Integrated Assessment of the Lebanon-EU

Association Agreement:

A Pilot Study on the Lebanese Olive Oil Sector

FINAL DRAFT February 2006

Executive Summary “Integrated Assessment (IA) of the Lebanon-EU Association Agreement (AA) – A Country Study on the Lebanese Olive Oil Sector” is an all-embracing attempt to assess the socio-economic and environmental implications of opening up local sub-sectors to ‘freer’ trade. The project was initiated on December 2004, headed by the Ministry of Economy and Trade (MOET), in collaboration with the Ministry of Environment (MOE), and with the technical assistance of the United Nations Environment Program (UNEP). The project chose to focus on the olive oil sector for several reasons. This choice was based first and foremost on the important role of the sector to the Lebanese economy, local social indicators and the environment. Economically and socially, the olive oil sector has important repercussions in terms of poverty reduction, employment generation, migration, magnitude of trade, and growth potential among other things. Environmentally, the sector’s certain role in defining rural landscapes is met with the challenge of dealing with solid and wastewater generation and disposal. Moreover, the keen willingness of stakeholders in the olive oil industry to provide necessary information and available data enables such an assessment to be undertaken. Lastly, the assessment focuses on the impact of the Association Agreement, it is necessary for the sector selected to have trade linkages with the EU. The survival of the Lebanese olive oil sector is, indeed, highly correlated to the ability to penetrate international markets at a high premium. 1. Structure of the country report

The report is divided in five chapters, the first of which introduces the report and project in general. Chapter 2 assesses briefly the Lebanese socio-economic and political situation, turning focus to agriculture and the olive oil sector in specific. Chapter 3 reviews trade liberalization policies and agreements between Lebanon and the EU in particular and other agreements with other countries or organizations in general. Chapter 4 undergoes the integrated assessment, under two alternative scenarios; a baseline scenario where Lebanon can export up to 1,000 tons of olive oil duty free to the EU (however is not taken advantage of it) while imports of the latter’s olive oil are subject to a 70% tariff rate and a second scenario where all necessary quality improvements are undertaken (enabling the exportation of all the 1000 tons quota) while still taxing EU olive oil imports. Chapter 5 draws conclusions, recommendations and identifies necessary action plans that should be undertaken to improve the sector’s performance and readiness for more trade.

2. Key objectives of the IAP project The project is expected to identify national priorities and hence outline Action Plans for Lebanon in line with European Neighbourhood Policy (ENP) guidelines. The results of this assessment will also provide insights on how the IA approach may be adapted to the Lebanese context so that it can be used in other sectors or planning processes. The IA should also help fill in the gaps in existing literature since studies conducted so far only assessed AA’s economic impact omitting social and environmental characteristics or likely inter-linkages between all three components. Furthermore, the existing lack of coordination and information sharing between various research and relevant institutes is leading to duplications and inefficiencies. The proposed project will thus promote cooperation among relevant government and non-governmental entities. Since it is a country-driven national project, it will enhance national ownership, active participation and contribution of national ministries, the private sector and other relevant stakeholders. This report aims to target policy makers (public sector bodies, private stakeholders, the olive oil syndicate, co-operatives and NGO’s) and advocates raising awareness towards a more integrated approach for the design of trade policies taking into account key social and environmental issues. It therefore introduces a methodology and a framework to be used in planning, implementation and monitoring policies. 3. Key processes of the IA project A multi-disciplinary team comprised of a number of economists, a social scientist, and an environmental economist underwent a participatory process that involved continuous consultations and discussions with various stakeholders, from the farming and olive oil syndicates and representatives to mill operators and various traders. A Steering Committee was established and two workshops undertaken to permit a more thorough and on-ground understanding of the sector as a whole, enabling thus an integrated assessment to take place. Quantitative analysis in the form of a rapid cost-benefit analysis was undertaken and mainly focused on economic issues. A comprehensive set of consultations and focus group meetings brought back into the picture environmental and social issues. The importance of these qualitative consultations lies also in the fact that data for the purpose of quantitative analysis is lacking in Lebanon. The extensive consultations and focus groups meetings undertaken offered a feasible alternative to assess the implications of the AA on the olive oil sector. Accordingly, extensive consultations and data gathering permitted an IA analysis of the socio-economic and environmental dimensions (and their possible inter-linkages) involved in the life-cycle of olive oil production of two Scenarios independently, from farming to milling and marketing (traders);

