for PPLL

Processors Large SMEs

Processors Co-operatives

Processors Small SMEs

Processors Households

Retail Dedicated Dairy

1-5 tons/day

< 1 ton/day

100 - 200kg

< 50kg/day

Figure 8. Dairy Products Value Chain Map (Small Ruminant)

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Source: Mercy Corps (2014a)

Production and Processing The production of livestock, livestock products, and fishing accounted for 1.3% of GDP in 2018 (CAS, 2020). Livestock was particularly noted as a higher-value activity recommended for government support to transform the agricultural sector within the Lebanon Economic Vision report (McKinsey, n.d.).

Lebanon is home to several types of dairy production systems, including different animal types – cow and small ruminant. With regards to the latter, intensive, semi-extensive, and extensive production is found on the market. The dominant breeds are local or baladi goats and Awassi sheep within extensive systems and imported breeds for intensive goat production. Milk yields from local goats are approximately 145 liters/year, as compared to more than 400 liters/year under intensive production systems; yields for sheep range from 250-300 liters/year (Hosri et al, 2016). In the Bekaa Valley, the shift away from extensive production systems has been linked to declining milk production as a result of poor animal nutrition, animal diseases, and water scarcity (Mercy Corps, 2014a).

• Weakness: Productivity of small ruminant dairy production is limited by traditional production methods and the limited availability of feed, which in turn restricts intensification (Hosri et al., 2016). As public extension services have limited reach to the small ruminant dairy VC, particularly for small herders, producers instead have learned about improved production techniques and breeds from development programs (Mercy Corps, 2014a).

For small ruminant dairy producers, even those who largely practice extensive production, or source commercial feed from input suppliers, feed is provided during critical periods, typically in winter (KII). There is a small number of local suppliers specialized in feeds for small ruminants, and they do not always maintain a stock due to limited demand (Hosri et al., 2016). Demand for animal feed has increased as Bekaa herders become more sedentary, and as traditional grazing lands become less productive or inaccessible (Mercy Corps, 2014a). Veterinary products are generally available on the market, sourced also from input suppliers (Hosri et al., 2016). Semi-intensive producers have better access to veterinarian services than extensive producers. A common issue, the improper application of antibiotics to control animal diseases, can result in tainted milk that cannot be used for milk processing (Mercy Corps, 2014a).

• Constraint: Lebanon’s dairy industry currently faces a shortage of animal feed, notably grains including corn and barley as well as soybean, cottonseed, sugar beet (KII).

• Opportunity: Experts view interventions in the fodder VC to be potentially more impactful on the dairy VC than dairy-specific interventions such as trainings on dairy production. In Akkar, where cow farmers tend to be very poor, interventions could support the provision or access to forage as well as the provision of cows (KII).

The feeding of livestock requires suitable and safe food for animals including small ruminants. In an extreme outcome, the media recently reported the death of approximately 500 goats in the Bekaa

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after consuming plants (pasture weeds) contaminated with herbicides or similarly toxic substances (AUB, 2020, October 20; Gomaa, 2020, October 19).

The cost of imported inputs has increased significantly due to the depreciation of the LBP, reducing the profitability of dairy production in Lebanon. Inputs that are sourced from the international market (fodder) or for which their inputs are sourced from the international market (food-grade packaging materials) have been particularly noted as problematic (KII).

• Weakness: The cost of imported packaging materials including glass jars and plastic containers is a serious limitation to profitability of small ruminant producers (KII). This barrier is similar to barriers faced by other VCs, under the cross-cutting theme of packaging.

Lebanon currently faces a shortage of cow’s milk for commercial dairy production. As milk prices have risen, smaller milk producers have opted to withhold their milk from the market either to satisfy household needs or to process the milk directly (KII).

Investments in cow dairy production are high, and the long gestation period of dairy cows delays returns (KII).

Dairy production requires improved water management (particularly wastewater management), both with regard to animal waste and to dairy processing waste.

Climate change is expected to have adverse impacts on animal production, with knock-on implications for the production of dairy products. According to Lewis et al. (2018: 20), “The impacts of climate change on livestock focus on animal productivity, animal health and biodiversity, the quality and amount of feed supply, and the carrying capacity of pastures. Overall, animal production may decrease. Indeed, a reduction of 25 percent in animal production is estimated to result solely from reduced feeds and increased heat stress. Higher temperatures could also reduce dairy milk yield in relation to feed. In addition to production, productivity of livestock, such as reproductive functions and/ or milk production, may be negatively affected by heat in summer via decreased conception rates, uterus infection, or reduced intake of feed.” Within the rainfed-mixed farming systems found in Lebanon, “The most commonly kept ruminant – cattle – is also the most vulnerable to the impacts of climate change in this zone” (Lewis et al., 2018: 34).

Small ruminant dairy products are mainly processed at the artisanal level and SMEs occupy a dominant position within the VC. Most extensive producers directly process their milk into traditional, local cheeses for sale directly to their own customers, with limited value addition (packaging, marketing). These producers tend to rely on trust-based relationships with their customers. In contrast, intensive producers may sell to collectors or dairy processors who then produce the dairy products. Collectors (hallabs) of small ruminant milk buy milk (and animals) at farm gate throughout rural Lebanon (Hosri et al., 2016). Collectors circulate on a daily basis, collecting milk early in the day or in the evening to coincide with milking. Collectors may have long-term relationships with processors or sell to them based on market prices (Mercy Corps, 2014a). Within the dairy VC, experts have recommended the establishment of milk collection centers and a cheese processing center. If pursued via a cooperative structure, farmers could be compensated for their participation by the distribution of earnings at the end of the production cycle/year (KII).

• Weakness: Many small producers and collectors use aluminum or plastic containers, which are weaker than metal containers and more difficult to sterilize, which can have adverse effects on milk quality and safety (Mercy Corps, 2014a).

Lebanon’s dairy processors produce a variety of products including milk, yogurt, and cheeses. In the Bekaa Valley, there are four major types of processors within the small ruminant VC: large SME dairies, small SME dairies, cooperatives, and households (Mercy Corps, 2014a).

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While the majority of dairy products are sold through commercial channels, much is routed through smaller grocery stores that are less demanding in terms of quality and marketing (Mercy Corps, 2014a); only a small share of small ruminant dairy is sold through the largest supermarkets. Moreover, some products are only intermittently available on the market, reflecting fluctuations in the production of milk (Hosri et al., 2016).

Stakeholder Analysis Some 9% of all agricultural producers in the Bekaa (approximately 15,800 producers) own livestock, of which 7,771 own small ruminants. Small ruminant herding is concentrated in the Bekaa Valley: 190,442 sheep, or 72% of sheep nationwide, are located in the Bekaa, mostly in Baalbek and Zahle, with an average of 93 sheep per herd. Similarly, 206,305 goats or 51% of goats nationwide are kept in the Bekaa Valley, mostly in Western Bekaa and Baalbek, with an average of 83 goats per herd. The majority of goats in Lebanon are traditional “Baladi” breeds, while most sheep are of the “Awassi-Baladi” breeds. Herd size does not necessarily correlate with wealth or land holdings. In fact, land holdings are in many cases negatively correlated to herd size, as dairy producers with smaller herds are more likely to have diversified income streams from horticulture (Mercy Corps, 2014a).

Sheep and goat production, including dairy products, is an important source of income for rural households and among the most vulnerable communities (Hosri et al., 2016; Mercy Corps, 2014a). However, milk producers are often price takers as traders and processors are better informed about market dynamics, demand, and prices (Hosri et al., 2016) and can command a mark-up of approximately 20% (Mercy Corps, 2014a).

• Opportunity: Producers rarely capture the value of their animals’ manure or wool production, due to a lack of knowledge, storage, and/or market demand (Mercy Corps, 2014a).

Approximately 11% of Lebanese agri-food enterprises are involved in the production of dairy products (IDAL, 2020). Lebanon is home to approximately 100 dairy factories, which are geographically concentrated in Bekaa (45%) and Mount Lebanon (31%) (IDAL, 2020).

End Market Analysis Lebanese dairy products reach both the local and export markets.

Lebanese consumption of dairy products is estimated at some 189 liters of milk equivalent per capita per year, which is among the highest levels of global consumption. Consumers are demanding in terms of taste, quality, and price (Mercy Corps, 2014a). The long-term demand for goat and sheep dairy is positive, whereas cow dairy is declining (KII).

Small ruminant dairy has reported rising demand on the local market in recent years. Producers attribute this to the marketing of their products as healthier than cow’s milk dairy products (KII).

• Opportunity: Local producers of small ruminant dairy have a clear opportunity for import substitution in light of LBP depreciation and the rising prices of imported dairy products. Already some local producers are attempting to innovate and capture the market for high-value hard cheeses (KII).

In terms of export destinations, Lebanon’s dairy products in 2019 were primarily destined for the MENA region in terms of value: Major export destinations included Iraq (28%), Qatar (11%), Kuwait (9%), and UAE (6%). Other important destinations included the United States (9%) and countries in sub-Saharan Africa (Côte d’Ivoire, DR Congo, Nigeria, Liberia, and Gabon cumulatively accounting for 20%) (IDAL, 2020).

• Opportunity: Lebanon’s small ruminant dairy products currently have a price advantage of export markets including the GCC due to LBP depreciation.

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Lebanese dairy producers may be limited in their ability to access European and U.S. markets, due to prohibitions linked to sanitary and phytosanitary standards.

Business Environment Factors The enabling environment for Lebanon’s exports of dairy products is, as for the wider agri-food sector, not fully supportive (Bureau Leeters, 2018). Nevertheless, dairy has benefitted from some government attentions. The MOA has previously supported the dairy VC – specifically cow dairy – through the purchase and provision of 10,000 tons of forage to farmers for free, but at an estimated cost of $2 million annually. This program purchased the forage from four Lebanese forage producers/traders (KII). In addition, IDAL has identified the dairy products sector as one of the most promising opportunities for investment within the agri-food sector (IDAL, 2020), though it is not immediately clear what legal support or investment incentives are currently being provided to facilitate investment in the sector.

The VC is also challenged by the limited availability and distribution but high prices of high-quality inputs such as feed, medicines, and vaccines, equipment, and technologies; and well as the limited and declining access to finance (KII). While farmers (herders) generally do not take commercial loans, these are more common within the processed food sector (Mercy Corps, 2014a).

Dynamic Trends Dynamic trends within the dairy products VC include the following:

• Opportunity: Small ruminant dairy is in demand on the local market and subject to both persistent and seasonal shortages (Mercy Corps, 2014a).

• Opportunity: The conclusion of conflict on the Arsal plain could allow for the return of traditional grazing activity by traditional, extensive herders to this area.

• Opportunity: Exports of small ruminant dairy products (cheeses) are increasing especially to Gulf countries, particularly goat cheeses, where there is limited production of small ruminant dairy (KII).

• Constraint: Feed costs now make up 80% of dairy production costs, adding significant strain to herding and dairy producer incomes (KII)

Cross-Cutting Themes All findings under ‘Cross-Cutting Themes’ that are specific to this VC are presented here. Please also refer to the broader discussion under Methodology, above.

Journey to Self-Reliance USAID/Lebanon has invested in the dairy products VC, specifically small ruminant dairy products, under the Lebanon Investment in Quality (LINQ) activity that will run until 2021.

Other donors have invested in the dairy products VC in Lebanon. For example, an FAO intervention (2009-2014) supported the dairy sector by establishing cooperatives; and supported small ruminant dairy VC through the provision of stainless-steel tanks for milk collection to producers and cooperatives. FAO was also expected to support the provision of feed and improved goat and sheep breeds from Cyprus. UKAID previously supported MOA in a livestock vaccination program (Mercy Corps, 2014a).

Additional Factors There are no findings under ‘Additional Factors’ specific to this VC. Please refer to the broader discussion under Methodology, above.

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Illustrative Interventions to Address Constraints and Opportunities Given the status of the dairy products VC and the constraints and opportunities reviewed above, it is recommended that interventions focus on the small ruminant dairy production rather than cow dairy production. Interventions could support the expansion of production for small ruminant dairy products in several ways. Supporting or otherwise facilitating access to finance could be a means to establish intensive small ruminant dairy production, looking to established and apparently successful market players. To support semi-extensive small ruminant production that relies on geographically dispersed herding activities, investments could be made in cold storage both to improve milk quality and to allow for consolidation of transportation, which would serve to reduce the costs of production (notably fuel, which is expected to increase significantly with the conclusion of government subsidies).

Insofar as interventions in the fodder sector would increase the local supply of quality forages, they may be supportive of the small ruminant dairy VC.

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Fodder Crops 24 Selection Criteria Results

Criteria Data Source Weight Scoring 1 2 3 4 5

Economic (50%)

Market Size (Value, USD) (2019)

ITC, 2020

10% 5 Market Growth - Annual Growth (Value, USD) (2015-2019)

10% 2

Lebanon's Global Market Share - % of Total Exports in Value (2019) 5% 1

Current Exports from Lebanon (Value, USD) 5% 1

Current Imports to Lebanon (Value, USD) 10% 5

Current Production (Value, USD) MOA & FAO, 2016 10% 4 Social (20%)

Scalability (Number of Firms) Interviews &

Reports

10% 3

Engagement of Women (%) 5% 2

Engagement of Youth (%) 5% 5 Environmental (15%)

Impact of the value chain on the environment (adverse)

Mekonnen & Hoekstra, 2010 10% 5

Impact of the environment, including climate change, on the value chain

MOE & UNDP, 2011 5% 1

Institutional (15%) Private sector, government, or donor investment

Interviews & Reports

5% 3

Institutional capacity exists to support the value chain 5% 2

Reliance on conventional financial services 5% 2

Economic The global market (global imports) for fodder was valued at more than $18 billion in 2019, reflecting growth of 3.28% by value over the period 2015-2019. Lebanon accounted for 0.001% of global exports by value in 2019. Lebanon’s exports were valued at only $127,000 in 2019, as compared to imports valued at more than $24 million (ITC, 2020). The latest estimate of national production for the fresh fodder component of the VC was more than $9 million (MOA & FAO, 2016).

24 Fodder is any agricultural foodstuff (especially dried hay or straw) used to feed domesticated livestock. Forage has historically referred to the plant material eaten by grazing livestock directly as pasture, crop residue, or immature cereal crops; more loosely, the term is also used to refer to similar plants cut for fodder and provided to animals, such as hay or silage. Hay is grass, legumes, or other herbaceous plants that have been cut and dried to be stored for use as animal fodder. Silage is grass or other green fodder that is compacted and stored in airtight conditions (typically a silo), without first being dried.

Cumulative Score: 3.25 Recommendation: FOCUS

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Social The number of producers of fodder – including farmers as well as commercial producers – is estimated to be less than 1,000 in number based on available data (MOA, 2012; KII).

Female participation in the fodder VC is understood to be minor, at approximately 15%. Women’s roles in commercial fodder production appear to be clustered in office-based work such as accounting and data entry (KII).

Youth account for the majority of actors in the fodder VC, particularly as field laborers (KII).

Environmental The fodder VC has a low impact on the environment, in terms of resource intensity and specifically water use: The water footprint associated with fodder is approximately 253 m3 per ton (Mekonnen & Hoekstra, 2011; Mekonnen & Hoekstra, 2010).

The impact of the environment, including climate change, is estimated to be large on the fodder VC, as drought can reduce pasture grazing, placing a high demand on fodder. Additionally, variable rainfall can have an adverse effect on fodder crops like alfalfa that require rainfall or irrigation. The environment directly affects agricultural production of all types. The use of semi-controlled environments such as greenhouses and irrigation can limit environmental impacts on agricultural production, but these techniques are generally less suitable to fodder production, which is typically practiced in open fields. As for climate change, specific estimates of the vulnerability of Lebanese fodder production are not available.

Institutional Lebanon’s fodder VC has received an average or medium degree of support and investment from private, government, and donor sources relative to other VCs under consideration. The recently published Lebanon National Agriculture Strategy 2020-2025 highlights the possibility to support farmers by providing in-kind and cash assistance for inputs including fodder (Programme 1.1.); and to develop and support fodder cultivation in Lebanon (Programme 2.1) (MOA, 2020).

The institutional capacity of the VC to support is estimated to be relatively low, as compared to other VCs. However, the VC is directly related to the dairy VC, which is regulated more through government pricing mandates than other agricultural VCs. This price setting has a direct effect on the fodder VC, as producers look for ways to gain higher returns.

The fodder VC tends to rely on conventional sources of finance.

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Value Chain Structure Figure 9. Fodder Value Chain Map

Source: Authors

Production and Processing Forages produced in the Bekaa Valley include triticale,25 corn silage,26 wheat straw, tebben, and alfalfa (KII). Oat, triticale, wheat, and barley are planted in winter; after their harvest, farmers can plant corn for silage on the same land (KII).

Fodder is a winter crop, typically rain-fed, with low requirements for imported inputs like fertilizer, herbicide, or pesticide, and low and unskilled labor requirements. However, commercial forage producers do import forage seeds (for corn, wheat, barley, triticale, oat, and alfalfa) from the United States (KII). As a result, fodder production has been significantly less impacted by the economic crisis and currency depreciation than other agricultural commodities.

Domestic fodder production may be practiced in tandem with other crops, for example through inter-cropping or within a crop rotation. Insofar as fodder is used for inter-cropping, it may represent an opportunity for farmers to maximize their productive land as well as to provide agricultural and environmental benefits (e.g., weed cover/control, soil moisture). However, the selection of fodder crops may need to be carefully considered to identify the optimal forage crops for such use by Lebanese farmers: Field tests from coastal areas of Lebanon found that cover crops including narbon vetch, oats, and forage radish varied in their productive yields, their effectiveness in weed control, and their impacts on soil quality (nitrogen concentration) for subsequent crop production (Rouphael et al., 2019).

Lebanese farmers have increased the area used to produce alfalfa this year, from approximately 2,250 dunums to 2,500 dunums. An area of 10,000 dunums of alfalfa production would be needed to satisfy local market demand (KII).

• Constraint: The increase in areas dedicated to forage production in Lebanon in 2020 resulted in a shortage of farm equipment for the harvest period and in storage for the harvested

25 Triticale is a wheat-rye hybrid. 26 Corn silage is made from the entire plant, not just the grain.

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product. Equipment providers faced intense demand but were able to work non-stop during the forage harvesting period across the Bekaa Valley.

Fodder produced in Lebanon may not be of sufficient quality to meet the needs of demanding customers. For example, small ruminant producers who require a minimum protein content to feed their imported animals have preferred to continue importing fodder that meets their requirements (KII).

At least one major commercial forage producer also acts as an aggregator/service provider to farmers. The producer works with 1,000 farmers producing on 5,000 dunums. The producer provides seeds to the farmers it supports (KII).

Stakeholder Analysis Stakeholder farmers in this VC mostly rotate between fodder and vegetable production and therefore have the same characteristics as the vegetable producers. However, the fodder VC is dominated by a small number (4-5) of domestic processors who aggregate and sell production to dairy producers (KII).

There is a lack of trust among actors within the fodder VC, notably distrust of traders (KII).

End Market Analysis Fodder production reaches both the local and export markets. Both markets currently report robust demand. Fodder is priced in USD, as it is an internationally traded commodity. In light of the depreciation of the LBP, fodder production has become highly profitable in recent months (KII).

• Opportunity: The profitability of forage production and the fact that forage is paid directly in USD presents an opportunity for producers and traders to invest in their production (KII)

The Lebanese dairy sector requires some 25,000 tons of forage annually. If all of this were produced locally, it would require some 50,000 dunums of area for production (KII). Each cow requires 3-4 tons of silage annually. In Lebanon, this means that some 70,000-80,000 tons of silage are needed per year. Lebanon has the productive capacity to produce this amount (KII).

Export markets for fodder include the very demanding GCC market, which requires significant amounts of fodder for livestock production as well as for racehorses (KII). The greatest demand for forage is triticale and corn silage (KII). In addition, demand from the UAE for alfalfa is estimated at 2 million tons annually, far exceeding the supply by Lebanese producers. This level of production would require 1 million dunums (100,000 HA) land area (KII).

• Opportunity: Alfalfa is a highly economically attractive crop at the current time. Traders buy alfalfa from farmers at $2,000/ton and sell it on the export market at $3,000/ton (KII).

Business Environment Factors The enabling environment for Lebanon’s exports of fodder is, overall, not supportive. As for the wider agri-food sector, “There is no clear national vision on agriculture and no national export marketing strategy. Policies, legislation, and regulations have critical limitations, such as lack of quality frameworks, quality standards and accredited labs. Connections between the public sector and the private sector are weak. Applied research, education and extension are below the level required to support businesses. Business support organizations lack sufficient staffing and funds to develop and deliver valuable export-related services to the private sector.” (Bureau Leeters, 2018: 11).

The VC is also challenged by the limited availability and distribution but high prices of high-quality inputs (seeds), equipment like baling presses and related technologies, as well as the limited and declining access to finance (KII).

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Dynamic Trends No dynamic trends specific to the fodder VC have been identified within this analysis.

Cross-Cutting Themes All findings under ‘Cross-Cutting Themes’ that are specific to this VC are presented here. Please also refer to the broader discussion under Methodology, above.

Journey to Self-Reliance USAID has previously invested in Lebanon’s fodder VC through the dairy VC. In the early 2000s, an activity imported and distributed cows to farmers in the Bekaa Valley (Baalbek), which was intended to stimulate the production of forage as an alternative to illicit crops; however, farmers sold the cows so this stimulation never occurred. A subsequent effort involved the provision of planters and harvesters to support farmers, though again this activity was not successful (KII).

Other donors have invested in the agricultural sector in Lebanon, but it is not immediately clear to what extend this was directly targeted to the fodder VC.

Additional Factors There are no findings under ‘Additional Factors’ specific to this VC. Please refer to the broader discussion under Methodology, above.

Illustrative Interventions to Address Constraints and Opportunities Interventions in the fodder VC could include support to increase the production of forages. In partnership with key firms, demonstration plots could show the application of forage as a crop for inter-cropping or crop rotation. Existing producers could benefit from co-investment in technology that would facilitate and maximize exports (e.g., improved baling). Interventions to support the forage VC are seen as having a knock-on impact on the dairy products VC. A deep dive is recommended to understand the opportunities for fodder (beyond forage) and other animal feeds, including for poultry production and for domestic pets.

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Potatoes & Potato-Based Products Selection Criteria Results

Criteria Data Source Weight Scoring 1 2 3 4 5

Economic (50%)

Market Size (Value, USD) (2019)

ITC, 2020

10% 5 Market Growth - Annual Growth (Value, USD) (2015-2019)

10% 3

Lebanon's Global Market Share - % of Total Exports in Value (2019) 5% 1

Current Exports from Lebanon (Value, USD) 5% 3

Current Imports to Lebanon (Value, USD) 10% 5

Current Production (Value, USD) MOA & FAO, 2016 10% 5 Social (20%)

Scalability (Number of Firms) Interviews &

Reports

10% 5

Engagement of Women (%) 5% 4

Engagement of Youth (%) 5% 5 Environmental (15%)

Impact of the value chain on the environment (adverse)

Mekonnen & Hoekstra, 2011 10% 5

Impact of the environment, including climate change, on the value chain

MOE & UNDP, 2011 5% 1

Institutional (15%) Private sector, government, or donor investment

Interviews & Reports

5% 3

Institutional capacity exists to support the value chain 5% 3

Reliance on conventional financial services 5% 2

Economic The global market (global imports) for potatoes and potato-based products was valued at more than $16 billion in 2019, reflecting growth of 5.91% by value over the period 2015-2019. Lebanon accounted for 0.02% of global exports by value in 2019. Lebanon’s exports were valued at more than $3.6 million in 2019, significantly lower than the corresponding imports figure of $53 million (ITC, 2020). The latest estimate of national production for the fresh potatoes component of the VC was nearly $170 million (MOA & FAO, 2016).

