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

1. Ministry of Economy and Trade Integrated Impact Assessment of the Association Agreement on the Olive Oil Sector in Lebanon Integrated Assessment and Planning for Sustainable Development Second Review Meeting Geneva, September 21-22, 2005

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

3. Scope of the Project (2) The olive oil sector was chosen as a pilot product based upon a set of criteria. The sector must have: 1- Strategic linkage with the EU (Association Agreement/ENP) The EU and Lebanon have a strong business, investment, and cultural relationship. And, under both the ENP and the AA, negotiations are expected regarding the bilateral agricultural policy 2- Social implications 57% of all farmers are involved in the olive oil sector, very high tendency to youth migration, olive orchards are located in Lebanese poorest rural areas and across the country 3- Environmental implications In addition to pomace residues and poor agricultural practices, 1 ton of olive processing yields – on average - 1 m3of wastewater, 4- … and a cooperative private sector / NGO community

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

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

6. Overview of Lebanese Olive Oil Sector • Cultivation represents 21% of total area and is spread all over the country • Production fluctuates from year to year creating an irregular supply flow to sustain a level of export and domestic consumption • The percentage of extra virgin oil in Lebanon (5%) is low compared to int’l practices (Spain 40% and in certain parts of France over 90%). • Few labs are capable of certifying olive oil in accordance with international standards & proper enforcement regulations are lacking

7. Overview of Lebanese Olive Oil Sector (2) • Under Association Agreement, Lebanon can export duty-free up to 1,000 tons of olive oil while levying a 70% tariff rate (no change) on EU exports. • 57% of all farmers are involved in the olive oil sector • Average age of the farmer is in the high 50s and their level of education is very low • Among the main derivatives of the olive oil production process with potential return: soap; compost; eco-tourism

8. Overview of Lebanese Olive Oil Sector (3) • Olive oil processing, as it stands, is a source of pollution: e.g., pomace , wastewater

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

10. Olive Oil Production Chain (2) Liquid extraction Extraction Olive oil separation Refrigeration in containers Oil storage Local market Oil distribution International

11. Stakeholders Actual Relationship Matrix +: positive, 0 : neutral, ?: uncertain, X : conflict of interest & objectives SILO: Syndicate of inter-professional Lebanese olive oil producers

12. Policy Scenarios Scenario 1: Baseline Lebanon can export duty-free up to 1,000 tons of olive oil and still imposes 70% tariff rate on EU exports Scenario 2:Quality improvement scenario Package of incentives (introduced in 2005) to improve quality and exports of extra virgin olive oil to the EU Scenario 3: Forward-looking scenario Further bilateral and gradual liberalization of sector to be negotiated in 2008 + Scenario 2

13. Economic Impact

14. Environmental Impact

15. Social Impact

16. Impact of Scenario 1 on Stakeholders Policy impact is limited since only a small portion of total production is exported to the EU. Losers • Consumers (no choice, high price) • Communities using the wastewater (irrigation, tap water) Winners • The few extra Virgin olive oil producers and traders • Seasonal unkilled labour producing low-quality oil

17. Impact of Scenario 2 on Stakeholders Policy impact is uncertain in short term but may be positive in medium to long-term with a shift towards premium oil and an increase in competitiveness Winners • Skilled labor • Extra virgin olive oil producers & traders • Communities directly affected by the wastewater Losers • Unskilled labor • Women workers • Consumers (high prices)

18. Impact of Scenario 3 on Stakeholders Policy impact is no longer limited given the dynamic nature of the policy shock Winners • Consumers • Communities directly affected by the wastewater Losers • Domestic producers of olive oil • Domestic traders • Labor employed

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

20. Secondary, Long-term Implications Long term impact assuming no improvement in environmental indicators Social Implications Increase in migration, gradual disappearance of olive oil farming community, worsening of health conditions, and loss of income. Economic Implications Negative impact on export, employment, and national welfare as quality worsens of, productivity decrease, and competitiveness is lost

21. Secondary, Long-term Implications (2) Long term impact assuming better environmental conditions • Social Implications • Provide vocational training • Improve heath conditions (reduces exposure to unsafe and polluted waters) • Contain rural migration • Economic Implications • Sustain production • Increase economic efficiency • Increase exports

22. Secondary, Long-term Implications (3) Long term impact assuming better social conditions • Environmental Implications • Natural resource conservation • Better wastewater and solid waste management • Economic Implications • More efficient production and management techniques • Increase in income and volume of production

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

24. Enabling Conditions (pre-requisites) • Olive oil sector considered as a strategic sector • Government commitment to enforce relevant regulations • Stakeholders commit to a public-private partnership • Continuing technical assitance from the EU

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

26. Recommendations (2) • Private sector contribution • Organise to achieve economies of scale • Promote fair competition (e.g., inputs, fertilizers) • Disseminate information and proposals • Maintain competitive edge • Coordinate with NGOs and promote public- private partnership • NGOs contribution: • Raise awareness • Train farmers • Enhance intra-NGO networking • Disseminate information and coordinate with private sector • Facilitate public-private partnership