• Scenario one considers the state of the sector without any change made (farming and milling practices) As such it assess the current state in that Lebanon can export (duty-free) up to 1,000 tons of extra virgin olive oil and still impose a 70% tariff rate on EU olive oil imports.

• Scenario two assumes that the required olive oil quality improvements are achieved to take full advantage of the 1000 tons quota through training and education of farmers and mill operators, and through communicating the economic benefits associated with such improvements (among other things).

The main socioeconomic indicators used were export quantity, employment levels, poverty, migration, while environmental indicators are mainly in the form of olive oil production residues (vegetable water and pomace) and the manner in which they are disposed. 4. Key results and findings The qualitative assessment, based on the Steering Committee Members’ feedback on the impacts of Scenario 1 and Scenario 2 pointed to the favourability of Scenario 2. Scenario 1 Scenario 1 highlighted that most Lebanese olive oil growers are not taking advantage of the duty-free export quota due to the fact that it requires a change in farming and milling practices in order to produce olive oil of high quality (extra-virgin olive oil). The main economic, social, and environmental impacts are the following: • Lebanese exports of virgin and extra virgin olive oil to the EU have increased about 365% from 2002-2004 partly due to the elimination of customs duties within the quota restriction, the depreciation of the dollar relative to the Euro, and the ability of a small group of producers to meet the necessary production, testing, labelling and bottling requirements demanded by the EU. Although total export to the EU has been in the range of 0.36 – 2.8% of total domestic production and have almost no impact on the domestic price and production structures, the increasing trend does reflect a willingness to take advantage of higher prices mainly in extra-virgin olive oil sales associated with the EU market. • The configuration of the olive oil supply chain creates an asymmetric structure between direct producers and traders’ economic activity. The following characteristics creates a situation in which a large number of vulnerable producers (scattered all over the country and producing each a relatively insignificant fraction of national production of olive oil) are dependant on a few influential traders that have access to cheap foreign olive oil in order to sell their product on local or international markets.

Social Impacts of Scenario 1 – Summary

1. Farmers & Millers • Olive oil cultivation advantages: Acts as the only social safety net keeping farmers from extreme poverty;

Additional source of income; Not time consuming and easy to manage; Olive oil residues are highly demanded in winter as heating material, specifically in rural regions (which in turn results in extra-income when sold, and lowering the demand for more expensive/non ecologic heating substances).

• Challenges: Scattered throughout the country, unorganized, lack of resources and sufficient capacity to apply

proper methods of production; Lack of necessary incentive to target high quality olive oil (virgin and extra-virgin olive oil prices are not differentiated); Yearly production fluctuations

2. Traders • Highest price premium is captured when: EU standards are met, and proper marketing channel are insured • Challenges: limited number of traders (could result in privileged position and price manipulation); High cost

associated to transport, testing, bottling, packaging and certification; Fierce foreign competition; Low investments due to erratic annual supplies

All in all, there are no significant impacts from the AA on the social structure embedded throughout the olive oil production chain, since the incentive to export high quality is absent and most of the agents participating in the production and supply chain are unaware of the 1,000t quota granted to Lebanese olive oil exported to the EU under the AA. • In general, there is an absence of concrete data concerning the environmental effects of olive farming in Lebanon, especially quantitative data on specific impacts such as soil erosion and water pollution. However, environmental implications of scenario 1 have been to a certain extent validated by sporadic field visits, expert meetings, and observations on the Lebanese case.