The agriculture sector (including fresh vegetables production) accounted for 2.1% of GDP in 2018, and the manufacturing of food products accounted for another 2.1% of GDP that same year (CAS, 2020).

Cumulative Score: 3.90 Recommendation: CROSS-CUTTING

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Social The number of producers of fresh potatoes (farmers) is estimated to exceed 8,000 (MOA, n.d.). Other actors within the VC include processors, wholesalers, distributors, exporters, and retailers, for which detailed figures are not available.

Female participation in the potato VC is estimated at approximately 35%, based on available figures (Farole & Konishi, 2017; NIRAS, n.d.; KII). Women’s participation is understood to be clustered within low-skill permanent jobs or seasonal employment, with a significantly lower share of high-skill permanent jobs. Women are reported to hold only a minor share of ownership in the potato VC, based on evidence from North Lebanon (Farole & Konishi, 2017).

Similarly, youth participation in the potato VC is estimated to exceed 50% but with this contribution clustered in seasonal work and low-skilled permanent positions (Farole & Konishi, 2017; KII).

Environmental The potato VC has a relatively low impact on the environment, in terms of resource intensity and specifically water use: The water footprint associated with fresh potato production is approximately 321 m3 per ton (Mekonnen & Hoekstra, 2011). All fresh potato production in Lebanon is irrigated production (KII).

Lebanese production of fresh vegetables including potato is associated with improper or excessive use of chemical inputs including pesticides, which have harmful effects on both the environment (soil and water quality, biodiversity) as well as human health (laborers and consumers). However, good agricultural and best environmental practices are available that could improve the handling and application of these chemicals.

The impact of the environment, including climate change, is estimated to be high on the potatoes VC. The environment directly affects agricultural production of all types, though the use of semi-controlled environments through irrigation can limit environmental impacts on local production. As for climate change, Lebanese potato production is estimated to be highly vulnerable and susceptible to its predicted effects due to projected effects on the availability of groundwater for irrigation purposes (MOE & UNDP, 2011).

Institutional Lebanon’s potatoes VC has received a large degree of support and investment from private, government, and donor sources relative to other VCs under consideration. Notable is the investment of Dutch Cooperation through the RMF to support potato production in North Lebanon. The recently published Lebanon National Agriculture Strategy 2020-2025 highlights the export potential for fresh potatoes (MOA, 2020), though the proposed government interventions to foster potato exports are not explicitly stated. The document also highlights the possibility to support farmers by providing in-kind and cash assistance for inputs including high quality seeds, fertilizers, small tools, and equipment (Programme 1.1.); and to support local production of seeds and seedlings as well as to establish seed certification systems (Programme 2.1) (MOA, 2020).

The institutional capacity of the VC to support is estimated to be average or medium, given the availability of local skills and processes to match the potential needs of the VC.

The potatoes VC tends to rely on conventional sources of finance, though this is less pronounced within the processing components of the VC than in the primary production segments. Fresh potato production has traditionally relied on informal credit arrangements between input suppliers, producers, and wholesale markets; these credit arrangements have shifted to cash-based operations due to Lebanon’s economic crisis.

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Value Chain Structure Figure 10. Potatoes Value Chain Map

Source: El Gazzal (2015)

Production and Processing Lebanon’s potato sector is large and well-established. The VC benefits from robust production volumes (approximately 400,000 tons annually) and established export channels (KII). Lebanon’s weather is well suited to potato production (KII).

Potato production is concentrated in Akkar and in the Bekaa Valley. Potato production begins with land preparation, followed by planting after the onset of rains. The production season is short, followed by an intensive harvest period. Production from Akkar yields an earlier harvest (early April until mid-June) than Bekaa (one month later) (Bureau Leeters, 2018). However, Lebanon’s potato production was significantly disrupted in 2019, due to political and economic crises in the country that disrupted

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input supply (KII). One stakeholder estimated the level of potato production in 2020 at only 30-40% of last year’s total production (KII).

There are two major categories of production: industrial potatoes and potatoes for fresh consumption. Industrial potatoes are grown primarily for a small number (3-4) of processors operating in Lebanon: Bakker/Tyabat, Daher, Fantasia, and Joseph Abou Fadel. Commonly grown varieties include Late Rosetta, Hermes, Agria, and Spunta. In addition, RMF is working to introduce the Annabelle potato variety to the market for export to the Netherlands (KII). In terms of potatoes for fresh consumption, Lebanon produces nearly 350,000 tons annually and consumes 500 tons daily, leaving some 150,000 tons available for export annually. Yields are slightly below global benchmarks (roughly 75th percentile) (McKinsey, n.d.).

• Constraint: Most of the potato varieties are not suitable for high-end markets and only a small number of potato fields are Global GAP certified (Bureau Leeters, 2018).

The potato VC relies on imported inputs including seeds, fertilizers, pesticides/herbicides, and packaging materials (craft paper containers). The current cost of seeds is approximately $690/ton, and each ton of seeds yields approximately 20 tons of potatoes. Seeds are typically sourced from Europe (France, Germany, and the Netherlands) and Canada (KII), requiring continued access to hard currency. The supply of Dutch potato seed may be limited in the short-term, due to hot weather in the Netherlands that has adversely affected seed production. Some seed suppliers offer demonstration fields to show farmers the advantages of improved potato seeds, though adoption among smaller and more traditional farmers is limited (KII).

• Weakness: Imports of potato seeds have been constrained by LBP depreciation as well as capital controls.

While there is speculation that Lebanon could import higher-quality potato seeds and engage in initial stages of replication in the country, this does not eliminate the need for imported seeds. For example, Lebanon could import Super Elite or Elite class seeds and produce from them Class B, which is the local seed; from this, farmers could subsequently produce Class A. Potential savings on imported potato seed could potentially reach $15 million annually, against current import costs of $20-25 million. However, seed production is technically challenging and would require sufficient land to engage in the necessary seed production cycles. Moreover, the local production of seeds would require extensive land areas in remote areas that are safe from the possibility of contamination – which would be unlikely to obtain given Lebanon’s limited land area.

• Weakness: Lebanon’s small size limits the potential for local potato seed production, due to outright limitations in the land available and the limited scope to benefit from economies of scale (KII).

At least one potato seed supplier (Salia) claims to be working as a service provider, providing seed to farmers and then buying on a contract basis and exporting their production at the end of the season. This model is being applied for potato, tomato, and cucumber (KII).

Potato production is adversely affected by the misapplication of chemical inputs, including both fertilizers and pesticides. As a result, potatoes may not meet standards required for export (KII).

Potato production typically relies on manual harvesting rather than mechanical harvesting, due to the cost advantages of manual labor. Moreover, mechanical harvesting and handling can cause blackspot, which reduces quality and is considered a defect (KII).

• Constraint: Potato producers require sorting machines to separate defective potatoes more efficiently, as this would improve the quality of production sold on the market (KII).

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Farmers sell potatoes at wholesale markets on a spot basis, or to traders, exporters, or processors on a contract basis. Traders include wholesalers, distributors, packers, and exporters (Bureau Leeters, 2018).

There is room for improvement in post-harvest infrastructure and handling, sorting, and packing of potato. Potato production requires segregated cold storage, in order to control and limit the transmission of pests and diseases.

Potato processors producing items including snack foods (potato chips) and French fries are located in Akkar and in the Bekaa Valley. In Akkar, there are two French fry factories: Famous Frites and Super Frites. The first buys Agria potatoes from the field. Previously, Famous Frites used to buy from 50 farmers using the contract system, which did not work due to lack of commitment from farmers. Currently, Famous Frites buys potatoes from ten big farmers who accept their terms and conditions and do not get involved in the production phase. They import also from Egypt, due to cheaper prices compared with Lebanese potatoes and use four cold storage rooms, with a capacity of each between 1,000 and 1,500 tons (Bureau Leeters, 2018).

Stakeholder Analysis Lebanon’s potato value chain is relatively complex. Many actors play more than one role. For instance, one person can be a farmer, trader, owner of a shop at the wholesale market, exporter, chairman of a cooperative and vice chairman of a syndicate. Some traders, exporters, and processors reach back to the beginning of the chain and play the role of input supplier by providing farmers with seeds, fertilizers, and pesticides (Bureau Leeters, 2018).

Potatoes are grown at a larger scale of production as compared to other crops and tend to be grown as a cash crop. A small number (approximately 7) of large producers or firms (cooperatives) dominate Lebanon’s potato VC. Small- and medium-sized farmers are not highly visible in the market as such (KII).

Some potato producers work in a cooperative structure, grouping approximately a dozen producers. In the event that they require additional supply, they buy from other farmers outside of the cooperative (KII).

Seed producers and importers play a critical role in the potato VC, as they set the price for seeds (KII).

End Market Analysis Potato production reaches both the local and export markets. Potato producers typically identify their end market (local or export) prior to planting for the season (KII).

Lebanese consumers prefer potatoes produced in Akkar to potatoes produced in the Bekaa Valley for their taste (Bureau Leeters, 2018). Lebanon imports Egyptian potatoes, typically at the end of the local season. Local producers do not consider these imports to be a major challenge or threat (KII).

Lebanon’s exports of potatoes have been trending up in recent years and are in the form of fresh potatoes (Bureau Leeters, 2018). Major export markets for potatoes include Arab countries (UAE, Jordan, Kuwait, Saudi Arabia), Russia, Ukraine, and Tunisia (KII). Despite the existence of a yearly free quota on Lebanese potato exports to the EU agreed to in 1998, this was not utilized until 2018 (Bureau Leeters, 2018).

• Weakness: Lebanon faces strong competition in neighboring countries and GCC states, its traditional export markets, as well as in the European market, where Lebanese suppliers have no networks (Bureau Leeters, 2018).

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• Opportunity: Export has become much more attractive this year particularly as Lebanese producers have been able to pass forward some of the cost savings attributable to the LBP depreciation (KII).

Of note, potato was one of the crops identified as having limited export potential and which was not recommended for further cultivation within the Lebanon Economic Vision (McKinsey, n.d.).

Business Environment Factors The enabling environment for Lebanon’s exports of potatoes and potato-based products is, overall, not supportive. As for the wider agri-food sector, “There is no clear national vision on agriculture and no national export marketing strategy. Policies, legislation, and regulations have critical limitations, such as lack of quality frameworks, quality standards and accredited labs. Connections between the public sector and the private sector are weak. Applied research, education and extension are below the level required to support businesses. Business support organizations lack sufficient staffing and funds to develop and deliver valuable export-related services to the private sector” (Bureau Leeters, 2018: 11).

Despite the importance of potatoes within the export market, the VC does not benefit from government support as have other VCs: “Potatoes are no longer a strategic product for exports, mainly because of the high need for water and because of stronger competition in GCC markets from Turkey, Pakistan, and even France. At the farm level, government policies are not visible and potato farmers do not experience their effects in their everyday life” (Bureau Leeters, 2018: 75).

The VC is also challenged by the limited availability and distribution but high prices of high-quality inputs, equipment, and technologies; and well as the limited and declining access to finance (KII).

Dynamic Trends Dynamic trends specific to the potato VC have not been identified in this analysis.

Cross-Cutting Themes All findings under ‘Cross-Cutting Themes’ that are specific to this VC are presented here. Please also refer to the broader discussion under Methodology, above.

Journey to Self-Reliance USAID/Lebanon has not previously invested in the potatoes VC, with the exception of the limited provision of imported potato seed under LINQ through its emergency response to COVID-19 and economic crisis in Lebanon (Social Impact, 2020 September).

However, other donors have invested significantly in the potatoes VC. Of note is a project funded by the Dutch government, with EKN (Swedish Export Credit Agency) and RVO (Netherlands Enterprise Agency) being the initiators. The project is being implemented in cooperation with the RMF and Dutch seed supplier HZPC. The project aims to develop an export flow to the European market using the available 50,000-ton EU quota. The project is based on controlled production and marketing of the HZPC specialty variety Annabelle. The project established an agreement for the 2015–2016 season with a Dutch packer, while HZPC was tasked with the actual import. The market entry and distribution to retail outlets were well prepared with dedicated packaging and a special label. In the end, the Lebanese cluster formed by the importer plus a cooperative farm did not manage to ship the potatoes after harvest in 2016. Apparently, the whole process was too risky or complicated for them, so they decided to supply to the local market instead. However, new attempts in 2018 were successful, resulting in a 20-tonne shipment that was sold through Dutch retailer Jumbo, raising high expectations for 2019 and the following years. In October 2020, it was announced that RMF and the American University of Beirut have signed a 15-month partnership agreement to develop harvest and post-harvest practice parameters and guidelines for crops including potatoes (AUB, 2020, October 13).

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Additional Factors There are no findings under ‘Additional Factors’ specific to this VC. Please refer to the broader discussion under Methodology, above.

Illustrative Interventions to Address Constraints and Opportunities The potatoes VC scores high according to the scorecard, driven by the large global market size, the opportunity for import substitution, the high value of local production, the large number of potato producers, and the relatively low water footprint of potatoes. However, the limited opportunities for meaningful intervention by ARE that can have an impact within the budget and time resources available, and the existing presence of donors within the VC, is the basis for its classification as CROSS-CUTTING rather than FOCUS. Notably, the investment cost needed to move the needle for the potatoes VC – particularly around the seeds production issue – appears to exceed the available budget and timeline available under the ARE activity. Moreover, given the presence of a major donor initiative targeting this VC with the support of Dutch funding and expertise in seed production, it seems reasonable that ARE’s interventions could be more impactful if undertaken to address other constraints within the VC. For example, ARE’s interventions could usefully be targeted to improve post-harvest sorting, packing, and handling (including investments in segregated cold storage for potatoes), including through a cross-cutting intervention that is not exclusive to the potatoes VC.

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Alliums 27 Selection Criteria Results

Criteria Data Source Weight Scoring 1 2 3 4 5

Economic (50%)

Market Size (Value, USD) (2019)

ITC, 2020

10% 5 Market Growth - Annual Growth (Value, USD) (2015-2019)

10% 2

Lebanon's Global Market Share - % of Total Exports in Value (2019) 5% 1

Current Exports from Lebanon (Value, USD) 5% 1

Current Imports to Lebanon (Value, USD) 10% 5

Current Production (Value, USD) MOA & FAO, 2016 10% 5 Social (20%)

Scalability (Number of Firms) Interviews &

Reports

10% 5

Engagement of Women (%) 5% 5

Engagement of Youth (%) 5% 5 Environmental (15%)

Impact of the value chain on the environment (adverse)

Mekonnen & Hoekstra, 2011 10% 4

Impact of the environment, including climate change, on the value chain

MOE & UNDP, 2011 5% 3

Institutional (15%) Private sector, government, or donor investment

Interviews & Reports

5% 4

Institutional capacity exists to support the value chain 5% 3

Reliance on conventional financial services 5% 2

Economic The global market (global imports) for alliums was valued at more than $7.5 billion in 2019, reflecting growth of 2.94% by value over the period 2015-2019. Lebanon accounted for 0.004% of global exports by value in 2019. Lebanon’s exports were valued at approximately $297,000 in 2019, as compared to imports of more than $13 million (ITC, 2020). The latest estimate of national production for the fresh alliums component of the VC was approximately $26 million (MOA & FAO, 2016).

Social The number of producers of alliums – including farmers and other value chain actors – is estimated to exceed 2,000. This figure is comprised largely of the Lebanese farmers who are engaged in the production of onions and garlic (MOA, n.d.).

27 For the purposes of this analysis, and to maintain consistency with Phase 1 of the selection and prioritization exercise, the Alliums VC was defined to include onions, garlic, and their derivatives.

Cumulative Score: 3.80 Recommendation: CROSS-CUTTING

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Female participation in the alliums VC is estimated at approximately 70% (KII).

Youth participation within the alliums VC is estimated at 80% (KII).

Environmental The alliums VC has a relatively low impact on the environment, in terms of resource intensity and specifically water use: The water footprint associated with alliums production is approximately 365 m3 per ton (Mekonnen & Hoekstra, 2011).

The production of alliums in Lebanon is associated with improper or excessive use of pesticides, specifically herbicides, which have harmful effects on both the environment (soil and water quality, and biodiversity) as well as human health (laborers and consumers). However, good agricultural and best environmental practices are available that could improve the handling and application of these chemicals.

The impact of the environment, including climate change, is estimated to be average or medium on the alliums VC. The environment directly affects agricultural production of all types, though the use of semi-controlled environments such as irrigation can and do limit environmental impacts on Lebanese production of alliums. As for climate change, no specific estimate of the susceptibility of Lebanese alliums production is available (MOE & UNDP, 2011).

Institutional Lebanon’s alliums VC has received an approximately average degree of support and investment from private, government, and donor sources relative to other VCs under consideration. The recently published Lebanon National Agriculture Strategy 2020-2025 highlights the possibility to support farmers by providing in-kind and cash assistance for inputs including high quality seeds, fertilizers, small tools, and equipment (Programme 1.1.) (MOA, 2020).

The institutional capacity of the VC to support sustainable development is estimated to be average, given the availability of local skills and processes to match the potential needs of the VC.

The alliums VC tends to rely on conventional sources of finance, like the wider agri-food sector. Alliums production has traditionally relied on informal credit arrangements between input suppliers, producers, and wholesale markets; these credit arrangements have shifted to cash-based operations due to Lebanon’s economic crisis.

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Value Chain Structure From the limited availability (lack) of previously published analyses of Lebanon’s alliums VC, no value chain map specific to alliums was identified. Instead, a general fresh vegetables map is provided. This gap argues for further research to establish a more accurate map of the alliums VC.

Figure 11. Alliums Value Chain Map

Source: Bureau Leeters, 2018

Production and Processing Alliums cultivation is well established in Lebanon. Lebanese farmers produce yellow, white, and red/purple onions. While white and red/purple onions are well suited to the export market, the local market prefers yellow onions. The onion production season lasts 9 months (KII), with harvest at maturity in September. The production time for garlic is also 9 months, with maturity in June. Farmers generally produce good yields, though there is variation in performance (e.g., from 5 tons/dunum to 10 tons/dunum) linked to production techniques such as the use of irrigation, which leaves room for improved performance.

Alliums production requires scale, as the products are considered commodities rather than value-added products (KII). However, Lebanon’s total production area for garlic is estimated at only 1,200 dunums, of which half is controlled by a single large producer (KII).

Alliums producers import their seeds from Europe (Netherlands, Denmark, France, and Belgium) (KII). Imports of onions and garlic seeds are controlled by a dominant importer: The Comptoir Agricole (CREAL) controls 85% of the market for onion seeds, importing the successful Oscar variety. Farmers have grown accustomed to producing this variety with a good level of production (quality and quantity).

Alliums production generally does not involve mechanization, neither for planting nor for harvesting (KII).

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• Constraint: Key players in the alliums VC claim a need for equipment to facilitate harvest (onions) and refrigeration for post-harvest handling (KII).

The primary weakness limiting alliums production is a lack of infrastructure (e.g., controlled atmosphere storage) and post-harvesting services such as packing. Post-harvest handling of alliums is rudimentary, while sorting and packing are still performed manually due to the risk of puncturing or otherwise damaging the products (KII). While storage is available to maintain the supply of onions year-round (Bureau Leeters, 2018), the lack of proper storage facilities means that garlic is not stored within the country: All garlic is harvested over the period June-July and immediately sent to the market, over a brief window of 20-30 days.

Stakeholder Analysis Detailed information on the importance of alliums VC to employment and employment patterns within the VC are not currently available but should be subject to further research.

End Market Analysis Alliums production reaches both the local and export markets.

Local demand for alliums is strong, and local products are viewed favorably as compared to imported products from markets including China and Turkey. Locally produced garlic must compete with imports, of which garlic is the third largest import under the fruits and vegetables heading, largely coming from China (Bureau Leeters, 2018).

• Opportunity: The rising costs of imported products make local alliums (especially garlic) more competitive on the local market. However, the limited local production of alliums – and the lack of in-country storage – mean that the Lebanese market relies on imported (Chinese) garlic for much of the year.

Alliums comprise a small share of Lebanon’s fresh vegetable exports (approximately 2%) (ILO, 2020). There is unmet demand for niche products on both the local (HORECA) and export markets. Examples include red (purple) onions, pearl onions, and Spanish onions (KII).

Alliums producers are already reaching the export market, where they can sell at prices lower than competitors (KII). Onions and shallots were previously identified as products which could have a competitive advantage in reaching the GCC market (Bureau Leeters, 2018), with an opportunity for Lebanese garlic to displace Chinese garlic or to compete for export windows after Egyptian garlic leaves the market (3 month gap) (KII). Of note, garlic was one of the crops identified as having high export potential and which was recommended for further cultivation within the Lebanon Economic Vision (McKinsey, n.d.).

Business Environment Factors The enabling environment for Lebanon’s exports of alliums is, overall, not supportive. As for the wider agri-food sector, “There is no clear national vision on agriculture and no national export marketing strategy. Policies, legislation, and regulations have critical limitations, such as lack of quality frameworks, quality standards, and accredited labs. Connections between the public sector and the private sector are weak. Applied research, education, and extension are below the level required to support businesses. Business support organizations lack sufficient staffing and funds to develop and deliver valuable export-related services to the private sector” (Bureau Leeters, 2018: 11). The VC is also challenged by the limited availability and distribution but high prices of high-quality inputs, equipment, and technologies; and well as the limited and declining access to finance (KII).

Dynamic Trends No dynamic trends specific to the alliums VC have been identified in this analysis.

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Cross-Cutting Themes All findings under ‘Cross-Cutting Themes’ that are specific to this VC are presented here. Please also refer to the broader discussion under Methodology, above.

Journey to Self-Reliance USAID/Lebanon has not previously invested in the alliums VC. Other donors have invested in the agricultural sector in Lebanon. The Agriculture and Rural Development Program (ARDP) supported by the European Union sought to improve extension services and access to finance (Mercy Corps, 2014b); however, this support was not directly targeted to the alliums VC.

Additional Factors There are no findings under ‘Additional Factors’ specific to this VC. Please refer to the broader discussion under Methodology, above.

Illustrative Interventions to Address Constraints and Opportunities The alliums VC scores well according to the scorecard, driven by the large global market size, the opportunity for import substitution, the high value of local production, the large number of producers, and the engagement of women and youth within the VC. However, a lack of sufficiently detailed information on the alliums VC does not provide a sound basis for a FOCUS approach at this time. Further analysis of the alliums VC is recommended to understand the structure and constraints, and alliums production and processing. In the interim, the alliums VC is classified as CROSS-CUTTING to allow for engagement on relevant opportunities to support and advance the VC. Based on the available information, interventions in the alliums VC could include co-investment in mechanized production including for planting and harvesting (under a cross-cutting APS addressing access to finance); or in post-harvest sorting, packing, and handling (under a cross-cutting APS addressing post-harvest). To add value to local production of alliums, notably garlic, interventions could support innovation in developing new products or derivatives such as sauces for export.28

28 To capitalize on this narrow opportunity, any firm proposing such an approach could be considered within the Fresh & Processed Vegetables & Herbs FOCUS VC.

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Citrus Selection Criteria Results

Criteria Data Source Weight Scoring 1 2 3 4 5

Economic (50%)

Market Size (Value, USD) (2019)

ITC, 2020

10% 5 Market Growth - Annual Growth (Value, USD) (2015-2019)

10% 2

Lebanon's Global Market Share - % of Total Exports in Value (2019) 5% 1

Current Exports from Lebanon (Value, USD) 5% 4

Current Imports to Lebanon (Value, USD) 10% 3

Current Production (Value, USD) MOA & FAO, 2016 10% 5 Social (20%)

Scalability (Number of Firms) Interviews &

Reports

10% 5

Engagement of Women (%) 5% 4

Engagement of Youth (%) 5% 4 Environmental (15%)

Impact of the value chain on the environment (adverse)

Mekonnen & Hoekstra, 2011 10% 3

Impact of the environment, including climate change, on the value chain

MOE & UNDP, 2011 5% 2

Institutional (15%) Private sector, government, or donor investment

Interviews & Reports

5% 1

Institutional capacity exists to support the value chain 5% 2

Reliance on conventional financial services 5% 2

Economic The global market (global imports) for citrus was valued at more than $22 billion in 2019, reflecting growth of 1.30% by value over the period 2015-2019. Lebanon accounted for 0.03% of global exports by value in 2019. Lebanon’s exports were valued at nearly $8 million in 2019, significantly higher than the $2.7 million in imports during the same period (ITC, 2020). The latest estimate of national production for the fresh component of the VC was approximately $137 million (MOA & FAO, 2016).

The agriculture sector (including fresh vegetables production) accounted for 2.1% of GDP in 2018, and the manufacturing of food products accounted for another 2.1% of GDP that same year (CAS, 2020).

Social The number of producers of citrus fruits – including farmers, processors, wholesalers, distributors, and other value chain actors – is more than 17,000. This figure is comprised largely of the Lebanese farmers who are engaged in the production of citrus fruits (MOA, n.d.; Raux, 2017).

Cumulative Score: 3.30 Recommendation: CROSS-CUTTING

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Female participation in the citrus VC is estimated at just above 30% (NIRAS, n.d.; KII). Within the citrus juice processing segment of the sector, women’s contribution is approximately 50% for factory production and administrative roles; however, women are not involved in distribution, which is considered to be a traditionally male role (KII).

Youth participation in the citrus VC is estimated at 40%. This figure has declined over time, as youth are not entering the sector and as existing workers age (KII).

Environmental The citrus VC has a below average impact on the environment, in terms of resource intensity and specifically water use: The water footprint associated with the fresh citrus produced is approximately 560 m3 per ton (Mekonnen & Hoekstra, 2011). Much of the fresh citrus production in Lebanon is irrigated production.

The production of fresh citrus in Lebanon is associated with improper or excessive use of chemical inputs including pesticides, which have harmful effects on both the environment (soil and water quality, and biodiversity) as well as human health (laborers and consumers). However, good agricultural and best environmental practices are available that could improve the handling and application of these chemicals.

The impact of the environment, including climate change, is estimated to be slightly higher than average on the citrus VC. The environment directly affects agricultural production of all types, though the use of semi-controlled environments such as irrigation can and do limit environmental impacts on Lebanese production of citrus. As for climate change, Lebanese citrus production is expected to be adversely impacted by sea level rise and salinization of coastal plains where citrus is currently produced (USAID, 2016). Already some farmers have responded to hotter and drier growing conditions by shifting from citrus to banana production (MOE et al., 2015). This shift is being exacerbated by coastal urbanization, which has reduced land available for citrus production (KII). Conversely, the production of citrus has been highlighted as a potential response to climate change in dryland-mixed farming systems within the Mashreq region (Lewis et al., 2018).

Institutional Lebanon’s citrus VC has not been a focus of support or investment from private, government, or donor sources relative to other VCs under consideration. Indeed, the sector is facing disinvestment as producers shift out of citrus fruits production (KII). However, the recently published Lebanon National Agriculture Strategy 2020-2025 highlights the possibility to support farmers by providing in-kind and cash assistance for inputs including high quality seeds, fertilizers, small tools, and equipment (Programme 1.1.); and to facilitate market access for high value-added crops including citrus (Programme 3.4) (MOA, 2020).

The institutional capacity of the VC to support is estimated to be slightly lower than average, given the availability of local skills and processes to match the potential needs of the VC. Farmers’ ability to manage citrus trees is a bright spot within the VC (KII).

The citrus VC tends to rely on conventional sources of finance, though this is less pronounced within the processing components of the VC than in the primary production segments. Citrus production has traditionally relied on informal credit arrangements between input suppliers, producers, and wholesale markets; these credit arrangements have shifted to cash-based operations due to Lebanon’s economic crisis.

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Value Chain Structure Figure 12. Citrus Value Chain Map (Akkar)

Source: Hamade, 2017

Production and Processing Lebanon’s citrus production is geographically concentrated in coastal areas, particularly the southern half of the country (Hamade, 2017; Saadeh, 2016, June 25). Akkar accounts for approximately 14% of Lebanon’s citrus production (Hamade, 2017).

Citrus production has declined in recent decades as a result of urban sprawl (KII), as well as the replacement of citrus orchards with banana and avocado orchards in South Lebanon (Saadeh, 2016, June 25). In the North and Akkar, citrus production has been replaced with much more lucrative greenhouse vegetables production (Hamade, 2017).

Farmers typically practice small-scale citrus production with traditional techniques that limit both quality and yields (limited economies of scale) (Hamade, 2017). Annual yields are an average of 3.0

10%

Quality exchange

Safadi center

Akkar Citrus Production Medium and Small

producers

Mohamad

Mobay

Emkan managed

Wholesale

Tripoli and

Other Wholesale center

Tripoli Based Exporters

GCC and Iraq export Market Akkar

Local Marke

t

Other local

markets

Juice Shops Akkar

&

Akkar Citrus Production

Large and medium producers

40%

<1%

10%

30%

50%

10%

15%

35%

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tons/dunum, compared to 5.0 tons/dunum under best practices (Saadeh, 2016, June 25). Average yields for oranges and lemons are slightly below global benchmarks (exceeding 75th percentile) (McKinsey, n.d.).

Lebanon’s citrus farmers produce oranges (more than 50% of production), lemon and lime, tangerines and mandarins, and grapefruits. The primary orange varieties are Shamouti/Jaffa, Navel, Valencia, and Blood or Succari. The primary lemon varieties are Interdonato, Monachelleo, and Meyer (Hamade, 2017; Saadeh, 2016, June 25). Sour oranges are cultivated for the production of orange blossom water. Farmers may cultivate a diversity of citrus products as a means to spread their revenue throughout the year (Hamade, 2017).

Table 7. Common Orange Varieties and Features

Variety Features Shamouti/Jaffa Orange Developed in the MENA region

Sweet flavor Seeded Thick, tough peel facilitates export Suitable for eating, not juicing Season: January-May

Navel Orange (including Washington Navel, Navel Late, Navalina, Thompson Navel, Lane Late, New Hall)

Sweet and tangy flavor Seedless Thick peel Suitable for eating or juicing Season: October-June

Valencia Orange Seeded Thin peel Suitable for eating, ideal for juicing Season: March-October

Source: Hamade (2017) and Saadeh (2016, June 25)

The practice of grafting onto existing rootstock allows citrus farmers to renew orchards and/or to replace oranges with more demanded clementines and lemons (Hamade, 2017).

The citrus VC is adversely impacted by unregulated nurseries and the high cost of inputs, which contributes to low profitability. Farmers use excessive amounts of pesticides and fertilizers, which in fact can lead to losses as well as adverse impacts on human health. Irrigation is typically practiced through drip or sprinkler systems (Hamade, 2017).

Harvesting practices are adequate but could be improved, particularly the placement of ladders against trees that can damage new shoots. Harvesting is done manually over an extended period. Fruits can remain on the tree for approximately three months without deteriorating in quality, which allows farmers to manage the timing of their harvest (Saadeh, 2016, June 25). Indeed, producers have a high degree of skill in orchard management and production, which allows them to effectively store fruit on the tree for extended periods of time (sometimes until the onset of the next harvest) (KII).

The VC applies rudimentary sorting and packing for citrus fruit that is destined for the local market. Fruits directed to the export market are subject to cleaning, sorting, grading, and waxing (Saadeh, 2016, June 25).

The VC faces gaps in post-harvest. Packing houses are inadequate and inefficient, and Lebanon generally lacks cold storage for citrus. Mechanical damage during packing and inadequate sanitation result in post-harvest losses of 5-15%. (Saadeh, 2016, June 25). The post-harvest situation is notably different in Akkar, however, where USAID previously supported the Safadi Foundation in a pilot project to establish a mixed fruit-vegetable packing center in Akkar, which currently serves to sort, wash, grade,

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and package citrus fruits; and which processes roughly half of Akkar’s citrus production. This facility has since come under an exclusivity agreement with Akkar’s largest citrus aggregator. In addition, the Souk Akkar market serves as both a wholesale market as well as offering sorting, packing, and cold storage services for products including citrus. The two centers are seen to be direct competitors, and their capacity may exceed market needs (Hamade, 2017).

• Opportunity: Cold storage can extend the life of citrus products by approximately 50%. Different citrus types should not be stored together, however, due to variation in humidity requirements (Hamade, 2017). Cold storage could also be used to manage supply of citrus fruits to meet higher demand during summer months.

Citrus fruit may be sold by farmers directly, or routed through the wholesale market (Saadeh, 2016, June 25). A small number of actors serve as aggregators and/or provide services to citrus producers (Hamade, 2017). The price of citrus fruits tends to rise in summer, when production is low, but demand is high (Saadeh, 2016, June 25).

High-quality citrus fruit has generally been directed to local markets, while middle-quality fruits were exported. Low-quality fruits are used in processing, specifically for juice production (Saadeh, 2016, June 25).

Citrus fruit can be processed into various products, including juices (fresh or from concentrate) as well as citrus peel. Citrus peel production may involve the addition of sugar, as well as a sulphuration process (application of sulfur dioxide) to prevent discoloration of the product (Yared, 2015 April). Lebanon’s fresh juice producers use local citrus fruits, while producers of juice from concentrate import the concentrate (powder) and reconstitute it in Lebanon. Fresh juice producers face a lack of sufficient local supply of fruits (Saadeh, 2016, June 25).

Fresh juice requires proper cold chain, which requires frequent delivery and proper in-store handling. These requirements contribute to its higher price on the market (Saadeh, 2016, June 25).

Stakeholder Analysis Citrus cultivation is practiced at different scales of production. For example, in Akkar, the top 10% of landowners control more than 60% of the land used for citrus cultivation. Much of the production is done on such a small scale that is not considered to be economically viable (Hamade, 2017).

Many orchard owners are second-generation, who rent their lands rather than engage in direct production. In Akkar, owners often rent to landless Syrian farmers who manage the land in exchange for shelter and a monthly wage (Hamade, 2017).

While a cooperative for citrus farmers officially exists, reports indicate that it does not appear to be functional or offer meaningful support to its members. Farmers are not organized to allow them to make bulk purchases of agricultural inputs or to market their production for a premium (Saadeh, 2016, June 25). However, a cooperative affiliated with the Safadi Foundation was established and registered with IDAL to benefit from export subsidies (Hamade, 2017).

Wholesalers play a dominant role in the citrus VC (Saadeh, 2016, June 25). In Akkar, for example, a single farmer-aggregator-export controls 40% of all citrus production (Hamadeh, 2017). Despite increasing demand from the GCC for Lebanese citrus, the benefits are being captured by traders rather than farmers, who have not had a positive impact of this additional demand.

End Market Analysis Lebanon’s citrus production reaches both the local and the export markets. Lebanon’s citrus production is a fraction of the production volumes from major producers including Spain, Turkey, South Africa, and the United States (Saadeh, 2016, June 25).

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Lebanon imports small amounts of citrus fruit and is largely self-sufficient in citrus production. Imports come overwhelmingly from Syria (Saadeh, 2016, June 25). Local producers often complain about the entry of illegal Syrian production into the local market (Hamade, 2017).

Evidence of rising prices for citrus fruits on the local market in September-October 2020 are linked to seasonal shortages in supply of citrus fruits, compounded by strong demand on export markets for citrus concentrate that is serving to drive up prices on local markets (KII). As citrus production comes online (winter) and imports from Syria resume, prices should drop back on local markets.

The decreasing in local purchasing power is driving Lebanese consumers to lower-quality beverages, including fruit (citrus) juices. Local demand for juice is shifting from fresh to from concentrate. A downward movement in beverages consumption is considered difficult to reverse, limiting the opportunity for value-added products in the short term (KII).

Oranges represent the largest share of Lebanese citrus exports, followed by lemon and mandarins. Approximately 50% of domestic orange production is exported. The major export destinations are GCC countries (Grades A and B), Syria (Grades B and C), and Iraq (Grades B and C) (Hamade, 2017; Saadeh, 2016, June 25). There are limited opportunities for export to the European market, which has stringent requirements for MRL of pesticides, and for which market linkages are not yet established (Hamade, 2017). Lebanese citrus exports have been on a downward trend for more than a decade. Lebanese citrus production was adversely affected by the closure of overland trade routes via Syria (Saadeh, 2016, June 25), though these have reopened in recent years.

• Opportunity: To meet existing demand for citrus in GCC countries, Lebanese producers could target good agricultural practices and new varieties sold through existing market channels.

• Opportunity: Earlier studies identified an export window to Europe for Valencia oranges, following Spanish production and prior to South African citrus (Hamade, 2017).

Exports of juice (primarily juice from concentrate) are sold to Mexico, Iraq, and GCC countries (Saadeh, 2016, June 25). Lebanese citrus juice producers have faced strong cost competition on export markets, notably the GCC. Competition was particularly intense from lower-quality but lower-priced Turkish juices, to the extent that Lebanese juice producers have withdrawn from the market. Currently, demand for citrus juice is strong in Iraq. This has had the effect of limiting the local supply of citrus for processing (KII).

Of note, oranges and grapefruits were two of the crops identified as having limited export potential and which were not recommended for further cultivation within the Lebanon Economic Vision (McKinsey, n.d.).

Business Environment Factors According to Hamade (2017: 17), “The legal and institutional environment for citrus in Lebanon is largely under-developed. For example, citrus farmers and landowners are not included in the provision of both: (i) Decree 1/379 of March, 5th 2012, which enforced registration of vineyards and apple orchards, and (ii) Decree 1/380 of May 5th, 2012; all table grapes and apple producers have to contact the MOA prior to harvest, in order for the ministry to test pesticide residues. Farmers non-complying with these decrees should not receive a certificate of origin for export or benefit from any of the Ministry’s or IDAL services. Note that it is unclear to which extent these decrees are implemented, nonetheless, missing to include citrus orchards in them also reflects the lack of institutional interest in this sub-sector.”

An exception exists, however: LARI’s regional office in Akkar has been particularly active in the citrus VC through its work with international organizations and donor-funded projects. Under the ADP-EU

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project (2010), a citrus committee was established and LARI prepared and disseminated an IPM program with informational materials to farmers. Under the IAMB project financed by Italy (2007), LARI planted new varieties resistant to viruses and diseases (Hamade, 2017).

Additionally, Lebanese citrus producers have benefitted from import protection in the form of high customs duties (70%), though this has an adverse effect on citrus processors who are unable to gain additional supply to meet demand (Saadeh, 2016, June 25).

The VC is, like most others, challenged by the limited availability and distribution but high prices of high-quality inputs, equipment, and technologies; and well as the limited and declining access to finance (KII).

Dynamic Trends Lebanon’s citrus VC has been described as an “aging and relatively weak competitive subsector of Lebanese agriculture” (Hamade, 2017: 4). Key weaknesses limiting the sector are found across the VC.

Lebanese households’ spending on non-alcoholic drinks, including fruit and vegetable juices, was projected to increase by 7.1% annually between 2019-2023 (Chbeir, 2019 August 30), though this projection was made before the current economic crisis.

Cross-Cutting Themes All findings under ‘Cross-Cutting Themes’ that are specific to this VC are presented here. Please also refer to the broader discussion under Methodology, above.

Journey to Self-Reliance USAID/Lebanon has previously invested in the citrus VC, for example by supporting the Safadi Foundation in a pilot project to establish a mixed fruit-vegetable packing center in Akkar. More recently, however, investments under its LIVCD activity that worked to support avocado production in South Lebanon may have indirectly resulted in some farmers replacing their citrus orchards (though this was not explicitly targeted or promoted under LIVCD).

Other donors have invested in the citrus VC in Lebanon. A Kuwaiti investment was made in citrus cold chain in Akkar (Hamade, 2017).

Additional Factors There are no findings under ‘Additional Factors’ specific to this VC. Please refer to the broader discussion under Methodology, above.

Illustrative Interventions to Address Constraints and Opportunities Interventions in the citrus VC should not target investment in new orchards, given the cost and time requirements to do so as compared to the period of ARE performance (limited to three base years).

Interventions to support post-harvest interventions in the citrus VC should be carefully considered, particularly in light of what appears to be over-capacity in Akkar. Efforts could possibly be directed to the South, to support farmers in proper orchard management and post-harvest handling.

Interventions within the citrus VC could include co-investments in improved logistics and distribution for fresh juices, whether for the local or the export market. Matchmaking could also help citrus producers and processors to identify new export opportunities.

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Sweet Spreads: Jams, Jellies, Honey 29 Selection Criteria Results

Criteria Data Source Weight Scoring 1 2 3 4 5

Economic (50%)

Market Size (Value, USD) (2019)

ITC, 2020

10% 4 Market Growth - Annual Growth (Value, USD) (2015-2019)

10% 1

Lebanon's Global Market Share - % of Total Exports in Value (2019) 5% 2

Current Exports from Lebanon (Value, USD) 5% 4

Current Imports to Lebanon (Value, USD) 10% 4

Current Production (Value, USD) MOA & FAO, 2016 10% 5 Social (20%)

Scalability (Number of Firms) Interviews &

Reports

10% 5

Engagement of Women (%) 5% 3

Engagement of Youth (%) 5% 2 Environmental (15%)

Impact of the value chain on the environment (adverse)

Mekonnen & Hoekstra, 2010;

Mekonnen & Hoekstra, 2011; Qasemipour & Abbasi, 2019

10% 2

Impact of the environment, including climate change, on the value chain

MOE & UNDP, 2011 5% 2

Institutional (15%) Private sector, government, or donor investment

Interviews & Reports

5% 1

Institutional capacity exists to support the value chain 5% 3

Reliance on conventional financial services 5% 3

Economic The global market (global imports) for sweet spreads was valued at more than $5 billion in 2019, though this in fact reflected a decline in value by -0.70% over the period 2015-2019. Lebanon accounted for 0.11% of global exports by value in 2019. Lebanon’s exports were valued at $5.7 million in 2019, slightly higher than the corresponding imports figure of $5.1 million (ITC, 2020). The latest

29 For the purposes of this analysis, and to maintain consistency with Phase 1 of the selection and prioritization exercise, the jams and jellies principally considered within the VC are those derived from strawberry, fig, apricot, and berry.

Cumulative Score: 3.10 Recommendation: CROSS-CUTTING

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estimate of national production for the honey component of the VC was nearly $47 million (MOA & FAO, 2016).

Social The number of actors in the sweet spreads VC – including beekeepers, women’s cooperatives engaged in the manufacture of traditional foods like jams and jellies, and major food processors – is approximately 7,500 (LIVCD, 2017; PSDP, n.d.a; Yared, 2015). This figure is comprised largely of the Lebanese farmers who are engaged in beekeeping (LIVCD, 2017), of which the majority are engaged as hobbyists (Social Impact, 2018 November).

The extent of female participation in the sweet spreads VC is estimated at approximately 25%. Women play a leading role in the kitchen-based production of jams, jellies, and syrups, particularly through female cooperatives (NIRAS, n.d.) as well as within commercial manufacturers (KII). With regards to honey, however, women play a significantly more limited role in the VC (NIRAS, n.d.). For example, under the earlier LIVCD activity, only 8% of all beneficiaries in the honey VC were women (EnCompass LCC, 2016).

Exact figures on youth participation in the sweet spreads VC are not available. While Hamade (2016) points to the potential for youth engagement in the honey VC, this potential appears not to have been maximized. A placeholder estimate of 15% is applied for the scoreboard exercise.

Environmental The sweet spreads VC has an above average impact on the environment, in terms of resource intensity and specifically water use: The water footprint associated with the sweet spreads VC is approximately 905 m3 per ton (Mekonnen & Hoekstra, 2011; Mekonnen & Hoekstra, 2010; Qasemipour & Abbasi, 2019).

The production of the fruits used to produce sweet spreads is associated with improper or excessive use of chemical inputs including pesticides, which have harmful effects on both the environment (soil and water quality, biodiversity) as well as human health (laborers and consumers). Moreover, the improper use of pesticides has a direct and harmful effect on bees, and therefore honey production. However, good agricultural and best environmental practices are available that could improve the handling and application of these chemicals.

The impact of the environment, including climate change, is estimated to be above average on the sweet spreads VC. The environment directly affects agricultural production of all types, though the use of semi-controlled environments such as greenhouses and irrigation can and do limit environmental impacts on Lebanese production of fruits including strawberries, apricots, and berries. Bees and honey production are particularly susceptible to harmful human activity. As for climate change, precise estimates of the impact on Lebanese sweet spreads production is not available.

Institutional Lebanon’s sweet spreads has previously received support and investment from private, government, and donor sources (support for honey under LIVCD; support for women’s cooperatives producing jams and jellies under LIVCD and LINQ). However, there does not appear to be a strong trend for private sector investment at the current time (KII). However, the recently published Lebanon National Agriculture Strategy 2020-2025 highlights the possibility to facilitate market access for high value-added products including honey (Programme 3.4) (MOA, 2020).

The institutional capacity of the VC to support is estimated to be average, given the availability of local skills and processes to match the potential needs of the VC.

The sweet spreads VC tends to rely on conventional sources of finance, though this is less pronounced within the processing components of the VC than in the primary production segments.

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Value Chain Structure Figure 13. Jam Value Chain Map

Source: Yared (2015 January)

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Figure 14. Honey Value Chain Map

Source: Hamade (2016)

Production and Processing There is an abundance of sweet spreads production in Lebanon, including through local cooperatives.

Jams and Jellies Jams can be produced from fresh, frozen, or canned fruit. The best quality jams are produced from fresh fruits, which may be optimally ripened to ensure quality and taste. A higher fruit content is a mark of a higher-quality product. Fruits are inspected, sorted, and cleaned, crushed, or chopped. In addition to fruit, jams may use sweetening agents, pectin, and citric acid, which are largely imported. The production process involves pasteurization of fruit, cooking, filling, labeling, and packaging. Jams are typically packed in glass jars, and to a lesser extent metal cans (Yared, 2015 January).

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The major jam products produced in Lebanon include apricot (41%), apple (24%), strawberry (17%), and fig (12%). Production is directly related to the availability of fruit, which varies seasonally. For apricots, Golden Yellow and American are the varieties most demanded for jam production. Producers tend not to import fruits due to the high costs of doing so, but rather to source them locally through their own production or through direct relationships with farmers. Processors avoid the wholesale market (Yared, 2015 January).

• Weakness: For jams and jellies, Lebanon’s production of the raw fruits most in demand (strawberries, apricots) are not deemed to meet the quality standard needed for the international market. The local production volume of berries is too little to meet export demand (KII).

Medium and large industrial processors conduct most of the jam processing in Lebanon, relying on automated or semi-automatic production lines with a high production capacity. Labor is used for the storage, sorting, and trimming of fruit. At a smaller scale, cooperatives produce jam using labor-intensive techniques and traditional recipes (Yared, 2015 January).

Processors generally produce high-quality products with a high fruit content, regardless of whether they focus on the export market or the local market (Yared, 2015 January).

Processors either distribute their products directly or through contracted distribution companies (Yared, 2015 January). The distribution of sweet spreads remains limited largely to independent small grocers, supermarkets, and hypermarkets, with these being the most popular channels for grocery retailing in Lebanon. However, due to the rise of premium and artisanal products there has been a rise in the number of products appearing at traditional markets and in delicatessens and specialist shops (Euromonitor International, 2019 November).