Environmental Impacts of Scenario 1 – Summary 1. Oleiculture Impact on: • Soil: Beneficial to soil preservation and reduces soil loss. • Water: Positive impact on water conservation since Lebanese olive trees are rain fed. Groundwater may be

contaminated by extensive use of fertilizers and agro-chemicals: pesticide use per hectare is almost twice the weighted average of pesticide use per hectare in the world.

• Landscape and Agro-tourism: Positive landscape effects and agro-tourism promotion (e.g existing 500 year-old water and olive mills)

2. Olive Oil milling produces: • Pomace: Used for heating purposes, or as fertilizer and animal feed. When burned, pomace emissions could have

potential health implications. • Vegetable water: Implications are severe, specifically for ecosystems, depending on where they are discarded.

When dumped into rivers, the water turns to black and the high biological oxygen demand (BOD) present is detrimental to the flora in the river and fish populations, among other organisms.

Scenario 2 In line with steering committee members, a list of priority action plans was addressed so as to enhance the quality of Lebanese olive oil and achieve the benefits of scenario 2. In order to strengthen and ensure this sector’s viability, these action plans are to be implemented before undertaking any further trade liberalization discussions. These plans fall mainly within the categories of a sustainable regulatory framework that creates the

incentives to produce extra-virgin olive oil, upgrading mill operations, and better agricultural practices. • The economic benefits of applying the requirements for Scenario 2 under the AA are truly substantial when considering the implications of producing extra-virgin olive oil and not only the quota that could be exported to the EU duty-free. In absolute terms, the increase in revenues from exports is only slightly significant assuming prices are fixed. However, when compared to revenues from export generated under the conditions of Scenario 1, the increase in revenue is considerable reaching up to 2380% of initial revenues (US$3,500,000 relative to US$ 147,000 in 2004). This additional revenue would increase local farmers’ share in the domestic market (relative to non-local farmers). Employment rates are very likely to increase slightly as the production of extra-virgin olive oil would call for a more qualified and efficient labour force that can adapt to mechanization or managerial changes. This will hopefully aid in curbing the aggravating rural unemployment rates that increased, between 1997 and 2004, by 0.8% and 1.4% in the two most important olive oil producing regions in Lebanon. As a result of these improved economic indicators, national welfare is likely to improve slightly since exports, employment, and incomes are being enhanced by qualitative improvements, thus optimizing AA potential. • An increase in the production of extra-virgin olive oil would create a spillover-effect which would impact on employment patterns, poverty levels, migration trends, and educational opportunities. In response to the increase in demand for premium olive oil, olive growers will need to hire, in the harvesting period, a larger amount of seasonal labourers. Within the personnel hired for harvesting purposes, local women and foreign labour are usually the most employed, because they cost less. With respect to milling, improving and smoothing the yearly fluctuations of olive orchard yields (by applying scenario 2 assumptions) would optimize milling productivity and generate employment opportunities, which would translate into increased income for the new, and necessary, hired labour force as well as a more reliable safety net. On the other hand, the reorientation of the production processes towards extra-virgin olive oil could, at least in the short-run, impose social costs. Youth decisions to migrate are the results of a trade off between staying in poor, low income regions and the opportunity cost of the latter. At the moment this opportunity cost is relatively high and explains the need to migrate. Olive oil production activity is underexploited and profits are untapped. A very small fraction of Lebanese farmers are aware of foreign niche markets potential and income differential they gain by exporting high quality extra virgin olive oil. Making the youth aware of such opportunities and reviving the olive oil sector is very likely going to attract them towards this activity.