Local processors incur high costs due to high salaries, high operating expenses, and inefficient processing (limited economics of scale). Accordingly, processors are unable to be price-competitive in the local and regional markets, especially in the low-end jams (Yared, 2015 January).

Honey There are five major types of beekeepers in Lebanon: small-scale beekeepers (<25 hives), medium-scale beekeepers (26-49 hives), unbranded large-scale beekeepers (>50 hives), branded companies (>200 hives), and large branded companies (>1,000 hives) (Hamade, 2016).

Because of Lebanon’s diverse topography, every region of the country can produce honey. The North and Mount Lebanon have the highest number of beehives, followed by Nabatieh, the Bekaa Valley, and the South (LIVCD, 2017 September).

Two main types of honey can be differentiated: (1) forest and shrub land-based honey, including wildflower and oak honeys; and (2) orange blossom honey. It is common for beekeepers to move their beehives to coastal areas during winter to obtain a harvest of orange blossom honey in early spring. It is estimated that orange blossom honey constitutes around one third of the total Lebanese honey production and is on average 33% less expensive than wildflower and/or oak honey in retail outlets (Hamade, 2016).

Lebanese beekeepers commonly use either the Syrian bee or the Italian bee for honey production. Queen bees must be imported, or reared and shared by beekeepers (Hamade, 2016).

Diseases affecting honeybees are the main production constraints faced by beekeepers. These include the American foulbrood disease (a bacterial disease that affects bee larvae and can be controlled through the use of antibiotics); the Varroa mite, (which acts as a parasite and carries a viral disease that attacks bee colonies and that has been a main cause for hive mortality in Lebanon); and colony

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collapse disorder (CCD), (a phenomenon in which worker bees disappear from the hive). There is suggestion that CCD is caused by environmental degradation such as increased pesticides use, as well as by limited and/or contaminated water supplies (Hamade, 2016). Bees are also threatened by the lack of proper pesticide usage in agriculture in the country (LIVCD, 2017 September).

A number of donor projects have supported the formation of marketing cooperatives. The margin between an initially established beekeeper price and the eventual sales price after deducting all marketing and processing costs pays for the cost of the cooperative’s employees. Any leftover earnings after all costs are paid are then available for rebates to members. To date, such marketing cooperatives have failed to capture anything but a residual share of the retail market, mainly because members prefer to market honey directly to consumers at higher prices. Moreover, few beekeeping cooperatives have proven to be successful in playing a role as service centers that can provide services such as honey extraction, wax recycling, training and field coaching, and facilitating market access. Indeed, at the aggregation level, the honey VC remains constrained by limited access to professional extraction, wax recycling, and bottling services (LIVCD, 2017 September).

The distribution of honey follows four channels. Beekeepers may sell honey directly to consumers or via cooperatives, a channel that represents more than half of Lebanese production and market value. Honey is also sold as a branded product through retail stores, accounting for 35% of local production and 44% of domestic market sales. Third, small companies sell their product through their own retail operations. Fourth is the export market channel, which is dominated by large companies that have established linkages to key markets (Hamade, 2016). While wholesalers exist, they play a limited role in the honey VC (LIVCD, 2017 September).

Stakeholder Analysis Jams and Jellies A small number of processors dominate the market for jam production in Lebanon: The top three producers accounted for some 80% of production as of 2013 (Yared, 2015 January).

Local brands Al Wadi Al Akhdar and Kassatly Chtaura are two of the leading names in sweet spreads. Al Wadi is able to benefit from a strong profile due to its presence in numerous other packaged food categories. In sweet spreads, the brand offers jams and preserves, honey and chocolate spreads, although its wide variety of jams and preserves, including low-sugar options, form the basis of its range. Kassatly Chtaura, meanwhile, is one of Lebanon’s leading brewers of beer and the company is present in various categories across soft drinks and alcoholic drinks, as well as in jams and preserves. The company offers popular local flavors of jams and preserves, including fig, with it having a widespread presence in the leading retailers (Euromonitor International, 2019 November).

Premium brands Mymouné, Maxim's from G Vincenti & Sons and Bonne Maman by Andros SAS are also strong names in jams and preserves and the popularity of these premium brands is an illustration of the indulgence status of jams and preserves generally. For example, Mymouné has been developing a strong brand image through participating in food fairs, distributing through delicatessens and product placement. While Mymouné and Maxim’s are domestic brands, Bonne Maman is imported from France. Local brand Jabal el Sheikh Honey and Saudi Arabian brand Al Shifa from Sunbulah Food & Fine Pastries are other strong brands in honey, while Al Shifa and local brand Mechaalany are also strong in jams and preserves (Euromonitor International, 2019 November).

Honey The honey VC was previously identified by UNDP as among the most promising VCs for the economic empowerment of Lebanese and Syrian refugee women (NIRAS, n.d.).

Although beekeeping remains mostly a complementary and part-time activity for farmers and non-farmers alike, it constitutes a substantial source of secondary income. The activity is well adapted and

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profitable for household production units – low start-up investment, low fixed costs, and labor inputs are relatively low except at harvest time (Hamade, 2016). Indeed, the honey VC engages large numbers of poor rural Lebanese households that can participate in honey production as initial investment costs are low and farmers do not need to own or lease land for the bees (LIVCD, 2017 September). However, sustained activity requires the adoption of up-to-date production practices, especially in terms of disease management (Hamade, 2016).

In recent years, the private sector (with donor support) has made investments to improve honey quality and to achieve International Organization for Standardization (ISO) certification. The private sector has also invested in marketing and laboratories, which has increased access to both the export and the local Lebanese retail markets. Another significant development has been the establishment of the first artificial insemination center for queen bees in the Arab world, which opened in September 2016 (LIVCD, 2017 September).

End Market Analysis Lebanon’s sweet spreads production reaches both the local and export markets. For both products there is intense competition on export markets from regional producers, notably Turkey (KII).

Jams and Jellies The majority of Lebanese jam is sold to consumers via retail, while only 30% is sold to HORECA. Demand for jam rose on the local market in recent years, attributed to rising demand for shelf-stable products by Syrian refugee populations. Conversely, sales in higher-end retail outlets have declined as consumer preferences shift towards organic jams, high-quality jams produced by cooperatives, and chocolate spreads. Local processors face competition from discounted brands imported from Tunisia and Egypt (Yared, 2015 January).

Local sales of sweet spreads are limited mainly to more affluent middle-income and high-income consumers and this is due to their high prices and the fact that they are generally considered to be non-essential products. In fact, sweet spreads have the status of being indulgence goods among many consumers, which further underlines the low consumption of these products among lower-income communities (Euromonitor International, 2019 November). Moreover, local demand for jams and jellies appears to be declining over the long term, as consumers turn away from sugar-rich foods for the perceived health effects.

The top export destinations for Lebanese jams are the GCC, United States, Canada, and Australia (Yared, 2015 January).

Honey Lebanese consumers pay a premium for unbranded honey purchased directly from beekeepers or beekeeper cooperatives. Distrust of brands limits the demand for branded honey, or the ability of brands to charge a premium price on the market (Hamade, 2016). Nevertheless, since 2014, the sales volume of Lebanese branded honey has increased following market penetration into domestic retail distribution networks (LIVCD, 2017 September).

Exports of Lebanese honey largely reach the GCC, Jordan, and to a lesser extent the United States (Hamade, 2016) and Canada (LIVCD, 2017 September). Honey faces barriers to reach the European market, notably stringent conditions and requirements and prohibitive cost of testing required for exports. The high cost of marketing also limits the ability of Lebanese producers to reach new export markets (LIVCD, 2017 September).

Lebanon imports some 14% of its domestic demand for honey. Imports are generally low quality, commercial honey. Demand has grown in recent years, attributed to demand from Syrian refugee populations (Hamade, 2016).

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In addition to the local production, Lebanon imported around 250 tons of honey for a value of US$ 2.54 million in 2014, while exports were limited to 50 tons of honey valued at US$ 0.63 million (Hamade, 2016).

In terms of marketing, gaps for honey VC actors include the need for stronger market linkages for producers with more than 50 hives: and limited resources and competencies for brand development for smaller brand owners (LIVCD, 2017 September).

Business Environment Factors There are several key gaps in the business enabling environment specific to honey, with regard to traceability, norms, and export regulations.

Traceability: Full product traceability to the farm/beekeeper-level has become a requirement for all honey sold in Lebanon since 2011. Complete enforcement of this regulation is yet to be achieved, but significant progress has been made so far, mainly through the registration of cooperatives that accompanied the MOA’s campaign to fight diseases with the distribution of treatment. In addition, traceability of the majority of honey is quite straightforward because large amounts of honey are sold directly from the farmer to the consumer. However, compliance with the regulations is largely voluntary due to the absence of effective control mechanisms (Hamade, 2016).

Norms: Honey sold in Lebanon prior to 2013 was only required to meet Lebanese Standards Institution (LIBNOR) norms, which set limits for purity and freshness and required eight simple chemical tests. As of 2013 however, a new decree that set stricter levels of pesticide and chemical residues in honey was issued, notably with the enactment of residue thresholds for the common antibiotics tetracycline and oxytetracycline that were progressively reduced with a total ban on their use as of 2015. The new regulations also introduced effective residue limits on a total of 54 different chemicals and pesticides beginning in 2013. These new regulatory standards are designed to bring Lebanese honey standards broadly in-line with those enforced in the EU over the next two years. Regrettably, none of the three functioning Lebanese honey testing laboratories are capable of conducting the full battery of required tests under the new decree. Therefore, the new regulations are not being enforced yet (Hamade, 2016).

Export regulations: All export shipments of honey must be tested, and this is done at one of the three main laboratories with capacities for honey testing (LARI, IRI, and the QCC Laboratory in Tripoli). These laboratories are able to test for the limits on pesticide residues required by the US and the counties of the region; however, they are not equipped to test for the EU zero tolerance thresholds for tetracycline and oxytetracycline, which also became effective for all honey sold in Lebanon in 2015. This is indeed quite problematic for the certification of compliance with standards. It is worth noting here that Lebanese laboratories do not certify shipments as being compliant with importers’ residue regulations because there is no physical control mechanism that traces samples to specific shipments (Hamade, 2016).

Dynamic Trends No dynamic trends specific to the sweet spreads VC were identified.

Cross-Cutting Themes All findings under ‘Cross-Cutting Themes’ that are specific to this VC are presented here. Please also refer to the broader discussion under Methodology, above.

Gender and Youth In terms of employment, honey is touted as a product with potential to attract women and youth in rural areas, though this potential “has not been sufficiently explored by policy makers and international donors and organizations” (Hamade, 2016). As a result, it is difficult to assess the current engagement of women and youth within the VC.

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Journey to Self-Reliance USAID/Lebanon has invested in the sweet spreads VC, specifically honey, under LIVCD. LIVCD made considerable investment and intervention in the honey VC, reaching more than 4,000 beekeepers and impacting nearly a quarter of the market. The activity claimed results including significant increases in honey production, the number of beekeepers and hives, the value of honey exports, and private investment in the sector (LIVCD, 2017 September). Of note, however, is that USAID instructed LIVCD to exclude the honey VC from the extension period, though the reason for this exclusion is not stated in the final performance evaluation report (Social Impact, 2018 November). In addition, USAID/Lebanon has supported cooperative-based production of sweet spreads including jams and jellies under the Lebanon Investment in Quality (LINQ) activity that will run until 2021.

Additional Factors There are no findings under ‘Additional Factors’ specific to this VC. Please refer to the broader discussion under Methodology, above.

Illustrative Interventions to Address Constraints and Opportunities Interventions to support the sweet spreads VC could include marketing support via a quality seal for locally produced honey, which could be undertaken under a cross-cutting intervention or within a targeted intervention financed via the SITSD sub-fund. Like other VCs, packaging constraints also impact on the honey VC and such constraints may be addressed through cross-cutting support on post-harvest and packaging initiatives. To facilitate increases in honey as well as fruits and vegetables production, matchmaking could be conducted for pollination services that would also provide a source of additional income to Lebanese beekeepers; however, extreme care would be needed to overcome concerns about improper application of pesticides that could kill or harm the bees. There may be strong potential for jams (notably cherry or other new varieties) and honey as an export product, though this merits further exploration. If confirmed, then efforts could target branding and packaging of these products.

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Berries 30 Selection Criteria Results

Criteria Data Source Weight Scoring 1 2 3 4 5

Economic (50%)

Market Size (Value, USD) (2019)

ITC, 2020

10% 5 Market Growth - Annual Growth (Value, USD) (2015-2019)

10% 3

Lebanon's Global Market Share - % of Total Exports in Value (2019) 5% 1

Current Exports from Lebanon (Value, USD) 5% 1

Current Imports to Lebanon (Value, USD) 10% 2

Current Production (Value, USD) MOA & FAO, 2016 10% 1 Social (20%)

Scalability (Number of Firms) Interviews &

Reports

10% 2

Engagement of Women (%) 5% 5

Engagement of Youth (%) 5% 5 Environmental (15%)

Impact of the value chain on the environment (adverse)

Mekonnen & Hoekstra, 2010 10% 3

Impact of the environment, including climate change, on the value chain

MOE & UNDP, 2011 5% 3

Institutional (15%) Private sector, government, or donor investment

Interviews & Reports

5% 2

Institutional capacity exists to support the value chain 5% 1

Reliance on conventional financial services 5% 2

Economic The global market (global imports) for berries was valued at nearly $7 billion in 2019, reflecting growth of 9.93% by value over the period 2015-2019. Lebanon accounted for 0.001% of global exports by value in 2019. Lebanon’s exports were valued at a mere $83,000 in 2019, as compared to imports of nearly $1.8 million (ITC, 2020). The latest estimate of national production for the fresh berries component of the VC was nearly $785,000 (MOA & FAO, 2016).

Social The number of producers of fresh berries is approximately 350 (MOA, n.d.).

30 For the purposes of this analysis, and to maintain consistency with Phase 1 of the selection and prioritization exercise, the Berries VC was defined to include blueberries, blackberries, raspberries, and currants.

Cumulative Score: 2.60 Recommendation: EMERGING

OPPORTUNITIES

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Female participation in the berries VC is estimated at more than 50%, with women playing a significant role in the field particularly for the harvest activities, and also within the household level production of derivatives including jams and syrups (KII).

Youth participation in the berries VC is estimated at more than 50%. Individuals aged 20-40 (slightly above the USAID definition of youth) provide the majority of the labor to the VC (KII).

Environmental The berries VC has an average or medium impact on the environment, in terms of resource intensity and specifically water use: The water footprint associated with the fresh products produced is approximately 586 m3 per ton (Mekonnen & Hoekstra, 2011).

The impact of the environment, including climate change, is estimated to be average or medium on the berries VC. The environment directly affects agricultural production of all types, though the use of semi-controlled environments such as greenhouses and irrigation can and do limit environmental impacts on Lebanese production of berries. As for climate change, no projections are available to assess the expected impact of climate change on Lebanese berry production (MOE & UNDP, 2011).

Institutional Lebanon’s berries VC has received a limited degree of support and investment from private, government, and donor sources relative to other VCs under consideration. The recently published Lebanon National Agriculture Strategy 2020-2025 highlights the possibility to support farmers by providing in-kind and cash assistance for inputs including high quality seeds, fertilizers, small tools, and equipment (Programme 1.1.) (MOA, 2020).

The institutional capacity of the VC to support sustainable development is estimated to be low, given the nascent availability of local skills and processes to match the potential needs of the VC.

The berries VC depends on conventional sources of finance to source key inputs including imported planting material, based on available information (KII).

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Value Chain Structure Figure 15. Berries Value Chain Map (Imported, Fresh)

Source: KDS (2012)

Production and Processing Lebanese berry production is at a nascent stage (not more than a decade old), practiced by a limited number of producers and with modest production volumes (KII). The quality of production is generally below that of international standards (KDS, 2012).

There appears to be only one commercial blueberry grower currently operating in Lebanon, as compared to 5-6 commercial raspberry or blackberry growers.31 Blueberry is technically more difficult to produce. In the Bekaa, areas converted to berry production were previously used to produce grapes or vegetables; in the mountain, areas converted to blueberry production was either unused, or used for the production of olives or flowers (KII).

• Weakness: The berry VC is largely unknown in Lebanon, and there is a lack of technical knowledge for berry production among agricultural engineers. Berries are not a crop of focus within the Lebanese universities training agricultural engineers (KII).

Generally, raspberries are better suited for the mountains, while blackberries will grow well in the Bekaa due to their tolerance to heat and direct sun. Cane berries, especially raspberries, require cold nights in order to produce optimal high-quality fruits. In addition, hot temperatures and windy

31 Neither desk review nor KII produced any evidence of commercial currants production in Lebanon.

Value&chain&for&imported&fresh&caneberries&&to&Lebanon&Raspberries&&&Blackberries&&

Mexico,(Chile,(EU,(US(Producers(

Foreign(Traders( Amsterdam( Paris(

Transporters(

Arco,(Barakat,(Ufoods,(Pierre(Azar(DomesBc(Importers/Distributors(

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Bakeries(Large(

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Consumer(

Fruit(Markets(

Small(Supermarkets(

Bakeries/PaBsseries(

Restaurants(

Wholesale(

Retail(

Processors(

Price(sold(to:(K(Per(Kg(K(125(gm(pk(

($3.65(–($11.90($.46(K($1.49(

(($16.80(K($19.20($2.10(K($2.40(($3.60($.(45(($26.40(K($28.80($3.30(K($3.60(((($34.00(K($36.40($4.25(K($4.55((((($44.80(K($48.00($5.60(K(6.00((

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conditions damage cane berry brambles causing them to wilt. This limits production to higher elevations, although blackberries withstand higher temperatures and could possibly be successful in the Bekaa. Cane berries require acidic soils, which are not commonly found in Lebanon. Finally, cane berries should not be grown on land that has had potatoes, tomatoes, green peppers, eggplants, or strawberries grown for the last five years due to susceptibility to verticillium wilt, though fumigation could be used to treat such lands (KDS, 2012).

Blueberries are a long-term investment, with plants living and producing for up to 18 years. Production at different altitudes is being pursued by some growers to extend the growing season for blueberries. Berry production is vulnerable to bad weather (hail), which can be limited with the introduction of nets, though these are an additional cost of production (KII).

Cultivars being grown include Heritage for raspberries and Black Satin for blackberries. These cultivars are commonly grown in the global berry trade and each is producing quite well in the mountains of Lebanon at altitudes between 700 – 1,000 meters. However, other raspberry varieties should be explored, and care should be taken to differentiate between those for the fresh and processed markets (KDS, 2012).

• Opportunity: Taking into consideration Lebanon’s climate, the varieties of Tulameen, Heritage, Oregon 1030, and Baba should be considered for fresh market raspberries; while Meeker and Williamette should be considered for processing. For blackberries, Black Satin and Olallie are the most popular globally as both a fresh and processed berry and would suit the climate in Lebanon (KDS, 2012).

• Weakness: Lebanon’s high pH soils are not optimally suited for berry production. However, this can be mitigated through the use of new technologies, specifically growing plants in substrate in pots, either outdoors or in protected environments (greenhouses). Such technologies are applied to the cultivation of blueberries in Central and South America.

The costs associated with growing berries are high. Berry production relies on imported inputs, including fertilizers, irrigation equipment, and planting materials (rootstock or seedlings and soil amendments). Accordingly, the berries VC has been adversely affected by LBP depreciation. Capital controls have particularly constrained the ability of producers to expand the production area of blueberries, for which the investment costs are higher than for raspberry or blackberry (KII). For all berries, costs such as labor must be closely managed as these can account for 30% - 40% of the costs associated with producing berries. Despite this, berries are a high-value product, offering producers a clear profit potential. An earlier analysis found that farmers can generate high revenues of $9,000 - $15,000 per 0.2 hectare (KDS, 2012).

• Opportunity: Growers are interested in producing cane berries. Although berry growers have not been successful in running a profitable enterprise, all still see the potential opportunity and are willing to make some sort of financial commitment to jumpstarting this industry. However, in order for any investments to be made into the establishment of new berry plantings, significant donor support would be required in terms of technical assistance and some financial assistance in production, post-harvest, and marketing (KDS, 2012).

• Opportunity: Medium-sized, experienced growers are immediately available to work with. This is an advantage, as the time horizon for any donor program that decides to work in berries is relatively long and will not yield immediate results. Land preparation takes one year, and berries require two years to harvest after planting. However, there are medium-sized growers that can be assisted immediately through targeted pilot programs in marketing and technical assistance (KDS, 2012).

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Lebanese growers have problems achieving quality and consistency in production of common agricultural produce with less strict harvest and post-harvest requirements than required by cane berries. A cane berry project would need to ensure strict oversight and comprehensive technical training of production and post-harvest practices (KDS, 2012).

Berry producers generally lack proper packing and packaging, which damages the fruits, leading to lower quality, lower prices, and distrust by buyers. In addition, sales for export require continuous cold chain processes including refrigerated airfreight (KII).

Producers generally lack distribution and marketing. Berry producers in some cases act as their own distributors for retail, though may also rely on distributors for wholesale to HORECA customers (KII).

Domestic berry production is primarily sold into the retail market as fresh produce, often directly to retailers (KDS, 2012). One the major factors in a successful cane berry enterprise is maintaining the rigid cold chain requirements throughout the value chain (KDS, 2012).

Raw berries can be used for a range of purposes, and there is unmet demand by food processors to make jams, jellies, syrups, cereals, ice cream, yogurt, and other foods. Processing of berries is done commercially and at the household/cooperative level for the production of jams and syrups (KII).

Stakeholder Analysis Distributors (including importers) dominate the berry VC, with the exception of the blueberry segment which is dominated by the single local producer. Growers and distributors generally do not trust each other. There does appear to be a greater level of trust and collaboration among growers (KII).

End Market Analysis Berry production reaches both the local and export markets, though in small quantities of limited aggregate value.

Commercial buyers and retail consumers alike consider the quality of the berries as the most important decision-making factor when purchasing a product. In the case of raspberries and blackberries, this means a large, rounded fruit with good color and sweet taste, free of any contaminants such as dirt, mold, or fungus. This requirement has impeded the development of the cane berry market for Lebanese growers, as they are unable to meet these quality conditions (KDS, 2012).

• Weakness: Locally produced cane berry fruits in Lebanon are of markedly lower quality compared to imports. The fruit is haphazardly packed which causes it to leak, the coloring is not consistent throughout the package especially in raspberries, and some berries are covered in mold or fungus. The berries tend to be half the size of imports and misshapen (KDS, 2012).

On the Lebanese local market, cane berries are a niche product mostly used by commercial patisseries. Lebanon has a thriving food service industry that is a major potential buyer of berry and should be seen as integral in the promotion of berries to the mainstream consumer. As the market stands, the small number of growers are not willing to make the investments to expand their production, and some have even stopped growing cane berries all together (KDS, 2012).

• Opportunity: Efforts to create market demand by lowering prices and marketing the uses and benefits of cane berries are imperative in order to create a sustainable industry.

The average Lebanese consumer is not aware of the use or health benefits of cane berries. For many, cane berries are too expensive to purchase (KDS, 2012). Demand for berries on the local market has fallen in recent months due to the economic crisis and declining purchasing power (KII).

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• Opportunity: Any activity to promote the cane berry industry in Lebanon must include a marketing and promotion activity targeted toward the mainstream consumer.

• Weakness: Locally produced fresh berries reach the market during the summer season, when there is considerable production and competition from other fresh fruits (substitute goods) that consumers are already familiar with consuming.

Imported berry production dominates local consumption, offering an opportunity for import substitution (KII). Fresh cane berries destined to Lebanon are sourced globally according to seasonality coming from Chile, Mexico, Europe (Spain, Holland, Belgium) and the United States (KDS, 2012).

Local berry production has an opportunity for export to the region (KII). Neighboring countries such as Syria and Jordan do not have the appropriate climate and water availability to produce berries. Additionally, Syria’s political upheaval strengthens Lebanon’s competitiveness. While Egypt and Turkey do produce some berries, the cost of transport is prohibitive and the quality of production for the fresh market is questionable. A Lebanese berry industry in the medium-term would be insulated from competition in neighboring countries (KDS, 2012).

Similarly, berry exports can compete in MENA/GCC markets. Neighboring and regional countries lack domestic berry production. The value chain in these markets is similar to that of Lebanon. Raspberries and blackberries are imported from Europe according to seasonality, with GCC markets also receiving product from Australia. Similar to Lebanon, prices are relatively high, and consumer demand is low. By producing at 50% of imported prices, Lebanese growers would capitalize on short, direct flights, and relatively cheap cargo prices ($.50 - $1.00/kilo) to the GCC, and can access to Damascus, Amman, and Southern Turkey by truck. Through existing trade agreements, Lebanese products in these markets are exempt from import duties (KDS, 2012).

• Constraint: Despite demand from export markets and an interested distribution partner, Lebanon’s sole blueberry producer does not have a sufficient supply to export on a continued basis (KII).

Business Environment Factors Lebanon’s trade regime offers protection for domestic berry producers but raises costs for berry importers: Lebanon imposes tariffs on imports of fresh berry and processed (frozen/cooked) cane berry products. These tariffs are waived for members of the League of Arab States. The tariff applied to frozen/cooked products including purees, nearly all of which is imported from France, is 70% with a minimum of $995/ton (ad valorem equivalent of 111.46%). The tariff is based on the value of transaction (KDS, 2020).

Dynamic Trends Dynamic trends specific to the berries VC have not been identified in this analysis.

Cross-Cutting Themes All findings under ‘Cross-Cutting Themes’ that are specific to this VC are presented here. Please also refer to the broader discussion under Methodology, above.

Journey to Self-Reliance USAID/Lebanon has not previously invested in the berries VC.

Other donors have invested in the agricultural sector in Lebanon; and despite earlier research into the berries VC, this support was not directly targeted to the berries VC.

Additional Factors There are no findings under ‘Additional Factors’ specific to this VC. Please refer to the broader discussion under Methodology, above.

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Illustrative Interventions to Address Constraints and Opportunities Interventions to support the berries VC could include a co-investment with a nursery to produce seedlings locally, specifically if this investment can advance within the first year of ARE’s base performance period, as it may take upwards of two or more years to yield results. If production volumes can shift towards expansion, interventions could also support the processing of value-added products including jams and vinegars.

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Tourism Selection Criteria Results

Criteria Data Source Weight Scoring 1 2 3 4 5

Economic (50%)

Market Size (Value, USD) (2019)

UNWTO, 2019

10% 5 Market Growth - Annual Growth (Value, USD) (2015-2019)

10% 2

Lebanon's Global Market Share - % of Total Exports in Value (2019) 5% 5

Current Exports from Lebanon (Value, USD) 5% 5

Current Imports to Lebanon (Value, USD) 10% 1

Current Production (Value, USD) IDAL, 2020 10% 5 Social (20%)

Scalability (Number of Firms) Interviews &

Reports

10% 5

Engagement of Women (%) 5% 4

Engagement of Youth (%) 5% 2 Environmental (15%)

Impact of the value chain on the environment (adverse)

Cazcarro et al., 2014 10% 3

Impact of the environment, including climate change, on the value chain USAID, 2016 5% 2

Institutional (15%) Private sector, government, or donor investment

Interviews & Reports

5% 4

Institutional capacity exists to support the value chain 5% 5

Reliance on conventional financial services 5% 3

Economic The global tourism market was valued at more than $1.7 trillion in 2019, reflecting growth of 4.8% over the period 2017-2018. Lebanon accounted for 0.61% of the global tourism market in 2019 (UNWTO, 2019). Lebanon’s exports of tourism services32 were valued at more than $8.4 billion in 2019 (UNWTO, 2019). Figures on the value of Lebanon’s imports of tourism services are not available.33 The latest estimate of the national tourism market for both international and local segments was $10.4 billion as of 2018 (IDAL, 2020).

32 Tourism services sold to international travelers, or tourism receipts associated with incoming visitors. 33 Tourism services sold by foreign markets to Lebanese travelers, or tourism receipts associated with outbound travelers. Without a value for this point, the scoreboard assigns a default value of 1.

Cumulative Score: 3.60 Recommendation: FOCUS

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Social The number of tourism service providers almost certainly exceeds 2,000. Previous estimates of rural tourism establishments (only) exceeded 2,500, and this figure did not include the farmers and food processors engaged in the sector through agri-food channels (LIVCD, 2014).

Female participation in the tourism sector is estimated at approximately 35%. Across the wider economy, women account for roughly 30% of the labor force engaged in the services industry (CAS, n.d.). Women’s engagement in rural tourism activities under LIVCD was 44% (NIRAS, n.d.). The high potential to target women was a primary justification for the selection of rural tourism within the earlier USAID LIVCD activity (Social Impact, 2018 November).

Exact figures on youth participation in the tourism sector are not available. A proxy estimate of youth employment in the tourism sector across other Mediterranean countries (Turkey, France, Portugal, Greece, Italy, and Spain) puts this figure at approximately 15%. It is worth noting that in each of those comparator countries, youth employment in the tourism sector exceeds youth employment across the economy at large (WTTC, 2019).

Environmental The tourism VC is estimated to have an average or medium impact on the environment, in terms of resource intensity and specifically water use. Comparable water footprints associated with tourism are not directly available for Lebanon. However, a study of the water footprint associated with Spain’s tourism sector found that major tourism activities are “lower than the majority of total water intensities in agricultural agrarian and food sector activities" (Cazcarro et al., 2014: 96). For lack of a more robust figure, we therefore assume an average environmental impact.

The tourism VC may be associated with adverse impacts on the natural environment, including through greenhouse gas emissions associated with international air travel or local vehicle travel. Insofar as Lebanon’s tourism sector may be oriented to local tourists and effectively displace international travel over the short term, the adverse impacts of the sector may be considered to be dampened.

The impact of the environment, including climate change, is estimated to be higher than average for the tourism VC. Lebanese tourism may be adversely impacted by a variety of stressors, including rising temperatures, reduced precipitation (including snowfall), and rising sea levels that could jeopardize coastal tourism activities and biodiversity (USAID, 2016).

Institutional Lebanon’s tourism VC has received a fair degree of support and investment from private, government, and donor sources relative to other VCs under consideration. The recently published Lebanon National Agriculture Strategy 2020-2025 highlights the possibility to encourage agro- and eco-tourism as a means to promote the sustainable use of the country’s natural resources (Programme 4.1) (MOA, 2020).

The institutional capacity of the VC to be supported is estimated to be high, given the availability of local skills and processes to match the potential needs of the VC.

The tourism VC is understood to have an average reliance on conventional sources of finance.

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Value Chain Structure Tourism – which is in fact a sector rather than a singular VC – can be divided into sub-categories, including gastronomic (food and beverage including wine/ beer) tourism; adventure tourism (soft or hard); and agrotourism.

• Gastronomic tourism has a high demand. Lebanon’s wine sector in particular is present in multiple regions of the country, with established infrastructure including tasting rooms that already accommodate tourism. This segment of the tourism sector was previously identified as the highest agriculture-related tourism destination in Lebanon.

• As for adventure tourism, Lebanon has multiple nature reserves that can serve as a destination for hiking and other activities. The Lebanon Mountain Trail serves as a draw for international tourists, attracting more foreign visitors than Lebanese. Local infrastructure struggles to respond to unplanned tourists or unorganized arrivals.

• Agrotourism benefits from existing networks of guesthouses as well as the wine industry. There is a good base of establishments that have demonstrated an understanding of collaboration, eco-friendly practices, and sustainability. Moreover, agrotourism offers positive spillovers to other industries including rural restaurants, crafts, and sports.

Services While data on tourism is not immediately available, hotels and restaurants generated 3.3% of Lebanon’s GDP in 2018 (CAS, 2020).

Prior analysis identified considerable potential for Lebanon as a destination for sustainable tourism offerings including ecotourism, gastronomy tourism, rural tourism, cultural or religious tourism, and adventure tourism (Osta, 2018).

• Ecotourism: varied geography including sea, mountains, and inland • Gastronomy tourism: culinary experiences, wine tourism experiences • Rural tourism: charming guesthouses in various regions, rural experiences ready for

promotion • Cultural or religious tourism (also referred to as faith travel): diversity of cultures and

orientations, opportunity to draw new markets • Adventure tourism: from soft to extreme

Official or reliable historical data on the tourism sector and specifically rural tourism are generally unavailable, though some estimates have been made as tabulated below (Abou Arrage, 2017).

Table 8. Lebanese Rural Tourism Market Segments and Estimated Visitors (2016)

Tourism type Destination Activities Visitors/group type # of persons

Nature-based tourism Ecotourism

Nature reserves Protected areas Villages Remote areas

Hiking Sightseeing

• Organized groups (15 to 50 persons/group) • Non-organized groups (5 to 15 persons/group) • Family groups (4 to 12 persons/group) • Individuals and backpackers

175,000

Nature-based tourism Adventure and sport tourism (excluding skiing)

Natural sites Remote areas Villages

Hiking, caving, rope games, ATVs, biking, etc.

125,000

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Agri-tourism and culinary tourism

Major farms Wineries

Wine tasting Harvesting activities Purchase of local products

(2 to 4 persons)

75,000

Religious tourism Villages with religious attractions

Sightseeing Participation in special festivities

• Organized groups with conventional tour operators and associations (30 to 100 persons/group) • Non-organized groups (5 to 15 persons/group) • Family groups (4 to 12 persons/group)

350,000

Cultural tourism Villages and cultural attraction

Local festivals Sightseeing Touring

275,000

Educational tourism

Nature reserves Protected areas Villages

Sightseeing Educational activities

• Schools • Universities

50,000

Source: Abou Arrage, 2017

Ecotourism: Despite its small size, Lebanon is home to a number of established resources including nature reserves and trails that can serve as an attraction for ecotourism. Lebanon is home to 15 active nature reserves including the Betael Nature Reserve, the Jabal Moussa Biosphere Reserve, and the Shouf Biosphere Reserve. The Lebanon Mountain Trail (LMT) is a hiking path extending 470 kilometers from the north to the south of Lebanon, crossing heritage sites, biosphere reserves, and protected areas (Abou Arrage, 2017). The LMT is operated by the Lebanon Mountain Trail Association (LMTA).34

Food and Wine Tourism:

• Opportunity: Existing agribusinesses including wineries and rural food producers are looking for additional services and revenue channels (KII).

Prior analysis identified a number of weaknesses limiting the growth and development of Lebanon’s tourism sector (Osta, 2018):

• Poor security perception • Fragmentation • Insufficient public leadership: weak ministry, no national tourism strategy • Lack of private sector leadership or coordination: absence of a tourism board, weak business

associations, no coherent international promotion strategy • Air transport: airlift routes and prices, airport service and capacity • Mediocre quality of service in the regions • Labor force: brain drain, limited pool of skilled labor • Lack of investment • Lack of reliable public transportation

34 The LMT website (https://www.lebanontrail.org/home) was operational as of September 2020, though the latest item posted was dated February 15, 2020.

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Insofar as climate change may adversely impact Lebanon’s weather, it may weaken Lebanon’s attractiveness as a destination for outdoor activities including skiing and winter sports. Despite predictions that climate change will have adverse impacts on Lebanon’s natural environment and rural tourism, the sector has not yet experienced significant setbacks related to climate change (KII). To the contrary, promotion of domestic tourism as an alternative to international tourism could reduce greenhouse gas emissions and thereby (and modestly) serve to mitigate climate change.

Stakeholder Analysis The travel and tourism sector accounted for a significant share of Lebanon’s economic and employment activity as of 2019. The travel and tourism sector was valued at $3.837 billion in 2019, or 7% of Lebanon’s GDP. The sector employed 144,300 people or 6.7% of total employment in the country (WEF, 2019b). As for rural tourism activities, the tourism sector employed approximately 22,295 workers outside of Beirut as of 2014 (Abou Arrage, 2017) (see Annex 5 – Table 5.5).

The tourism VC is not properly operating as a chain. Disconnected initiatives targeting individual players fail to generate collective or synergistic impact. An opportunity to overcome this gap is the organization of efforts within geographic clusters (KII).

Local hiking guides are acting as de facto tour operators, guiding hikers to guest houses and other rural tourism providers (KII).

Rural tourism was previously identified by UNDP as among the most promising VCs for the economic empowerment of Lebanese and Syrian refugee women (NIRAS, n.d.). Under LIVCD, women accounted for 44% of beneficiaries within the rural tourism sector activities, well above the average for other sectors and sub-sectors (NIRAS, n.d. citing EnCompass). However, women’s engagement in the rural tourism sector is more limited than in urban areas or in the tourism sector as a whole (KII).

Concerning youth, “Indeed, the high levels of total unemployment in the Mediterranean countries have led to a larger share of unemployed older workers competing alongside youth for opportunities across all jobs including Travel & Tourism” (WTTC, 2019: 3).

End Market Analysis Tourism services in Lebanon are offered both to local and to international travelers.

Domestic spending has accounted for only a fraction of tourism spending, as compared to foreign visitor spending. The corresponding figures of 13.8% in domestic spending and 86.2% in foreign visitor spending reflect direct travel and tourism GDP contributions as of 2016. However, domestic spending had been projected to grow at rates higher than foreign visitor spending in 2017 (BankMed, 2017).

Recreation and culture make up a minor share of Lebanese households’ total spending, at only 1.5% of the total in 2019. Spending on recreation and culture, a non-essential class of expenditures, was projected to increase by only 1.4% annually between 2019-2023 (Chbeir, 2019 August 30), though this projection was made before the current economic crisis.

The captive local audience of Lebanese tourists is seeking domestic tourism opportunities, in light of rising costs of international travel, capital controls that limit international spending, and health-related travel restrictions. Conversely, the Lebanese local market has significantly limited, and declining, purchasing power to spend on tourism services.

• Opportunity: The food and beverages sector in rural areas has benefitted from the increase in demand by Lebanese tourists. Some rural guest houses have experienced an increase in demand for food service (rather than accommodation) in recent months (KII). Other guest houses that would normally only operate to capitalize on the Lebanese Mountain Trail hiking traffic have remained open into the off-season. The Lebanese Mountain Trail has experienced its highest ever foot traffic in 2020.

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• Weakness: Rural tourism infrastructure and operators have in some cases been overwhelmed by the rapid increase in demand since 2019 (KII).

The profile of travelers to Lebanon has shifted in the past decade, with a declining proportion of tourists from Arab countries including the GCC offset by an increase in travelers from Europe and the Americas. European tourists tend to originate in France, Germany, England, Sweden, Italy, and Turkey. This shift in profile has implications for the type of tourist experience demanded: Arab tourists tend to have high retail shopping wants and demand for 5-star accommodation and experiences, whereas European tourists are considered to be a potential source of demand for rural and cultural tourism. Travelers from Latin America represent an opportunity both for long-stay travel and for high spending (Osta, 2018).

International interest in Lebanon as a destination was reportedly growing over the period 2016-2018, based on viewing sessions reported by TripAdvisor. The leading international markets searching for Lebanon content (total searches, not to scale) were in the United States, France, and the United Kingdom. Increases in interest between 2016 and 2018 were particularly strong in Italy, Sweden, and Spain (Osta, 2018).

• Weakness: The prospects for international tourism to Lebanon appear to be extremely limited over the near term as COVID-19 limits international air travel, and as overlapping economic and political crises limit Lebanon’s appeal as a tourist destination.

Business Environment Factors The enabling environment for Lebanon’s tourism sector is decidedly mixed.

Travel and tourism were a major destination for investment in Lebanon, estimated at $1.2 billion or 10.4% of total investment as of 2016 (Abou Arrage, 2017 citing WTTC figures). The tourism sector was recommended as a priority for government support and investment under the Lebanon Economic Vision developed pre-crisiss, on the basis of the country’s strong natural endowments and strategic location (McKinsey, n.d.).

Lebanon’s Ministry of Tourism has reportedly abandoned its earlier strategy that sought to diversify its offerings and reduce its reliance on travelers from other Arab countries, notably the GCC. The strategy, which was announced in May 2019, sought to promote travel by international tourists from Asia (China), Europe (Russia), and the Americas. Efforts were also promised to reduce the seasonality of tourism to Lebanon, by promoting cultural, religious, medical, and gastronomy tourism as well as ecotourism (Chbeir, 2019 August 9).

According to the World Economic Forum, Lebanon performed in the bottom half of all countries with respect to its Travel and Tourism Competitiveness Index. Lebanon was ranked 100 of 140 countries in 2019, representing a slight decline from its rank in previous reports (in 2017, 96 of 136 countries; in 2015, 94 of 141 countries). Among all MENA countries included in the report, Lebanon is ranked higher only than Algeria and Yemen (WEF, 2019; WEF, 2019b).

Lebanon’s weak infrastructure undermines its potential as a tourist destination. Notable gaps include wider roads and an efficient public transportation network to access historic heritage sites in Tripoli, Jbeil, Tyre, and Baalbek. Additional airport capacity was previously identified as a gap for expansion of international travel (Chbeir, 2019 August 9). Lebanon’s available hotel accommodation is predominantly within smaller 3- and 4-star hotels. Most hotels have less than 80 rooms in total (Osta, 2018).

The tourism sector is marked by the presence of many actors engaged beyond their mandate or their skills. For example, Lebanon is home to more than 100 tour operators including a large number of individuals and firms that are acting as “illegal” tour operators but lack the professional registration or

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performance to properly qualify as such. In some cases, this improper extension of roles is being undertaken with the support of donors: NGOs may be funded to deliver rural tourism activities when they are not properly trained or equipped to engage in this space. Moreover, the prices charged by the professional tour operators is higher than the non-professional operators, who are uncontrolled by regulators (Ministry of Tourism) (KII).

• Weakness: The lack of regulation and classification of rural tourism service providers (including hiking guides) limits transparency and does not allow for optimal matching of tourists to their desired tourism experiences (KII).

Dynamic Trends Before COVID-19, the global tourism industry was reporting strong growth. The industry was estimated at 11% of global GDP in 2017, making it the largest service sector worldwide (Osta, 2018).

Lebanon’s tourism sector was being touted as a rare bright spot in the economy as late as 2019. Analysis from Blominvest Bank pointed to a robust number of (international) tourists to the country in the first half of 2019, nearly recovering to the record high reported in 2010. Tourist arrivals reported an annual growth rate of 8.3% in the first half of 2019, compared to the same period the year before. Moreover, Lebanon was gaining ground as a “top winter destination.” The recovery in travel was attributed to positive political (government formation, budget adoption) and diplomatic (lifting of travel ban by Saudi Arabia) conditions as well as good weather (good rain/snow). Lebanon recorded notable increases in travelers from Europe (France, Germany, Britain, and Sweden) in the first half of 2019 as compared to the previous year (Chbeir, 2019 August 9).

The tourism sector offers a range of features that can encourage wider, more sustainable development. These include a high multiplier effect, a strong stimulus for investment, potential for economic development across geographic areas or regions, and a direct channel to earn foreign exchange. The sector is highly labor-intensive, with positive effects on job creation and employment. If properly executed, tourism can build a positive image of a country with positive spillover effects, including cross-cultural understanding and peacebuilding (Osta, 2018).

Cross-Cutting Themes All findings under ‘Cross-Cutting Themes’ that are specific to this VC are presented here. Please also refer to the broader discussion under Methodology, above.

Journey to Self-Reliance USAID/Lebanon has made considerable investments in the tourism sector – specifically rural tourism – under previous activities, and this investment is both an argument for and against continued investment in the sector. Between 2012 and 2017, LIVCD invested $2.8 million in 27 rural tourism development interventions in Lebanon, with an objective to upgrade the sector, stimulate economic growth, and improve livelihoods for rural communities. Activities were geographically clustered in Mount Lebanon, South Lebanon (Jezzine), North Lebanon (Bcharre, Batroun), and the Bekaa Valley; little or no focused investment was made in Akkar, Hermel, or Nabatiyeh. An economic impact assessment of these investments determined that they had a positive impact within a short investment timeframe. The cost-benefit ratio across these investments was calculated at 2.2 in terms of direct economic impact and 4.7 for indirect economic impact (Abou Arrage, 2017). Despite these impact measures, sustainability remains a concern as a number of the beneficiaries (guest houses, restaurants) under LIVCD have since gone out of business, while some hiking trails have not been properly maintained without donor support.

USAID/Lebanon also supported the tourism sector under its Expanding Economic Opportunities in Lebanon rural development programs between 2005 and 2008, promoting village-based tourism and cluster destinations and leading to the production of guidebooks and brochures as well as the

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installation of a touristic signage network (Abou Arrage, 2017). USAID/Lebanon was a major funder of the Lebanon Mountain Trail (LMT) and the DHIAFEE Network35 (Abou Arrage, 2017).

Other donors have also invested in the rural tourism value chain in recent years, including the following (Abou Arrage, 2017):

• European Union, mainly through the AFKAR Program and the European Neighborhood Initiative

• UNDP • UN World Tourism Organization • Agence Française du Développement (AFD) • Italian Cooperation • Spanish Cooperation • Swedish Cooperation • Embassy of Japan • Embassy of Canada • Embassy of Finland

The presence of multiple interventions in rural areas has made it difficult to attribute or determine the impact or cost-effectiveness of any single donor intervention, including under LIVCD (Social Impact, 2018 November).

Additional Factors COVID-19 Impact, Lebanon Economic Crisis, and Beirut Blast Impact International tourist arrivals to Lebanon fell significantly in 2020 due to COVID-19, the economic crisis, and currency depreciation. Arrivals to the Beirut International Airport fell to 651,741 travelers in the period January-July 2020, down from 2.6 million travelers during the same period in the previous year, representing a decrease of 74.8%. Departures similarly fell by 70.7%, from 2.4 million travelers to 703,849 travelers (Hadchiti, 2020 September 7). This decline represents a sharp movement away from the growth trend in international air travel to and from Lebanon in recent years.

Lebanon has almost certainly lost its appeal and/or advantage as a shopping destination in the short- to medium-term due to factors including currency depreciation. Available data shows that international tourists to Lebanon previously spent most heavily on fashion and clothing (66% of total tourist spending) and jewelry and watches (20% of total tourist spending) (Chbeir, 2019 August 9). As most of these items are imported into Lebanon, their cost competitiveness would be expected to decline in light of the currency depreciation and difficulties in importing linked to capital controls. Moreover, the reported retail closures linked to COVID-19, Lebanon’s economic contraction, and the August 4 Beirut blast have substantially reduced the availability and dynamism of Lebanon’s retail environment.

Illustrative Interventions to Address Constraints and Opportunities Interventions to support Lebanon’s tourism VC should be narrowly focused, in light of the constraints and opportunities presented above and in light of ARE’s limited budget and time resources, which are insufficient to radically transform what is in reality an entire sector of the economy. Accordingly, these interventions should focus on agri-food-wine tourism, targeting support for existing enterprises rather than establishing new enterprises seeking to enter the market. Interventions may include the development of ancillary tourism products such as tasting, touring, or picking experiences/activities aimed at domestic tourists. Efforts could support the development and marketing of cluster-based activities and itineraries in rural areas, ideally in collaboration with licensed and professional tour

35 USAID/Lebanon’s Developing the Hospitality Industry’s Abilities – Fostering Economic Expansion (DHIAFEE) project was implemented from 2005-2008.