Increased revenues and improved living conditions will become more and more tangible in comparison to job opportunities in cities and abroad. The poverty – unemployment – migration – education patterns, if not addressed properly, are likely to reinforce each other in a vicious circle, leading to a massive deterioration of the poor living conditions. Higher economic return associated to the sector would create incentives to remain in those communities, lobby for better infrastructure associated to a decrease in the cost of production as well as increase in investments. The household budget increase will also allow an expenditure reallocation towards goods and services related to health. Poverty reduction will increase access to health services through alleviating the income obstacles, increase access to medication, vaccines and vitamins, and allow better nutrition. Improving health will in turn increase work attendance and performance, and decrease the percentage of household expenditures on health. The liquidity constraints will therefore loosen up, enhancing investment and credit access. Very often, the poor cannot access banking or financial facilities because they have no collateral or guarantees. Agricultural holdings do not necessarily offer a means to escape poverty unless the size, soil productivity, and marketing outlet are adequate to generate sufficient income. • Article 45 of the Association Agreement encourages the “cooperation in preventing deterioration of the environment, controlling pollution and ensuring the rational use of natural resources, with a view to ensuring sustainable development.” The application of Article 45 of the AA with respect to olive oil production should entail the targeting of the entire process from farming to marketing. Beginning with farming, this requires a change of unsustainable farming practices such as the misuse of pesticides and the pruning of olive branches. In the milling category, the environmental impacts are mainly the untreated disposal of vegetable waters to preserve natural ecosystems (specifically river ecosystems). And finally in the marketing process, this could entail the use of recycled material for bottling purposes and the encouragement of recycling on sold bottles. Exporting 1000 tons of olive oil to the EU does not necessarily mean an increase in production or supply, though that is highly possible, yet more so it would entail a re-orientation of production categories to target extra-virgin olive oil and better packaging for export purposes. Therefore, the environmental implications of taking advantage of the 1000 tons are relatively similar to what is currently occurring, yet if/when Article 45 is implemented, then the implications for the environment are positive in that better agriculture practices are advised such as the careful use of pesticides. Assessing the two scenarios at hand The stakeholders (including NGOs) were asked their opinions with respect to the two alternative scenarios and asked to state the impact of each scenario on economic, environmental and social indicators by using different levels of impacts from severely

negative to severely positive. Scenario two clearly offered the most potential benefits relative to the current situation or Scenario 1 on all three fronts (economic, social and environmental), as revealed by the indicators. Given time, financial restraints and data constraints, a rapid CBA, consisting of both a quantitative and a qualitative part and based on existing information was conducted. Environmental and social costs and benefits however were not included due to lack of quantitative data to that respect. • Total costs of all action plans listed, including changing traditional mills to modern ones was estimated to be about USD 81.4 million, spread out across varying time frames to a maximum of 16 years. • The benefits are assumed to be USD 27 million per year over a 13 year period (and after three years of commencing with action plans). These benefits have to be discounted therefore as they extend into the future. • Consequently, the Cost-Benefit Analysis (CBA) pointed out that total net benefits from applying Scenario 2 would be approximately 269.6 USD million, 137.3 USD million, and 79.39 USD million at discount rate of 0%, 3%, and 5% respectively. All in all, the economic values indicate an immense potential benefit for applying scenario 2. 5. Key recommendations Recommendations for the olive oil sector embrace different complementary measures that should be undertaken to implement the action plans and successfully reform the sector. As a pre-requisite to the implementation of the action plans however, it is worth emphasizing that necessary measures need to be undertaken. These measures could partly be in the form of continuing technical and financial assistance from the EU within the framework of the European Neighbourhood Policy (ENP), a commitment to enforce relevant regulations, and stakeholders’ commitment to a public-private partnership. Trade regulations, such as quality standards as well as regulation with respect to duties and their gradual elimination should be communicated to all parties involved in order to ensure efficiency and the minimization of refused (and returned) products. Technical and non-trade barriers, such as lengthy bureaucratic procedures, should be revised and eliminated when unnecessary. With respect to Lebanese olive oil, the government of Lebanon should encourage each region in Lebanon to use regional branding, in order to market their products as ‘unique’ or ‘distinct’ and better target niche markets (such the Lebanese diaspora). The European Union can encourage this endeavor by firstly helping to create these geographic indicators in Lebanon and secondly by financing the promotion of such products in European trade fairs and exhibitions.