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operators. To avoid reinforcing donor dependence, the issue of engagement with previous donor activities is expected to be addressed within the application and screening process.

Additional options to support the tourism VC include (Osta, 2018):

• Target domestic tourists in times of crisis, and step up the sector in preparation for recovery in international tourism arrivals

• Pursue destination marketing: present Lebanon to the world and identify intrepid travelers o Improve Lebanon’s image as a safe and stable destination o Improve Lebanon’s visibility across all digital channels as a key take-to-market

approach o Increase high-yield visitors from key target markets o Position Lebanon as a distinguished culinary and wine destination o Build tour operators’ capacity in sales and promotion o Expand the source market travel agent network selling Lebanon and equip them with

sales tools o Improve capacity of the Association of Travel and Tourist Agents in Lebanon (ATTAL)

and other promotional players in the market (Live Love Lebanon, etc.). o Anchor international events

• Develop the visitor experience: build on authentic and distinctive experiences, capitalize on existing rich experiences

o Identify, compile, and integrate available experiences o Create new, themed itineraries – culinary tours, wine route, crafts route, biblical

route, galleries & museums route, prophets & miracles, city tours (taste of Beirut, pub crawl, Phoenician discovery, extreme adrenaline, etc.)

o Build tour operators’ awareness of non-traditional tourism options o Build SMEs’ capacity to package, present, promote, and manage o Better product-market alignment

• Develop world-class human capital: provide world class services o Create on-the-job training programs within industry o Promote standardized training for hospitality workers o Upgrade one or more tourism/hospital university program(s) o Conduct training in regions for guesthouses and restaurants on health, hygiene,

presentation, and visitor servicing o Improve local tour guiding skills o Build/improve tourism information office staff skills o Support specialized skill improvement in selected areas

• Build the enabling environment for sustainable growth: sustainability, governance, quality assurance, planning, enterprise development, investment

o Support adoption of a national tourism strategy/plan o Promote international sustainable/green certifications to guide sustainable

development and conservation o Enhance municipal tourism planning based on international models (community

engagement, experience design, branding) o Improve research and analysis to inform strategy and investment o Advise on essential regulatory improvements – tour operators’ classification at the

ministry, guesthouse regulations at municipalities, policy reform priority consultations, policy advocacy support

o Concept and governance advice for creating a tourism board (if support is sought)

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Osta (2018) recommended a marketing approach that would solidify growth, build destination resilience, diversity markets, and target high-yield marketable segments.

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Packaging Selection Criteria Results

Criteria Data Source Weight Scoring 1 2 3 4 5

Economic (50%)

Market Size (Value, USD) (2019)

ITC, 2020

10% 5 Market Growth - Annual Growth (Value, USD) (2015-2019)

10% 2

Lebanon's Global Market Share - % of Total Exports in Value (2019) 5% 1

Current Exports from Lebanon (Value, USD) 5% 5

Current Imports to Lebanon (Value, USD) 10% 5

Current Production (Value, USD) 10% 5 Social (20%)

Scalability (Number of Firms) Interviews &

Reports

10% 2

Engagement of Women (%) 5% 2

Engagement of Youth (%) 5% 5 Environmental (15%)

Impact of the value chain on the environment (adverse) Schyns et al., 2017 10% 2

Impact of the environment, including climate change, on the value chain

MOE & UNDP, 2011 5% 4

Institutional (15%) Private sector, government, or donor investment

Interviews & Reports

5% 1

Institutional capacity exists to support the value chain 5% 5

Reliance on conventional financial services 5% 3

Economic The global market (global imports) for packaging materials was valued at nearly $98 billion in 2019, reflecting growth of 2.82% by value over the period 2015-2019. Lebanon accounted for 0.02% of global exports by value in 2019. Lebanon’s exports were valued at more than $16 million in 2019, significantly lower than the corresponding imports figure of $74 million (ITC, 2020). There are no available estimates of the value of local production of packaging materials, however, the value is reasonably assumed to exceed the value of exports.

Social The number of establishments producing packaging materials was approximately 300 as of 2007, according to available figures (MOI et al., 2010).

Female participation within the packaging VC is estimated at 10% (KII).

Cumulative Score: 3.40 Recommendation: CROSS-CUTTING

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Youth participation within the packaging VC is estimated at 50%, based on figures available from sector experts (KII). Notably, some firms are increasing their employment of Lebanese youth as foreign laborers exit the country due to the currency depreciation (KII).

Environmental The packaging VC has an above average impact on the environment, in terms of resource intensity and specifically water use: the water footprint associated with the production of packaging materials is approximately 1,062 m3 per ton (Schyns et al., 2017).

The production of packaging material may be considered to have an adverse impact on the environment, insofar as packaging materials may contribute to landfills when not recyclable or when not properly recycled. Moreover, as an industrial activity, the production of packaging materials including glass is considered to be energy intensive. The production of plastic is dependent on petroleum and petrochemicals production, which is known to have an adverse impact on the environment and contribute to climate change.

The impact of the environment, including climate change, is estimated to be below average on the packaging VC, as it is an industrial activity whose primary raw materials are not expected to be significantly impacted by climate change.

Institutional Lebanon’s packaging VC has received little support or investment from private, government, and donor sources in recent years relative to other VCs under consideration. Indeed, the sector has been subject to disinvestment.

The institutional capacity of the VC to support the packaging industry is estimated to be high, given the availability of local skills and processes to match the potential needs of the VC.

As a manufacturing sector, the packaging VC relies less heavily on conventional sources of finance than the other VCs in this analysis.

Value Chain Structure Figure 16. Packaging Value Chain Map

Source: Authors

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Production and Processing The manufacture of wood and paper products (including packaging) accounted for 0.6% of GDP in 2018 (CAS, 2020).

Plastic Packaging The process for manufacturing plastic packaging materials involves the transformation of plastic pellets into plastic sheets, which are then thermoformed into the final product. Local manufacturers produce items for the agri-food industry including containers, plates, and cups for use by both agri-food producers as well as HORECA (KII).

Lebanon’s plastic packaging manufacturers import the raw material for production – plastic pellets – from petrochemical producers in the GCC. This must be paid for in fresh dollars, and costs have risen considerably due to the LBP depreciation. Other major costs are paid in LBP, including fuel/mazout, electricity, and labor. As a result, local production does not currently enjoy any significant price advantage over imported packaging materials (KII).

• Constraint: Plastic packaging manufacturers may require new equipment for sheet lines and thermoforming machines, which must be paid for in USD (fresh money) (KII).

Local packaging manufacturers have standard products but can also introduce new products. This involves creating in-house molds, often based on foreign designs. The molds are manufactured locally. In some cases, the packaging manufacturer will invent products to increase demand for local and export. In other cases, the new design can be ordered by a customer, but this usually requires a minimum order (no less than one million pieces) to justify the cost of the tool and mold; partial or complete pre-payment is also required (KII). Indeed, some Lebanese food processors view the local packaging industry as lacking innovation to meet the needs of the agri-food industry (KII).

The packaging VC requires pre-payment or cash-based transactions (payment on delivery). The share for pre-payment has increased due to the financial crisis. Even for the most established clients, the extension of credit has been reduced from 90 days to not more than 30 days (KII).

GPI is currently exploring a project for the recycling and reuse of plastic bottles. This will involve the collection of empty water bottles from PET, which will be processed (grind, wash, pelletize the bottle flakes to make them into pellets) and then thermally formed to manufacturer plates, caps, etc. (KII).

Corrugated Packaging Corrugated packaging is used at the second- and third-level of packaging for agricultural commodities and processed foods.36

Corrugated packaging is widely used in the agri-food sector for products including apple, banana, citrus fruits, leafy greens, stone fruits, potatoes, alliums, and grapes (KII).

The manufacture of corrugated packaging relies on brown craft paper, which is not manufactured in Lebanon. UNIPAK principally sources its craft paper from Greece, rather than the local paper mill (which is owned by a competitor). Packaging for agri-food products requires a premium paper that can support long-term storage and refrigeration, which is imported from Europe or North America. All imports are paid in fresh dollars (KII).

36 In the packaging industry, there are four levels of packaging: The primary package is direct contact with the product; for agricultural commodities, the skin of the fruit or vegetable is considered the primary packaging. The secondary package is usually put on the shelf of the supermarket. The third-level packaging is logistic packaging using for shipping from plant to retail store. The fourth-level packaging that is the pallet and strapping.

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• Weakness: Globally, paper mills are located close to the lumber source, and so found in forested countries.

In terms of innovation, the corrugated packaging VC has been active in developing coatings and resins that can be applied to recycled paper in order to make it more durable for the logistics chain. Paper of this type is widely available in Lebanon or nearby countries. The application of these resins does not appear to be technically difficult, but the innovation has been driven by Europe and needs to be applied and tested in Lebanon. Potential savings from these products could reach 20-25%, depending on the cost of the coatings and resins (KII).

• Opportunity: To apply the innovation locally, a packaging manufacturer would need to partner with growers or packers to share the cost and inconvenience of conducting trials. Trials would typically take no less than 1-2 years for an agricultural commodity, in order to capture multiple growing seasons (KII).

• Opportunity: As part of its corporate social responsibility mandate, UNIPAK is looking to increase its use of recycled paper (KII).

Innovation in the corrugated packaging industry is most commonly disseminated through international fairs and exhibitions (KII).

The price of corrugated packaging material is benchmarked to the main competitor, plastic packaging materials. In this way, its price can be considered to depend on international oil prices (KII-Dany Khoury).

Most modern corrugated packaging requires a forming equipment at the grower or packer site, to benefit from the performance and economic aspect of the packaging. In Lebanon, UNIPAK has several forming machines that are installed at the packers or the growers’ site, which it owns and operates or which it eventually transfers to the ownership of the grower or packer (KII-Dany Khoury).

• Opportunity: UNIPAK can support innovation in the use of packaging materials through financing automation. Manually formed or erected boxes require on-site transformation that may include re-gluing through the use of a forming machine. UNIPAK will provide the forming machine at a cost of $60,000-100,000 in return for a multi-year contract with the grower/packer to purchase the packaging material. This model is rarely applied in Lebanon due to the small production volumes, as well as the inability of producers to cluster or aggregate their production (KII).

Corrugated packaging materials are environmentally friendly in that they can be recycled up to seven times (KII).

Glass Packaging The manufacture of glass is limited in Lebanon, following the destruction of the primary glass production facility (Soliver) in 2006. Planned investments in glass manufacturing have since failed to materialize, due to intense competition from Egyptian and Syrian glass imports and the refusal of the Lebanese government to impose import quotas or tariff protection (KII). Lebanon currently has only one local glass manufacturer, which is largely operating at capacity.

The manufacture of glass requires constant electricity to power the kilns. The high cost of energy in Lebanon further undermines the attractiveness of investments in glass manufacturing.

Stakeholder Analysis Lebanon has a total of 10 manufacturers of plastic packaging materials, of which two are dominant – GPI and Somoplast (KII). At least one of Lebanon’s major packaging manufacturers is located in rural Lebanon (KII).

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A small number of companies dominate local production of corrugated packaging materials, which is seen as a limitation to driving competition and innovation in the sector (KII).

Lebanon has a single local glass manufacturer currently in operation.

End Market Analysis Lebanese packaging production reaches both the local and export markets.

The demand for plastic packaging materials on the local market is shifting significantly due to the economic crisis. Traders who used to import packaging materials must raise their prices, which makes locally manufactured products more competitive and attractive. However, consumer demand for plastic disposables is falling; consumers are shifting to glass that can be cleaned and reused. Total demand is down 50% and is not expected to rebound before 2-3 years (KII).

Overall, corrugated packaging manufacturers face similar demand as last year at the aggregate level, though there has been some shuffling in terms of the types of products demanded. Local demand by agro-food producers for corrugated packaging materials has declined slightly in favor of cheaper plastic crates (7-8 kg capacity), which are not returnable and not reusable but which can be used for export to GCC markets (KII).

The costs of packaging materials are currently higher than the cost of raw materials inputs for some agri-food producers, which constrain the profitability of agri-food VCs.

Packaging manufacturers continue to export, despite price pressures (KII).

Business Environment Factors Concerning the enabling environment for Lebanon’s production of packaging materials, IDAL has touted the sub-sector as an opportunity within the wider printing industry: “Lebanese printing companies are well positioned to meet the growing regional demand for packaging services” (IDAL, 2020c).

The VC is also challenged by the limited availability and distribution of high prices of high-quality inputs, equipment, and technologies; as well as the limited and declining access to finance (KII).

Stakeholders reported that Lebanon’s packaging industry is not heavily impacted or burdened from environmental regulations (KII).

Dynamic Trends Dynamic trends specific to the packaging VC were not identified within this analysis.

Cross-Cutting Themes Journey to Self-Reliance USAID/Lebanon has not previously invested in the packaging VC. Other donors have invested in the packaging VC in Lebanon.

Additional Factors There are no findings under ‘Additional Factors’ specific to this VC. Please refer to the broader discussion under Methodology, above.

Illustrative Interventions to Address Constraints and Opportunities Interventions to support the packaging VC are not recommended to support or invest directly in the local manufacture of packaging materials, given the costs and time required to undertake such investments. However, interventions could work to support the aggregation or bulk purchasing of imported packaging materials that are commonly demanded across the sector (e.g., commonly used glass jars for food processors, wine bottles for wine producers).

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Moreover, a deep dive may be appropriate to understand the opportunities for reuse of packaging materials such as glass bottles and jars. This could potentially lead to the use of an agri-innovation challenge to support such reuse schemes.

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Wood Products Selection Criteria Results

Criteria Data Source Weight Scoring 1 2 3 4 5

Economic (50%)

Market Size (Value, USD) (2019)

ITC, 2020

10% 5 Market Growth - Annual Growth (Value, USD) (2015-2019)

10% 2

Lebanon's Global Market Share - % of Total Exports in Value (2019) 5% 1

Current Exports from Lebanon (Value, USD) 5% 5

Current Imports to Lebanon (Value, USD) 10% 5

Current Production (Value, USD) IDAL, 2017 10% 5 Social (20%)

Scalability (Number of Firms) Interviews &

Reports

10% 5

Engagement of Women (%) 5% 2

Engagement of Youth (%) 5% 2 Environmental (15%)

Impact of the value chain on the environment (adverse) Schyns et al., 2017 10% 3

Impact of the environment, including climate change, on the value chain

MOE & UNDP, 2011 5% 4

Institutional (15%) Private sector, government, or donor investment

Interviews & Reports

5% 3

Institutional capacity exists to support the value chain 5% 3

Reliance on conventional financial services 5% 2

Economic The global market (global imports) for wood products was valued at more than $92 billion in 2019, reflecting growth of 1.57% by value over the period 2015-2019. Lebanon accounted for 0.01% of total global exports by value in 2019. Lebanon’s exports were valued at nearly $11 million in 2019, significantly lower than the corresponding imports figure of $76 million (ITC, 2020). The latest estimate of national production of furniture and the wood industry was $139 million as of 2017 (IDAL, 2020).

Social The number of producers of wood products including furniture is estimated at more than 2,000, including furniture companies and related service providers (painters, upholsterers, furniture showrooms) (MOI et al., 2010; PSDP, n.d.c; UNIDO, n.d.).

Female participation in the wood products VC is estimated at less than 10% (MOI et al., 2010). Women are estimated to have limited to no participation in furniture production (KII). Women do, however,

Cumulative Score: 3.60 Recommendation: EXCLUDE

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play a role in the handicrafts industry, including the production of textiles that may be used as inputs to wood products (Encompass LLC, 2016; PSDP, n.d.c).

Youth participation in the wood products VC is estimated at 15% (KII). Exact figures on youth participation in the VC are not available.

Environmental The wood products VC has an average or medium impact on the environment, in terms of resource intensity and specifically water use: The water footprint associated with wood production is approximately 580 m3 per ton (Schyns et al., 2017).

The production of wood products in Lebanon is associated with improper or excessive use of chemicals including paints and solvents, which may have harmful effects on both the environment (soil and water quality, and biodiversity) as well as human health (laborers and consumers) (KII).

The impact of the environment, including climate change, is estimated to be below average on the wood products VC, since this is a manufacturing activity for which the primary production of wood occurs in other countries.

Institutional Lebanon’s wood products VC has received a fair degree of support and investment from private, government, and donor sources (notably Expertise France through its PSPD project) relative to other VCs under consideration.

The institutional capacity of the VC to support is estimated to be average, given the availability of local skills and processes to match the potential needs of the VC.

The wood products VC tends to rely on conventional sources of finance. There is little use of non-conventional finance in the sector, given its relatively small scale of production.

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Value Chain Structure Figure 17. Wood Products Value Chain Map

Source: PSDP (n.d.b)

Production and Processing The manufacture of wood and paper products accounted for 0.6% of GDP in 2018 (CAS, 2020). The furniture industry has historically played a large role in Lebanese light manufacturing, and there still remains within the market some highly experienced MSMEs.

Lebanon imports the raw materials for wood products manufacture. This consists of mostly lumber, semi-finished (Medium Density Fiberboard (MDF) and particle board panels) and finished products (furniture, kitchens, etc.), with coniferous representing the highest type of imported wood. Coniferous/softwood is mostly used for construction purposes and furniture crafting and constitutes about 33% of the total imported wood. MDF panels, composed by wood fibers from hardwood and/or or softwood chips, are imported and used mostly in the furniture, packaging, doors, and wood fitting industries, constituting the second type of imported wood (16%). Particle board panels, manufactured from extruded wood chips, sawmill shavings or even sawdust and a synthetic resin or other suitable binder, take the third place with almost 12% of total wood imports to Lebanon. These are utilized for furniture manufacture, roofing, flooring, and sound proofing. Finally, oak wood or hardwood accounted for a 3% share of total wood imports and can be found in decks, fine furniture, and cabinet making. Imports of lumber are almost equally shared (indicatively 40/40) by the furniture and construction sectors (the rest serving the craft and other wood processing businesses) (PSDP, n.d.b.).

A small number (approximately five) of importers of lumber operate in Lebanon, though no accurate statistics on their market shares exist. Of these, four are located in the Tripoli area and one in Beirut.

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The distribution of lumber takes place through a network of about 75 wholesalers and retailers, serving various businesses across Lebanon, especially in the North.

Raw materials importers typically require payment in fresh USD. This presents a serious constraint to smaller businesses; whose customers want to pay in LBP. In recent months, carpenters have simply refused to work because customers are not paying at rates that make their products financially viable (KII).

• Opportunity: Collective purchasing of wood imports represents a real opportunity to reduce the cost of raw materials (KII).

Local carpenters lack technical capacity (including the use of modern machines) and quality management skills. Moreover, Tripoli’s wood products manufacturers generally lack the necessary infrastructure to operate as modern and safe carpentry workshops. Despite major investment by Expertise France in the sector, it has been unable to finance infrastructure improvements (KII).

Three main traders/exporters operate in Lebanon. One of they also assembles directly imported panels especially from China, where it set up its own quality control and testing laboratory (PSDP, n.d.b).

According to PSDP (n.d.b), weaknesses facing the wood products sector include the following:

• High fragmentation of the businesses, mostly microenterprises and self-employed carpenters, and consequent lack of cooperation and joint work linkages;

• High costs of production, due to fragmentation of processing and manufacturing activities, high costs of energy and of outsourced specialized services (such as for coating and veneering);

• High costs of imported lumber, semi-fished products, due to high import duties of some wood products such as building components (doors, windows, frames);

• A supply chain formed by few large importers and trading companies and an excessive number of intermediary distributors;

• Lack of advanced technologies (computerized precision cutting, edging, 3D carving) and/or knowledge on their use, for improving production operations, testing and quality control;

• Lack of knowledge of alternative supply sources, market trends, market access requirements, technological developments and innovations and consequently of product development/diversification, marketing and branding strategies;

• Lack of cooperation with external support systems such as engineers, designers and architects and product R&D organizations;

• Limited awareness of environmental issues and resource recovery potential from wastes; • Lack of business and financial planning capacity; • High and increasing levels of informality, due also to lack of trust in the system; • Lack of a regulatory framework for product classifications (MoET); • Limited access to finance.

Stakeholder Analysis North Mount Lebanon and North Lebanon have the highest concentration of wood processing and furniture production (about 60%). In particular, Tripoli constitutes the heart of the Lebanese wood industry hosting the majority of timber warehouses (PSDP, n.d.b).

Large-scale wood processing and furniture production is missing, with the largest producers on the market in fact being SMEs. The VC employs an estimated workforce of 8,000-9,000 people (PSDP, n.d.b).

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Tripoli’s furniture manufacturing hub is comprised of small, family-owned, and financially fragile companies, which have been hard-hit by COVID-19 and the economic and financial crisis. Family-owned wood product manufacturers are typically led by an older head of family, who is usually more resistant to change (KII).

• Constraint: The high, fragmented, and dispersed number of micro-businesses and the consequent lack of a scale economy, constitutes a major or key issue that needs to be addressed through formation of organized cooperatives or medium size enterprises. Grouping several individual or self-employed carpenters (as well as operators in associated sub-sectors, such as manufacture of accessories) could serve to improve overall sector competitiveness (PSDP, n.d.b). the persistent lack of trust among VC actors (PSDP, n.d.b) and the outright refusal of actors to work together has been a serious limitation facing other donor interventions in the sector.

The distribution segment is the most powerful in the wood furniture VC, with the ability to set prices. Designers also play an important role for the medium- and high-end segment of the VC. Conversely, the producers are the weakest segment of the VC. The VC is marked by a lack of trust between the different actors and segments (KII).

The wood products VC, which relies largely on imported wood and which is concentrated in urban centers (KII), accordingly has limited potential for a positive economic or employment impact on Lebanon’s rural economy.

Construction with a focus on restoration was previously identified by UNDP as among the most promising VCs for the economic empowerment of Lebanese and Syrian refugee women (NIRAS, n.d.).

As for youth, a recent survey found that youth respondents under 29 expressed particular disinterest in occupation in the field of carpentry, according to the 2019 Citizen Perception Survey (Social Impact, 2020 May).

End Market Analysis Lebanon’s wood products VC reaches both the local and export markets, though the country is a net importer of wood products.

Lebanese wood products are not seen as highly competitive on either the local or the export markets. Relatively low craftsmanship and out-of-date designs are two challenges that limit demand for local production (KII). The traditional eastern and Islamic style furniture produced in Lebanon is still demanded and geared towards the upper class of the Lebanese and Gulf markets. However, the taste in Lebanon and other Arab countries is gradually moving towards the “modern” style of furniture, increasingly demanded by the new middle-class segments, normally well-educated and well exposed to different designs and fashions (PSDP, n.d.b.). While there are designers present in the market in Lebanon, there are geographic and socio-cultural gaps between the manufacturing hub in Tripoli and the design hub in Beirut (KII).

• Strength: Lebanon is well known as a design hub, particularly within the region. The availability of multiple designers means there is opportunity to collaborate on improved, higher-quality wood furniture and carpentry products (KII).

• Weakness: A lack of copyright or intellectual property protection in Lebanon limits the interest of designers to target the local market for wood products (KII).

On the local market, the wood products VC, particularly furniture production, is seen to face intense competition from imported production in terms of both price and quality (KII). Turkey, China, and

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South East Asian countries previously constituted the main competitors to local wood products manufacturers in Lebanon (PSDP, n.d.b), though this profile may be shifting.