However, the major contribution should come from the Lebanese government and through relevant ministries as well as the different municipalities and cooperatives concerned with olive oil production. Within its prerogatives, the GOL ought to create an enabling environment by improving intra-ministerial coordination to aid the olive oil sector efficiently. It should upgrade and certify existing testing laboratories, disseminate information and build databases. It also should provide training for farmers and mill operators (e.g. good agricultural practices and good manufacturing practices), facilitate by-product management, and provide access to capital. From another aspect, the treatment of vegetable water ought to be financed and implemented by the GOL. Centralizing decision-making with respect to olive oil (e.g. by forming a national olive oil office) would go a long way in assessing and taking in all the concerns and priorities of the various stakeholders. As an output, a national policy (with respective action plans) could be formulated in which the various stakeholders are given specific responsibility to better the sector. The policy should be towards the production of better quality olive oil by decentralizing quality checks and enforcing necessary laws (e.g. with respect to hygienic milling conditions and olive oil quality categorizing). The private organization could play a major part in achieving economies of scale, promoting fair competition (e.g., inputs, fertilizers), disseminating information and proposals, investing in newer technologies and production techniques, maintaining a competitive edge, coordinating with NGOs, and promoting public- private partnership. Finally, NGOs should continue to work together (and with the private sector) in order to maintain their efforts in raising awareness, training farmers, enhancing intra-NGO networking, disseminate information and facilitate public-private partnership. 6. Key conclusions - Gaps, lessons learned and suggestions for follow-up The findings of the assessment elaborated the need to strengthen the sector via necessary regulatory and policy improvements that included bringing the olive oil sector up to export quality standards. Many of the initiatives proposed would have positive environmental implications and would optimize the socio-economic benefits of the AA. The sector is facing tremendous hardships in the form of high production costs, regional competition, sub-standard quality output that does not permit exports (specifically to Europe), and a lack of proper coordination and management between the main actors in the field. Such hardships are only exacerbating socio-economic concerns in the region, like unemployment and poverty, a falling quality of life, and rural-urban migration. From an organizational perspective, for the positive impact on the AA and at a later stage the ENP to be maximized, it is necessary to have one body or task force within the public sector in charge of co-ordination between various beneficiaries. Indeed this would allow proper monitoring and avoid any duplication, which tends to be the case. Political will and engagement is necessary if effective changes are envisaged. Institutional capacity

building is central to improving coordination between all stakeholders and regions, information dissemination, new regulations and quality controls. The process has already started with the establishment of a steering committee (for the olive oil IAP) with representatives of relevant ministries, the chamber of commerce, the olive oil syndicate and active NGO’S within the field. The ability of the committee to impact positively the sector is dependant on its aptitude to translate decisions and priority issues into actions at the community level. In addition, upgrading as well as increasingly involving regional co-operative would allow tapping into the farmer’s community that is the most difficult group to attain. Active co-ordination with the regional chamber of commerce on a regular basis could insure better channels of communication and dissemination of information between the farmers and the traders. Increasing awareness concerning the AA and the potential of producing extra virgin olive oil is central in order to exploit the agreement’s full potential. Finally, the public sector could monitor olive oil production by engaging stakeholders into regular meetings and undergoing regular sectoral analysis. The public sector has a key role in insuring fair competition, regulations that protect local producers, dissemination of information, and skill upgrading through vocational training is necessary to insure sustainable methods of production and ability of labour force to adapt to the new production processes (mentioned above). This could be achieved by involving all relevant stakeholders and government agencies. The Association Agreement should be taken as an opportunity for the olive oil sector, or any other sector for that matter, to re-examine its production techniques and processes, address key bottle-necks that prohibit better profitability of the sector, and improve the overall socioeconomic situation of farmers, mill operators and traders.