• Opportunity: The wood products VC currently faces an opportunity for import substitution, due to the rising cost of imported products. Local furniture distributors are exploring the possibility to source more production from local manufacturers. However, this does not represent a real and long-term advantage for the sector (KII).

• Weakness: The wood furniture industry faces high competition from imports, notably from Egypt, Turkey, Italy, and France (KII). Prior to the economic crisis, most wooden furniture was imported and typically low-cost.

On the local market, the activity of the real estate and construction sectors is the main internal factor to determine the wood market’s performance. Most wood products are used either as building materials or as furniture and kitchenware (principally for household use, rather than commercial use). Accordingly, any loss of investment appetite in the real estate sector will narrow the number of projects to be built thus deteriorating demand for wood materials (PSDP, n.d.b.).

As for export, previous reports foresaw demand for the Lebanese wood sector and building materials industry once the war in Syria would end and the reconstruction phase would begin there. “The demand for wood products in Syria will be then satisfied by imports from neighboring countries, mainly Lebanon and Jordan” (PSDP, n.d.b: 1).

The main export markets for Lebanese wood products include Iraq (28%), Saudi Arabia (17%), Jordan (11%), and other GCC. Disruption to overland trade routes as a result of the conflict in Syria has had a negative effect on exports, prompting producers to pursue North Africa and sub-Saharan Africa as export markets in the past decade. In contrast, exports to the European Union have declined over the past decade (PSDP, n.d.b).

Certain export markets strictly require that wood furniture carry a certification for compliance with responsible harvesting and environmental standards. As many Lebanese manufacturers do not consider this when sourcing their raw materials, this represents a hard barrier to export (KII).

Business Environment Factors The enabling environment for Lebanon’s exports of wood products has several limitations. For example, while raw materials are subject to import duties, wood furniture that competes directly with local production does not. The VC is also challenged by the limited availability and distribution but high prices of high-quality inputs, equipment, and technologies, and well as the limited and declining access to finance. As SMEs, many of Lebanon’s wood products manufacturers face difficulty in accessing finance including loans and loan guarantees (PSDP, n.d.b).

• Constraint: The removal of the fuel subsidy in Lebanon would have an adverse effect on wood products manufacturing, which requires power (often provided through generators) for tools (KII).

Dynamic Trends According to an earlier analysis conducted by PSDP (n.d.b), the global furniture industry has grown significantly since the early 2000s, reaching a value of more than $450 billion by 2012. The major players have changed in the past few years with middle-income countries becoming important players in the market. For example, China’s exports have grown to place it as the largest furniture manufacturing country, followed by the United States, Italy, and Germany. Furniture production in emerging-market countries has grown significantly due to the strategic repositioning of manufacturers and increased consumption in emerging markets. Several international factors linked to globalization have helped developing countries increase their share of the furniture trade and have allowed them

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to continue to be active players within this market. Some of the technological and organizational developments that assisted in this metamorphosis in other countries are listed below, though it is unclear the extent to which these developments have included or bypassed Lebanon:

• The widespread development and use of computer-numerically-controlled (CNC) woodworking machines that enhance productivity, reduce costs, and improve delivery time to market;

• Computer aided design and manufacturing (CAD and CAM) machines make the transfer of detailed designs and the upgrading of such designs easier, allowing for higher quality of product;

• Flat pack and ready to assemble (RTA) furniture reduce the costs associated with production and with transportation, allowing for large-scale orders to be made and transported cheaply;

• Advances in available materials such as MDF allow maximum efficiency in utilizing the raw materials, enhances the value added of the product, and reduces waste;

• Flexible manufacturing systems and factory layouts allow for optimal movement of furniture parts within factories, enhancing efficiency and quality and reducing inventories and costs.

Cross-Cutting Themes All findings under ‘Cross-Cutting Themes’ that are specific to this VC are presented here. Please also refer to the broader discussion under Methodology, above.

Journey to Self-Reliance USAID/Lebanon has not previously invested in the wood products VC. However, the wood products sector has benefitted from significant interventions by other donors including the following (PSDP, n.d.b):

• European Training Foundation – Labour Market and Vocational and Technical Education Support Programme

• GIZ – Dual System Meister Programme (training model and upgrade training methods) and CLOSER Programme

• ILO – Support to Employment and Income for Vulnerable People Affected by the Syrian Refugee Crisis in North Lebanon

• PSDP • UNIDO – Supporting the Development of Creative Clusters in the Southern Mediterranean

Region

Of note, the ongoing PSPD investment in wood furniture, with a focus on the Tripoli manufacturing hub, has worked to develop the furniture cluster, including marketing support (branding/image) and platforms (website) under the name Minjara. PSDP has faced multiple and significant challenges in its work, including the lack of price- or quality-competitiveness of local production; the refusal of carpenters to consider alternative marketing approaches including price reductions; the refusal of carpenters to work collaboratively; and fraudulent practices including import of foreign production for re-labeling and sale as local manufacture. As a result, it is understood that PSDP may be considering halting its interventions in support of the wood products VC.

Additional Factors Beirut Blast Impact The Beirut Port explosion of August 4 destroyed or damaged a significant share of the housing (homes and apartments) in the urban areas surrounding the explosion site. Reconstruction and rehabilitation of damaged and destroyed homes will increase the need for carpentry, cabinetry, and household

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furniture over the short- to medium-term. However, this increase in demand is a temporary factor that is not expected to have a long-term impact on the outlook for the sector.

Illustrative Interventions to Address Constraints and Opportunities A limited number of opportunities to intervene within the wood products VC have been identified in this analysis, notably lower-cost, collective purchasing of wood imports used within the wood products industry; and potential for import substitution over the short- to medium-term. Several of the constraints to the wood products VC incflude factors that are inherently linked to the Lebanese government, and therefore do not offer meaningful opportunities for a donor to intervene (generally for the fuel subsidies, within the current political context for the copyright protection issue). Moreover, the established presence of a major donor that is already working to address many of the opportunities and constraints highlighted above, does not offer a clear opportunity for ARE intervention in a complementary fashion.

Moreover, the mandate of ARE is to develop rural economies in Lebanon through support to the agri-food sector and other industries. The lack of significant connection between Lebanon’s wood products VC and local agri-forestry actors or the rural economy is therefore highly problematic, in that supporting this VC would not address the underlying development objectives of the ARE activity.

• The combination of the lack of readily identifiable opportunities for intervention that are not already being targeted by an existing donor activity, and the lack of positive economic or employment impact on Lebanon’s rural economy linked to potential interventions within the wood products VC, result in a recommendation not to support Lebanon’s wood products VC under the ARE activity. Based on the wood products VC constraints and opportunities, it is recommended that ARE EXCLUDE the wood products VC.

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Path Forward and Lessons Learned Path Forward As demonstrated in the analysis presented above, the FOCUS VCs present the clearest case and opportunity for ARE to prioritize its interventions so as to maximize impact. In addition, a number of common challenges and opportunities were found across both FOCUS and CROSS-CUTTING VCs. These cross-cutting themes pertain to water use and management, post-harvest interventions, packaging, and access to finance.

To transform this analysis into action, it is recommended that ARE structure its outreach and implementation according to its two sub-funds under its partnership fund: the Champion Firm Value Chain Development (CFVCD) Sub-Fund and the Strategic, Innovation, Technology, and Sector Development (SITSD) Sub-Fund.

• FOCUS VCs will be supported through the CFVCD sub-fund that will have a dedicated APS. Interventions and support under this APS will target all levels and stages of the FOCUS VCs, both downstream and upstream. Only the FOCUS VCs will be eligible under this APS.

• FOCUS and CROSS-CUTTING VCs will be supported through the CFVSD sub-fund through a second APS targeting and supporting them specifically on cross-cutting themes (water management, post-harvest, packaging, and access to finance). The assumption here is that VCs and sub-sectors that fall outside the FOCUS or the CROSS-CUTTING VC list will be eligible for support through targeted interventions financed via the SITSD sub-fund.

• EMERGING OPPORTUNITIES will be supported via a dedicated APS or RFA(s) under the SITSD sub-fund. This APS/RFA will be broad enough to support promising interventions for VCs that fall outside the FOCUS and CROSS CUTTING categories. Interventions under this category will also enable ARE to leverage previous USAID investments in VCs such as Pomme Fruits as well as seek emerging opportunities with nascent, yet high potential sectors such as berries and pet food, among others.

It is recommended that ARE launch the APS’ upon final approval of the VC prioritization by USAID/Lebanon.

Lessons Learned

With regard to monitoring and evaluation (M&E), lessons can be learned from previous USAID experience investing in VC activities. Specifically, indicators related to participation, value creation, and value capture could be useful complements to the M&E framework to measure progress in value chain strengthening. Moreover, performance targets should be dynamic, allowing for their revision in light of changing market systems (Dunn, 2012) (whether due to wider economic dynamics or the impact of the ARE activity or similar activities). Given the rapidly evolving economic situation in Lebanon, as well as a shifting public health situation due to COVID-19, flexible and dynamic approaches should be highly appropriate for ARE moving forward.

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Annex 1: ARE Activity and Objective Level Results ARE results will be measured at the activity and objective levels through the following performance indicators:

Activity Level Expected Results:

• Creation of full-time equivalent jobs as a result of USG assistance • Improved individual incomes as a result of USG assistance • Increased private sector investment leveraged by USG assistance • Increased horizontal and vertical market linkages for MSMEs, including farmers

Objective 1: Increase Domestic and Export Sales

• Result 1.1: Increased incremental sales (domestic and export) collected at the firm level • Result 1.2: Increased incremental sales (domestic and export) collected at the farm level

Objective 2: Increase Access to Financial Resources

• Result 2.1: Improved access to financial services • Result 2.2: Increased access to and use of commercial loans

Objective 3: Improve Productivity of MSMEs

• Result 3.1: Increase in the number of farmers and MSMEs who have applied new technologies or management practices

• Result 3.2: Increase in the volume (and/or decrease in cost) of production at the farm level • Result 3.3: Increased number of beneficiaries receiving improved extension services

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Annex 2: Report on VC Screening Analysis

Rapid Value Chain Assessment Report - 2020 September 15.pdf

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Annex 3: Weighting and Scoring of Selection Criteria

Criteria Data Source

Weight Scoring 1 2 3 4 5

Economic (50%)

Market Size (USD) (2019)

ITC Trade Map

10% < $100 million

$100 million - $1

billion

$1 billion - $3 billion

$3 billion - $6 billion > $6 billion

Market Growth - Annual Growth in Value (2015-2019)

10% < 1% 1% - 5% 5% - 10% 10% - 15% > 15%

Lebanon's Global Market Share - % of Total Exports in Value (2019)

5% 0.00% - 0.10%

0.11% - 0.20%

0.21% - 0.30%

0.31% - 0.40% > 0.40%

Current Exports from Lebanon (Value, USD) 5% < $1 million $1 million -

$2 million $2 million - $5 million

$5 million - $10 million

> $10 million

Current Imports from Lebanon (Value, USD) 10% < $1 million $1 million -

$2 million $2 million - $5 million

$5 million - $10 million

> $10 million

Current Production (Value, USD)

Government Databases /

Statistics 10% < $1 million $1 million -

$2 million $2 million - $5 million

$5 million - $10 million

> $10 million

Social (20%)

Scalability

Interviews & Reports

10% < 100 producers

101 - 500 producers

501 - 1,000 producers

1,001 - 2,000

producers

> 2,000 producers

Engagement of Women 5% < 10% women

10% - 20% women

20% - 30% women

30% - 40% women

> 40% women

Engagement of Youth 5% < 10% youth

10% - 20% youth

20% - 30% youth

30% - 40% youth

> 40% youth

Environmental (15%)

Impact of the value chain on the environment (adverse)

Interviews & Reports

10% Large Medium Small

Impact of the environment, including climate change, on the value chain

5% Large Medium Small

Institutional (15%)

Private sector, government, or donor investment

Interviews & Reports

5% Small Medium Large

Institutional capacity exists to support the value chain 5% Small Medium Large

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Reliance on conventional financial services 5% Large Medium Small

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Annex 4: HS Codes Corresponding to Selected Products The following table presents the HS product codes that were used to inform the screening analysis, specifically the economic criteria.

VC HS Product Code HS Product Label

Fresh & processed vegetables (tomatoes, cucumbers, chickpeas & their derivatives)

'0702 Tomatoes, fresh or chilled '0707 Cucumbers and gherkins, fresh or chilled

'070890 Fresh or chilled leguminous vegetables, shelled or unshelled (excluding peas "Pisum sativum" and beans "Vigna spp., Phaseolus spp.")

'071140 Cucumbers and gherkins provisionally preserved, e.g. by Sulphur dioxide gas, in brine, in Sulphur water or in other preservative solutions, but unsuitable in that state for immediate consumption

'071320 Dried, shelled chickpeas "garbanzos", either skinned or split '200110 Cucumbers and gherkins, prepared or preserved by vinegar or acetic acid

'20019090 Vegetables, fruit, nuts, and other edible parts of plants, prepared or preserved by vinegar or acetic acid: Other: Other

'2002 Tomatoes, prepared or preserved by products other than vinegar or acetic acid

'200599

Vegetables and mixtures of vegetables, prepared or preserved by other than vinegar, non-frozen (excluding preserved by sugar, homogenized vegetables of subheading 2005.10, and tomatoes, mushrooms, truffles, potatoes, peas "Pisum sativum", beans "Vigna, Phaseolus", asparagus, olives, sweetcorn "Zea Mays var. Saccharata" and bamboo shoots, unmixed)

'200950 Tomato juice, unfermented, either containing added sugar or other sweetening matter (excluding containing spirit)

'210320 Tomato ketchup and other tomato sauces

'210390 Preparations for sauces and prepared sauces; mixed condiments and seasonings (excluding soya sauce, tomato ketchup and other tomato sauces, mustard, and mustard flour and meal)

Fresh & dried herbs

'07099910 Other vegetables, fresh or chilled: Other: urslane (portulaca), parsley, roket (argula), '07099990 Other vegetables, fresh or chilled 091040 Thyme and bay leaves

'09109100 Ginger, saffron, turmeric (curcuma), thyme, bay leaves, curry and other spices: Other spices: Mixtures referred to in note 1(b) to this chapter

'09109910 Ginger, saffron, turmeric (curcuma), thyme, bay leaves, curry, and other spices: Other spices: Thyme

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VC HS Product Code HS Product Label

'12119010 Plants and parts of plants (including seeds and fruits), of a kind used primarily in perfumery, in pharmacy or for insecticidal, fungicidal or similar purposes, fresh or dried, whether or not cut, crushed or powdered: Other: Fresh mint

'12119090 Plants and parts of plants (including seeds and fruits), of a kind used primarily in perfumery, in pharmacy or for insecticidal, fungicidal or similar purposes, fresh or dried, whether or not cut, crushed or powdered: Other: Other (322)

'21069030 Food preparations not elsewhere specified or included: Other: Mixtures of thymes and other edible products

Potatoes & potato-based products

'0701 Potatoes, fresh or chilled '07101000 Vegetables (uncooked or cooked by steaming or boiling in water), frozen: Potatoes 1105 Flour, meal, powder, flakes, granules, and pellets of potatoes '200410 Potatoes, prepared or preserved by other than vinegar or acetic acid, frozen '200520 Potatoes, prepared or preserved by other than vinegar or acetic acid (excluding frozen)

Alliums

'0703 Onions, shallots, garlic, leeks, and other alliaceous vegetables, fresh or chilled 071110 Onions provisionally preserved '071220 Dried onions, whole, cut, sliced, broken or in powder, but not further prepared

200120 Onions, prepared or preserved by vinegar or acetic acid

Stone fruits

'0809 Apricots, cherries, peaches incl. nectarines, plums, and sloes, fresh

081190 Frozen fruit and nuts, uncooked or cooked by steaming or boiling in water, either sweetened (excluding strawberries, raspberries, blackberries, mulberries, loganberries, black, white or red currants and gooseberries)

'0812 Fruit and nuts, provisionally preserved, e.g. by Sulphur dioxide gas, in brine, in Sulphur ... '081310 Dried apricots '081320 Dried prunes

'081340 Dried peaches, pears, papaws "papayas", tamarinds and other edible fruits (excluding nuts, ... '081350 Mixtures of nuts or dried fruits

'200850 Apricots, prepared or preserved, either containing added sugar or other sweetening matter or spirit (excluding preserved with sugar but not laid in syrup, jams, fruit jellies, marmalades, fruit purée and pastes, obtained by cooking)

'200860 Cherries, prepared or preserved, either containing added sugar or other sweetening matter or spirit (excluding preserved with sugar but not laid in syrup, jams, fruit jellies, marmalades, fruit purée and pastes, obtained by cooking)

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VC HS Product Code HS Product Label

'200870 Peaches, incl. nectarines, prepared or preserved, either containing added sugar or other sweetening matter or spirit (excluding preserved with sugar but not laid in syrup, jams, fruit jellies, marmalades, fruit purée and pastes, obtained by cooking)

Wine & arak '2204 Wine of fresh grapes, incl. fortified wines; grape must, partly fermented and of an actual ... '2205 Vermouth and other wine of fresh grapes, flavored with plants or aromatic substances '220820 Spirits obtained by distilling grape wine or grape marc

Dairy products

'0401 Milk and cream, not concentrated nor containing added sugar or other sweetening matter ‘0402 Milk and cream, concentrated or containing added sugar or other sweetening matter '0403 Buttermilk, curdled milk and cream, yogurt, kephir, and other fermented or acidified milk and ... '0404 Whey, whether or not concentrated or containing added sugar or other sweetening matter; products ... '0405 Butter, incl. dehydrated butter and ghee, and other fats and oils derived from milk; dairy ... '0406 Cheese and curd

Fodder crops

'121410 Alfalfa meal and pellets

'121490 Swedes, mangolds, fodder roots, hay, lucerne "alfalfa", clover, sainfoin, forage kale, lupines, vetches, and similar forage products, whether or not in the form of pellets (excluding lucerne "alfalfa" meal and pellets)

'230990 Preparations of a kind used in animal feeding (excluding dog or cat food put up for retail sale)

Sweet spreads (jams, jellies, honey, molasses)

'0409 Natural honey '152190 Beeswax, other insect waxes and spermaceti, either refined or colored

'2007 Jams, fruit jellies, marmalades, fruit or nut purée and fruit or nut pastes, obtained by cooking, either containing added sugar or other sweetening matter

'21069020 Food preparations not elsewhere specified or included: Other: Flavoured or coloured syrups

Lebanese vegan foods

‘200559 Beans, not shelled, prepared or preserved by other than vinegar or acetic acid, not frozen

'200599

Vegetables and mixtures of vegetables, prepared or preserved by other than vinegar, non-frozen (excluding preserved by sugar, homogenized vegetables of subheading 2005.10, and tomatoes, mushrooms, truffles, potatoes, peas "Pisum sativum", beans "Vigna, Phaseolus", asparagus, olives, sweetcorn "Zea Mays var. Saccharata" and bamboo shoots, unmixed)

'200819 Nuts and other seeds, incl. mixtures, prepared or preserved (excluding prepared or preserved with vinegar, preserved with sugar but not laid in syrup, jams, fruit jellies, marmalades, fruit purée and pastes, obtained by cooking, and groundnuts)

Citrus '0805 Citrus fruit, fresh or dried '0814 Peel of citrus fruit or melons, incl. watermelons, fresh, frozen, dried or provisionally preserved ...

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VC HS Product Code HS Product Label

'200600 Vegetables, fruit, nuts, fruit-peel and other edible parts of plants, preserved by sugar "drained, glacé or crystallised"

'200830 Citrus fruit, prepared or preserved, either containing added sugar or other sweetening matter or spirit, n.e.s.

'200911 Frozen orange juice, unfermented, either containing added sugar or other sweetening matter (excluding containing spirit)

'200912 Orange juice, unfermented, Brix value <= 20 at 20°C, either containing added sugar or other sweetening matter (excluding containing spirit and frozen)

'200919 Orange juice, unfermented, either containing added sugar or other sweetening matter (excluding containing spirit, frozen, and of a Brix value <= 20 at 20°C)

'200921 Grapefruit juice, unfermented, Brix value <= 20 at 20°C, either containing added sugar or other sweetening matter (excluding containing spirit)

'200929 Grapefruit juice, unfermented, Brix value > 20 at 20°C, either containing added sugar or other sweetening matter (excluding containing spirit)

'200931 Single citrus fruit juice, unfermented, Brix value <= 20 at 20°C, either containing added sugar or other sweetening matter (excluding containing spirit, mixtures, orange juice and grapefruit juice)

'200939 Single citrus fruit juice, unfermented, Brix value > 20 at 20°C, either containing added sugar or other sweetening matter (excluding containing spirit, mixtures, orange juice and grapefruit juice)

Berries

'081020 Fresh raspberries, blackberries, mulberries, and loganberries '081030 Fresh black-, white- or redcurrants and gooseberries '081040 Fresh cranberries, bilberries, and other fruits of the genus Vaccinium

'081120 Frozen raspberries, blackberries, mulberries, loganberries, black-, white- or red currants and gooseberries, uncooked or cooked by steaming or boiling in water, either sweetened or not

Table grapes ‘0806 Grapes, fresh or dried

Tourism N/A N/A

Packaging ‘3923 Articles for the conveyance or packaging of goods, of plastics; stoppers, lids, caps, and other closures, of

plastics '4819 Cartons, boxes, cases, bags, and other packing containers, of paper, paperboard, cellulose wadding ...

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VC HS Product Code HS Product Label

'4821 Paper or paperboard labels of all kinds, either printed or not

'701090 Carboys, bottles, flasks, jars, pots, phials and other containers, of glass, of a kind used for the commercial conveyance or packing of goods, and preserving jars, of glass (excluding ampoules, glass inners for containers, with vacuum insulation, perfume atomizers, flasks, bottles etc. for atomizers)

Wood products

'4415 Packing cases, boxes, crates, drums, and similar packings, of wood; cable-drums of wood; pallets, ... '4416 Casks, barrels, vats, tubs, and other coopers' products parts thereof, of wood, incl. staves '4417 Tools, tool bodies, tool handles, broom or brush bodies and handles, of wood; boot or shoe ... '4418 Builders' joinery and carpentry, of wood, incl. cellular wood panels, assembled flooring panels, ... '4420 Wood marquetry and inlaid wood; caskets and cases for jewelry or cutlery, and similar articles, ... '940161 Upholstered seats, with wooden frames (excluding convertible into beds) '940169 Seats, with wooden frames (excluding upholstered) '940330 Wooden furniture for offices (excluding seats) '940340 Wooden furniture for kitchens (excluding seats) '940350 Wooden furniture for bedrooms (excluding seats) '940360 Wooden furniture (excluding for offices, kitchens and bedrooms, and seats)

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Annex 5: Labor Force Information The Lebanon Labor Force and Household Living Conditions Survey 2018-2019 (CAS, n.d.) reports data on the country’s labor force at a sectoral level with some disaggregation according to demographic factors (gender, age). This source does not report data at the sub-sector level. Key figures are reported here. Data pertains to 2018.