Table of Contents Executive Summary .......................................................................................................2 Abbreviations and acronyms........................................................................................15 1. INTRODUCTION ...............................................................................................16

1.1 About this report ..........................................................................................16 1.2 Background to the project............................................................................16 1.3 Development of methodology......................................................................19

1.2.1 Scenario analysis..................................................................................19 1.2.2 Cost-benefit analysis............................................................................20

1.4 Lebanon: a brief introduction.......................................................................20 2. TRADE LIBERALIZATION IN LEBANON.....................................................25

2.1 Lebanese-EU AA.........................................................................................26 2.2 European Neighbourhood Policy (ENP)......................................................28 2.3 Other trade agreements ................................................................................30

3. OVERVIEW OF OLIVE OIL PRODUCTION IN LEBANON .........................32 3.1 Socio-economic characteristics of olive producers......................................33

3.1.1 Poverty .................................................................................................33 3.1.2 Education .............................................................................................34 3.1.3 Employment and migration..................................................................34

3.2 Production, hectarage and yields .................................................................36 3.3 Costs, prices and profits...............................................................................38

3.3.1 Farming and milling costs...........................................................................38 3.3.2 Domestic and international pricing strategies......................................39

3.4 International trade patterns ..........................................................................41 3.4.1 Export volumes and trends...................................................................41 3.4.2 Import volumes and trends...................................................................42

3.5 Quality of olive oil produced: Coordination between mills and farmers...........43 3.6 Environmental issues ...................................................................................43

3.6.1 Environmental concerns from olive oil production .............................43 3.6.2 Environmental concerns from olive oil milling...................................46

4. INTEGRATED ASSESSMENT..........................................................................50 4.1 Scenario analysis..........................................................................................50

4.1.1 Scenario 1: Baseline scenario ..............................................................50 4.1.2 Scenario 2: Policy impact scenario ......................................................56 4.1.3 Summary of the scenario analysis........................................................70

4.2 Cost-benefit analysis....................................................................................71 5. RECOMMENDATIONS AND PROPOSED MEASURES ...............................75

5.1 Recommendations........................................................................................75 5.2 Proposed measures to support implementation of action plans ...................76 5.3 Conclusions and follow-up ..........................................................................78

5.1 Conclusion ...............................................................................................78 5.2 Follow-up.................................................................................................79

REFERENCES ............................................................................................................81 Annex 1: Outline of quality management systems - HACCP & IS0 9001:2000.....84 Annex 2: Treating olive mill wastewater and pomace technologies .......................85

Annex 3: Cost categories of applying ELCIM assumptions....................................89 Annex 4: Identification of key bottlenecks possible action plans and expected outcomes of Scenario 2............................................................................................95 Annex 5: Steering Committee Members and stakeholder contact details ...............99

List of Tables and Figures Tables Table 1: Agricultural output (thousand tons)...............................................................22 Table 2: Active Lebanese population working in the agricultural sector ....................22 Table 3: LCI classification based on the percentage of households having low,

intermediate or high degrees of satisfaction ........................................................33 Table 4: Illiteracy rates in Lebanon, 2001 (10 years of age and more) .......................34 Table 5: Youth migration intentions ............................................................................35 Table 6: Percentage (%) of total crop output in each province in Lebanon ................36 Table 7: Olive production indicators (1997-2002) ......................................................38 Table 8: Costs of olive production in Lebanon (US$ per ha) ......................................38 Table 9: Olive oil retailer and consumer prices (1999-2004) ......................................40 Table 10: Price chain ...................................................................................................40 Table 11: Lebanese olive oil exports ...........................................................................42 Table 12: Lebanese olive oil imports...........................................................................43 Table 13: Use of agricultural pesticides in Lebanon (2000)........................................44 Table 14: Pesticide use per hectare – A comparative view .........................................45 Table 15: Mass balance of the three olive oil extraction systems................................46 Table 16: Estimated maximum amount of olive mill pomace output in Lebanon.......47 Table 17: Estimated maximum amount of olive mill wastewater output in Lebanon .48 Table 18: Common Customs Tariffs (CCT) ................................................................50 Table 19: Net economic benefits from using the 1000 ton quotas in retrospect..........59 Table 20: Lebanese olive oil distribution for 2002......................................................60 Table 21: Environmental protection through good agricultural practice (GAP) .........67 Table 22: Framework for Integrated Pest Management (IPM)....................................68 Table 23: Indicator matrix under two alternative scenarios.........................................70 Table 24: Total costs of applying ELCIM assumptions ..............................................72 Table 25: Potential net discounted benefits of ELCIM assumptions...........................74 Figures Figure 1: Agriculture added value to total GDP ..........................................................22 Figure 2: Base salary per US$/month in agriculture and by districts ..........................23 Figure 3: Percentage of worker’s income from various sources – comparative illustration