Table 5.1. Distribution of employed (aged 15 years and above) according to occupation and to economic activity (2018)

Occupation Number Share of Total Total 1,590,000 100.0% Of which, skilled agricultural, forestry and fishery workers 38,000 2.4% Of which, service and sales workers 322,000 20.3% Of which, plant and machine operators, and assemblers 141,000 8.9% Of which, agriculture, forestry, and fishing 57,000 3.6% Of which, manufacturing 173,000 10.9% Of which, wholesale and retail trade; repair of motor 315,000 19.8% Of which, accommodation and food service activities 69,000 4.4% Of which, arts, entertainment, and recreation 13,000 0.8%

Table 5.2. Distribution of skilled agricultural, forestry and fishery workers according to selected characteristics

Occupation Number Share of Total

Skilled agricultural, forestry and fishery workers 38,000 100.0% Men 33,000 86.8% Women 5,000 13.2% Akkar 4,000 10.5% Baalbek-Hermel 5,000 13.2% Beirut 0 0.0% Bekaa 5,000 13.2% Mount Lebanon 6,000 15.8% Nabatieh 5,000 13.2% North Lebanon 6,000 15.8% South Lebanon 7,000 18.4% Formal 5,000 13.2% Informal 33,000 86.8%

Table 5.3. Distribution of service and sales workers according to selected characteristics

Occupation Number Share of Total Service and sales workers 322,000 100.0% Men 231,000 71.7% Women 91,000 28.3% Akkar 13,000 4.0% Baalbek-Hermel 13,000 4.0%

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Beirut 28,000 8.7% Bekaa 19,000 5.9% Mount Lebanon 157,000 48.8% Nabatieh 19,000 5.9% North Lebanon 40,000 12.4% South Lebanon 33,000 10.2% Formal 141,000 43.8% Informal 182,000 56.5%

Table 5.4. Distribution of plant and machine operators and assemblers according to selected characteristics

Occupation Number Share of Total Plant and machine operators and assemblers 141,000 100.0% Men 138,000 97.9% Women 3,000 2.1% Akkar 9,000 6.4% Baalbek-Hermel 7,000 5.0% Beirut 9,000 6.4% Bekaa 9,000 6.4% Mount Lebanon 69,000 48.9% Nabatieh 9,000 6.4% North Lebanon 18,000 12.8% South Lebanon 12,000 8.5% Formal 45,000 31.9% Informal 95,000 67.3%

Agri-Food Employment Lebanon’s agri-food sector employed a total workforce of approximately 21,000 employees as of 2007 (latest data available), with companies employing an average of 28 employees. Geographically, agri-food companies are concentrated particularly in Mount Lebanon and to a lesser extent in Bekaa; less than 10% of agri-food companies are located in North Lebanon (9%), Baalbak-Hermel (6%), South Lebanon (6%), Nabatiyeh (6%), Beirut (5%), and Akkar (4%) (IDAL, 2020).

Rural Tourism Employment Table 5.5. Tourism Businesses and Employees in Lebanon

Category Number of businesses

Estimated number of employees

Airline agencies 39 400 Travel and ticketing agencies 510 2,570 Rural and eco-tour operators 35 200 Transportation (taxi, car rental, buses) 300 1,700

Dining Mount Lebanon 564

7,000 Beqaa 60 North 150

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Category Number of businesses

Estimated number of employees

South 63 Attractions

UNESCO world heritage site 5

950 Archeological sites 50

Protected areas 14 National monuments 15

Museums 60 Hotels

Mount Lebanon 260

5,000 Beqaa 23 North 62 South 26

Alternative lodging Furnished apartments 138

1,000

Monasteries 60 Guesthouses 30

Camping 8 Youth Hostels 10

Other 20 Agri-tourism

Wineries 60

2,000 Food processing units 50

Conventional farms 10 Organic farms 10

Crafts 1,000 Adventure parks 6 100 Resorts 25 375 Total 22,295

Source: Abou Arrage (2017)

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Annex 6: Environmental Impact and Sensitivity Environmental Impact: Water Footprint Calculations With regard to environmental impact, water footprints have been used as a key measure of resource intensity, which is particularly relevant in Lebanon given water scarcity and high levels of water stress. Water footprints (m3/ton) have been obtained from well-known publications (Mekonnen & Hoekstra, 2011)37 and peer-reviewed academic sources (Qasemipour & Abbasi, 2019; Schyns et al., 2017). Values reported for Lebanon were used insofar as they are available, but when no data for a similar climatic region or even global estimates were used as a rough proxy.

For food-based VCs, water footprints are determined based on the major, fresh food items in that basket (Table 6.1); water associated with further processing and packaging are not included. For VCs that include multiple products, simple averages have been taken across those major food items.

For non-food based VCs, alternative sources were referenced as tabulated below.

Table 6.1. Water Footprints Applied per VC

VC Data Source Corresponding Products Water Footprint (m3/ton)

Fresh & Processed Vegetables Mekonnen & Hoekstra, 2011 Tomato Vegetables, other Pulses, other

894

Fresh & Dried Herbs Mekonnen & Hoekstra, 2011 Vegetables, other 310 Potatoes & Potato-Based Products

Mekonnen & Hoekstra, 2011 Potatoes 321

Alliums Mekonnen & Hoekstra, 2011 Onions 365 Stone Fruits Mekonnen & Hoekstra, 2011 Fruit, other 1,495 Wine & Arak Mekonnen & Hoekstra, 2011 Wine 478 Dairy Products Mekonnen & Hoekstra, 2011 Butter/ghee

Cream Milk

3,939

Fodder Mekonnen & Hoekstra, 2010 Fodder crops 253 Sweet Spreads Mekonnen & Hoekstra, 2010

Mekonnen & Hoekstra, 2011 Qasemipour & Abbasi, 2019

Fruits: apricot, strawberry, berries, figs Sugar Honey

905

Lebanese Vegan Foods Mekonnen & Hoekstra, 2011 Pulses, other Vegetables, other Sesame seed

4,074

Citrus Mekonnen & Hoekstra, 2011 Oranges/mandarins Lemons/limes Grapefruit Citrus, other

560

Berries Mekonnen & Hoekstra, 2011 Fruit, other 586 Tourism Cazcarro et al., 2014 N/A N/A

37 Mekonnen and Hoekstra (2011) in fact report the weighted water footprint of food as it is consumed in Lebanon, not as it is produced in Lebanon. Where the water intensity of local production significantly differs from the water intensity in the point-of-origin trade partner, this will introduce error into our calculations. However, without data on the water footprint of local production, the data used is the best available for our purposes.

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VC Data Source Corresponding Products Water Footprint (m3/ton)

Packaging Schyns et al., 2017 Paper and paperboard: case materials, folding boxboard, wrapping papers, other papers packaging, other paper + paperboard, wrapping + packaging paper + board

1,062

Wood Products Schyns et al., 2017 Sawnwood: coniferous, non-coniferous

580

Environmental Sensitivity The climate changes projected in Lebanon between now and the end of the century include: increased mean annual temperatures; decreased precipitation; increased incidence of drought; increased frequency of heat waves and decreased number of frost days; reduction in snow cover and snow residence; and continued rise in sea levels (USAID, 2016).

USAID (2016) estimates that the key impacts of projected climate change in Lebanon will include:

• Agriculture: Agricultural productivity is expected to decline, as are water resources (quantity and quality) and pasture lands. Production zones will shift. Lebanon’s steep slopes are vulnerable to erosion and topsoil loss, which will be worsened due to climate change including severe weather.38

• Services/Tourism: Tourism attractions that are weather-dependent and vulnerable to higher temperatures will be adversely affected. USAID predicts losses to tourist destinations including beach resorts, ski resorts, and wineries.39

• Industry/Manufacturing: Rising sea levels will adversely impact densely populated coastal areas that are also host to much of the country’s industry.

Within the agriculture sector, USAID (2016) has highlighted risks associated with some of the VCs under consideration.

Table 6.2. Climate Stressors and Risks for Lebanese Agricultural Production

Stressors Risks Increased temperatures Reduced rainfall and snow cover, increased incidence of drought More frequent heatwaves and fewer frost days Sea level rise

Reduced productivity of land used to produce most crops and fruit trees Reduced fruit tree yields of up to 50% through blossom pollination and fecundation of mountainous fruit trees Migration of mountain fruit production to higher elevations Decreased crop quality, particularly for wine grapes Increased vulnerability of agricultural plains of Akkar, Damour, Saida and Tyre to coastal flooding and inundation Reduced soil moisture availability, with impacts on agricultural yields Increased infestation of fungi and bacterial diseases

38 MOE et al. (2015) estimated the costs of climate change on agriculture – specifically reductions in agricultural production – at $2.3 billion by 2080. 39 MOE et al. (2015) estimated the costs of climate change on tourism – specifically reductions in the attractiveness of Lebanon’s coastal resources – at $1.8 billion by 2080.

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Shift of grazing areas and periods for livestock Source: USAID (2016)

Table 6.3. Climate Stressors and Risks for Lebanese Tourism

Stressors Risks Increased temperatures, more frequent heat waves Reduced snowpack and snow residence time Reduced rainfall Sea level rise

Shortened ski season due to earlier snowmelt; shifting of skiing regions to higher elevations Decreased quality of grapes in wine-producing regions Reduced tourism demand on coast due to climate-related biodiversity reductions Damages to coastal tourism infrastructure, particularly beachside resorts; losses due to coastal erosion at key tourist hotspots

Source: USAID (2016)

According to USAID (2016), these risks are as follows:

• “Crops particularly at risk are cherries, apples and grapes, the last of which has implications for the country’s wine industry.”

• “Changes in temperature and rainfall will also affect the grazing period and quality of pastures, causing a shift in grazing patterns for livestock.”

• “Sea level rise threatens important coastal banana and tomato plantations through increased salinization of soil.”

• “Beach resorts and marinas, historical/archaeological monuments, diverse ecosystems (Ras Chaqaa, Enfeh, Pigeon rock) and natural reserves (Palm Island, Tyre Coastal Nature Reserve) are all located in the coastal region. . . [Sea level rise] will continue to erode sandy beaches in the south, and could inundate important natural reserves such as the Palm Islands and the Tyre.”

• “A changing climate could severely impact tourism, as many of the major Lebanese tourist attractions are weather-dependent, and the mild Mediterranean climate is itself a draw. . . The increased occurrence of extreme heat waves will damage Lebanon’s reputation and attractiveness for mild weather vacations.”

• “Reduced rainfall will impact the quality of wines (and tourism potential of wineries by extension.”

According to MOE et al. (2015: 6), “Changes in temperature and rainfall will decrease productivity of lands currently used to produce most crops and fruit trees – especially wheat, cherries, tomatoes, apples, and olives – and may affect the quality of grapes.” Moreover, “Some farmers have already undertaken steps to adapt to hotter and drier growing conditions by increasing the area of unirrigated vineyards, shifting from citrus to banana production, and shifting from sugar-beet production to the production of crops that require less water” (MOE et al., 2015: 24). As for tourism, “Winter outdoor tourism will diminish as warmer temperatures and reduced precipitation shorten the skiing season. Other impacts on tourism will occur in response to changes in ecosystems, loss of natural attractions, such as sandy public beaches, and structural damage to the nation’s archaeological heritage” (MOE et al., 2015: 6).

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An earlier vulnerability and risk assessment specific to Lebanon (MOE & UNDP, 2011) similarly identified projected impacts on Lebanon’s agricultural sector, specifically major cropping systems.

• Potato: “Winter cropping of potato in Akkar will be vulnerable, with higher frequency of disease due to higher humidity and milder temperatures. On the other hand, spring and autumn cropping in the Bekaa are mostly affected by water availability and temperature extremes, while summer cropping is highly vulnerable as tuber formation could be jeopardized, and irrigation lacking. . . The overall vulnerability of the potato crop is considered high” (MOE & UNDP, 2011: 1-23).

• Potato: “[In Bekaa] By 2099, the risk of frost will be less than 1 day per month for the three winter months, and average Tmax will be above 30C starting May. This could be seen as an opportunity to plant potatoes as a winter crop, rapidly increase canopy, save water for irrigation, harvest earlier and increase yield. Nevertheless, potato cultivation in spring and summer will be unsound as Tmin in summer nights will increase (Tmin above 20C), and water for irrigation will be scarce, while plant demands will be higher. It would become possible though to plant a second autumnal crop from September to December. In Akkar, in the near future (2025-2044), the production would be optimal . . . To conclude, potato growers in Akkar will see their profits increase as their yields will be increasing, especially during the 2030s and through to the 2050s. Bekaa growers will see their profits increase from early cropping, but might lose if they plant later in the spring/summer season. However, winter potato growers will be facing more fungi and bacterial diseases, such as late blight Brown rot and Erwinia due to the combined relative humidity and temperature increase. Nematodes and Aphids infestation may be amplified, especially in Akkar. By 2080, the harvesting period will shift and the import period is likely to shift to he months between September and November. . . . The overall impact in both scenarios is expected to be a high increase in the cost of irrigation and a high decrease in the export volume and value” (MOE & UNDP, 2011: 1-39).

• Tomato: “Tomato production would be slightly affected by temperature rises by the 2030s, but yield

decrease could be significant by the end of the century. The growing period would be shorter, with less fruit set in summer due to temperature extremes, and water shortage, especially in the Bekaa and mid-range altitudes. On higher altitudes, the diminishing production in summer could be counterbalanced by an expansion of the growing season due to delayed autumn frost. . . The vulnerable areas of production are in medium altitudes including Bekaa and Marjayoun plains. . . A more dramatic situation would be observed in greenhouses and coastal areas, as water would be less available. . . Tomato production in these areas could be relocated. The less vulnerable areas of production would be the higher altitudes where negative effects of rising temperatures and reduction in water availability are less foreseen. . . The overall vulnerability of the tomato crop is considered moderate” (MOE & UNDP, 2011: 1-25).

• Tomato: “Tomato production will be slightly affected by temperature rises by the 2030s, but yield decrease could be significant by the end of the century. The growing period will be shorter, with less fruit set in summer due to temperature extremes and water shortage, especially in the Bekaa and medium altitudes. On higher altitudes, the diminishing production in summer could be counterbalanced by an extension of the growing season due to retarded autumn frost. Increasing carbon concentration in the air will offset eventual production losses in greenhouses resulting from higher temperatures and relative humidity levels during the spring and summer/autumn growing seasons. Water demand of plants will increase for both greenhouse and field tomato production, regardless of the eventual anticipation of plantation dates for field cropping. Hence, the vulnerable areas of production are in medium altitudes including the Bekaa and Marjayoun plains. . . A more dramatic situation will be observed in greenhouses and coastal areas, as water will be less available. .

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. Tomato production in these areas could be relocated. The less affected areas of production will be the higher altitudes where negative effects from temperature increase and the reduced water availability will be lower in magnitude. . . Under Scenario A, overall productivity is not expected to change, despite the regional differences, while under Scenario B, productivity might actually increase due to increased adoption of technology which would counter effect the expected slight decrease in productivity” (MOE & UNDP: 2011, 1-40-1-41).

• Cherry: “Cherry blossom is sufficiently robust against short spring frost, but it is likely to be more

sensitive to high temperatures (over 21C). Hail and rain occurring late in May or June may affect the quality of fruits to a certain extent. Chilling requirements are relatively high for cherry, as most of the local cultivars would need more than 700 hours of chilling which is equivalent to 70 days with 0C<Tmin<7.2C. If chilling hours are not ensured, the production potential is reduced. Higher temperatures with limited frost days in winter would also increase the multiplication of wood insects. . . The ongoing sanitation of Prunus mahaleb will enable the production of rain fed, or complementary irrigated, cherries in the entire production zone, bypassing water shortage for irrigation. Vulnerability will be thus only due to temperature increase in winter and during blossom. The Central Bekaa will remain highly vulnerable; altitudes between 1,200 and 1,400m are moderately vulnerable. . . The overall vulnerability of the crop is considered moderate” (MOE & UNDP, 2011: 1-27).

• Cherry: “[W]e estimate that chilling needs will barely be met by 2024 (630 hours), and would be below what the cherry crop needs by the end of the century (444 hours). Chilling requirement needs, however, would not be affected above 1,300 m. . . [T]he risk of failure of blossom pollination and fecundation will increase by 30% in Mount Lebanon and up to 50% in the Bekaa valley. In the latter situation, it is more likely to have one year out of two with low production due to high spring temperatures. Moreover, a spring rise in temperature would increase the rate of infestation by the cherry fly. These risks are low at altitudes higher than 1,500 m. Precipitation amount and number of days with rain in spring do not seem to change significantly . . . which means that rainfed irrigation of cherry in the Anti-Lebanon chain at altitudes above 1,500 m should not be significantly affected, even if soil moisture will be slightly reduced. If irrigated orchards are to face a shortage in water due to higher demand in other sectors and higher ETP, the production will be slightly affected. As for the drought-resistant Mahaleb rootstock, the growth of its fruit occurs in spring when the soil is still moist; hence, it will not be affected by the decrease in irrigation water resources. All the above-mentioned simulated figures lead to the conclusion that cherry crops grown at altitudes below 1,300 m will be loss productive with time. The most affected crops would be those in central Bekaa where orchards are located at the lowest altitudes (900-1,300 m). Since there is no clear correlation between chilling time accumulation and blossom, and between maximum daily temperatures and yield, it would be difficult to estimate actual losses in yield, in spite of carbon fertilization” (MOE & UNDP, 2011: 1-41).

• Grape: “The selected rootstocks are more or less tolerant to drought, calcareous soils and phylloxera.

. . Grapevine is a Mediterranean species that requires a long warm summer and a mild winter. It tolerates drought and can survive rainfall of no more than 300 mm a year. On the contrary, humid spring and summer seasons would negatively affect yields and the quality of the crop. . . Vines can stand winter frost, too, but are sensitive to spring frost. Humidity and cool temperatures (below 15C) negatively affect fruit set. . . The overall vulnerability of the grapevines crop is considered moderate” (MOE & UNDP, 2011: 1-31).

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• Grapevine: “For rainfed table grapes and industrial grapevines, Tmax and precipitation amount will both affect production and quality of grapes, leading to an eventual decrease in yields and a change in wine quality. Low altitude areas which receive low amounts of precipitation would be most affected. Since there is no information about the capacity of the actual system of production, such as rootstock, variety, distance of plantation, training system and soil cover, to cope with climate change, losses in terms of production are not evident, except that quality will certainly be affected. To conclude, grapevine production could face several problems in terms of water availability for irrigation and in terms of quality, especially for industrial grapes, due to temperature rise. Thus, all the areas of production are vulnerable” (MOE & UNDP, 2011: 1-42).

• Small Ruminant: “When grasslands are scarce, shepherds tend to complete nutrient ratios by imported

fodder, concentrates and local agricultural residues. In all cases, the increasing reliance on feed blocks and feed supplements for ruminants could lead to a decreased vulnerability of animal production to climate change, since the feed is provided regardless of the availability of grazing. The length of the grazing period and the quality of pastures are highly affected by the amount and distribution of precipitation, and by temperature. . . Local Awassi sheep and Black goat are fully adapted to these extreme conditions in terms of temperatures and drought. These races could still produce milk and meat, even with annual precipitations averaging 200 mm or less. Yet, their productivity would decrease. The overall vulnerability of small ruminants is considered high” (MOE & UNDP, 2011: 1-37).

• Small Ruminant: “The climatic simulations show an increase in temperature and a slight decrease in rainfall by the 2030s. Lower altitudes will have an increase in their herbaceous biomass during winter due to optimal temperature and humidity conditions, coupled with carbon fertilization. Yet, by the end of the century, the pasture season will be shorter; the decreasing soil moisture starting April will shorten grass life. In such a situation, the grazing season could be extended bin medium altitudes (1,000-2,000 m), while the potential lack of snow during winter will enable grazing for a few additional months. On higher altitudes (>2,000 m), snow cover might have reduced thickness and a lower residence time as a result of higher temperatures and decreased precipitation, leading to an earlier pasture season. . . . In conclusion, all rangeland areas are vulnerable. Mountain tops above 2,000 m are the most vulnerable. . . The nutritive quality of all rangeland would be negatively affected. Livestock is likely to become more dependent on forage imports to complete their ratios” (MOE & UNDP, 2011: 1-43-1-44).

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Table 6.4. Analysis of Overall Vulnerability of Agricultural Crops and Sub-Sectors

System Sensitivity Adaptive Capacity Overall Vulnerability

Observations

Potato High Scenario A Moderate High Potatoes rely mostly on groundwater irrigation. A lower water table induced by a decrease in precipitation coupled with increased demand will increase the cost of pumping.

Scenario B Low

Tomato Moderate Scenario A High Moderate Changes in the cost of production and harvesting periods will negatively affect the export volume and value. Increase in temperature negatively affects tomato productivity and quality.

Scenario B Moderate

Cherry Moderate Scenario A Moderate Moderate Cherry productivity is related to changes in temperature. Orchards below 1,300m of altitude are highly affected by temperature.

Scenario B Low

Grapes Low Scenario A Moderate Moderate The quality of industrial grapes is affected by temperature. Wine is a highly exportable commodity. Scenario B Low

Small Ruminants

High Scenario A Moderate High The number of heads of small ruminants reflects the availability of pastures and the cost of production, which are affected by climatic conditions. Milk production indicates the quality of pastures and the length of the grazing period, which are directly affected by climatic conditions.

Scenario B Low

Source: MOE & UNDP, 2011

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Crop Yields Per Haddad et al. (2014), “According to climate predictions from the PRECIS model, by 2040 temperatures will increase by between approximately 1C on Lebanon's coast to 2C in its mainland; by 2090 these temperatures will be 3.5C to 5C higher, respectively. Rainfall is also projected to decrease by 10-20% by 2040 and by 25-45% by the year 2090, compared with the present. This combination of significantly less precipitation and substantially warmer conditions will result in an extended hot and dry climate. Temperature and precipitation extremes will also intensify. The drought periods, across the whole country, will become nine days longer by 2040 and eighteen days longer by 2090” (14).

Table 6.5. Changes in Temperature (Tmax, Tmin) and Precipitation (Prcp) over Beirut, Zahle, Daher and Cedars from the PRECIS Model, 2025-204440

Season Beirut Zahle Daher Cedars Prcp (%)

Winter -7.95 -23.50 -0.99 -1.82 Spring -8.60 35.50 -0.38 -15.50

Summer -26.80 -84.20 -39.00 -49.80 Autumn -8.87 23.80 14.10 12.60

Tmax (degrees C)

Winter 1.08 1.23 1.92 1.77 Spring 0.87 1.14 1.53 1.28

Summer 2.15 2.14 2.28 2.13 Autumn 1.48 1.64 1.67 1.70

Tmin (degrees C)

Winter 1.22 1.28 1.63 1.27 Spring 0.90 1.09 1.36 1.06

Summer 2.13 2.36 2.46 2.24 Autumn 1.83 2.08 1.96 1.98

Source: Adapted from Haddad et al. (2014)

Haddad et al. (2014) project the impact of climate change on crop yields for selected, key crop types: cereals, fruit trees, olives, industrial crops, and vegetables. Haddad et al. (2014) further project the economic impact of these changes on crop yields for Lebanon as a whole and the regional level. The loss of GDP was estimated at 0.55% by 2030, as compared to a baseline scenario in which climate change did not occur. “Agriculture would be the sector most directly sensitive to climate, with a permanent decline in production... equivalent to 1.9% of the baseline sectoral value added [in 2030]” (Haddad et al., 2014: 16). The results are not uniform and have a regressive impact: “From the regional perspective, the greatest threat exists for the poorest regions in the country. . . [T]he effects of climate change on crop yields will potentially exacerbate regional inequalities in Lebanon“ (Haddad et al., 2014: 16).

Table 6.6. Systemic Impacts of Productivity Changes in Agriculture by 2030 due to Climate Change (deviations from baseline)

Gross Regional Product % of 2010 Values Beirut -3.24% Bekaa -11.15% Mount Lebanon -4.32% Nabatiyeh -22.64% North Lebanon -12.33%

40 “Climate projections for Beirut were associated with Mount Lebanon; Zahle with Bekaa; Daher with Southern Lebanon and Nabatieh; and Cedars with Northern Lebanon” (Haddad et al., 2014: 15).

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South Lebanon -16.26% Source: Haddad et al. (2014)

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