..............................................................................................................................23Figure 4: Trade trends in Lebanon ..................................................................................25 Figure 5: Lebanon-EU Historical relationship.............................................................26 Figure 6: Production chain and respective stakeholders..............................................32 Figure 7: Consumption and production of olive oil - EU ............................................41 Figure 8: Olive mills disposal distribution 2002..........................................................48 Figure 9: Lebanese virgin olive oil exports to the EU.................................................51 Figure 10: Impact of each production stage on quality................................................58 Figure 11: Poverty - Olive Oil Sector ..........................................................................62 Figure 12: Household distribution and budget allocation: primary charges (1997) – By

Mohafazats...........................................................................................................63

Figure 13: Youth unemployment rates by region (2002).............................................65 Figure 14: Mapping of organizational issues...............................................................78 Maps Map 1: Geographic distribution of olive cultivation areas ..........................................37 Boxes Box 1: Project on integrated management of olive oil production waste ....................49 Box 2: Case study: Impacts of rural-urban migration to the Hasbaya region in South

Lebanon................................................................................................................54 Photographs Picture 1: Hasbani River before vegetable water out-fall Picture 2: Hasbani River at point after vegetable water outfall

Abbreviations and acronyms AA CCIAB CCT EC EFTA ELARD ENI ENP ESCWA ESE EU FAO FTA GAFTA GHG GMO IA IAP ICU IPM LCI LCPS MDG MOA MOE MOET MOI MOSA MTA NGO ODS PIC RA RMF SELDAS LIPSOS SPS SRI TBT UNEP UNDP USJ WSSD WTO

- Association Agreement - Chamber of Commerce, Industry, and Agriculture of Beirut and Mount Lebanon - Common customs Tariffs - European Commission - European Free Trade Agreement - Earth Link & Advanced Resources Development S.A.R.L - Lebanon - European Neighbourhood Instrument - European Neighbourhood Policy - Economic and Social Commission for Western Asia - Economic, Social, Environmental - European Union - Food and Agriculture Organization - Free Trade Agreement - Greater Arab Free Trade Area - Green House Gas - Genetically Modified Organism - Integrated Assessment - Integrated Assessment Project - Intituto per la Cooperazione Universitaria - Integrated Pest Management - Living Condition Index - Lebanese Centre for Policy Studies - Millennium Development goals - Ministry of Agriculture - Ministry of Environment - Ministry of Economy and Trade - Ministry of Industry - Ministry of Social Affairs - Multilateral Trade Agreement - Non Governmental Organization - Ozone Depleting Substance - Prior Informed Consent - Rapid Appraisal - René Moawad foundation - Strengthening Environmental Legislation Development and Application in Lebanon - Syndicat Interprofessionnel de l’Huile d’Olive - Sanitary and Phyto-sanitary - Stanford Research Institute - Technical Barriers Trade - United Nations Environment Program - United Nations Development Program - University Saint-Joseph - World Summit for Sustainable Development - World Trade Organization

1. INTRODUCTION

1.1 About this report This report presents the results of an integrated assessment of the impacts of trade liberalization on Lebanon’s olive oil sector, specifically the Euro-Mediterranean Association Agreement (AA) between the EU and Lebanon signed in 2002. The AA allows for 1,000 tons of olive oil to be exported from Lebanon to the EU duty free, but Lebanon has not so far taken full advantage of this market opportunity. In order to do so, Lebanon needs to improve product quality, reduce production costs and sustain output. The aim of the report is thus to present the results of the analysis and outline a clear set of policy recommendations and measures necessary to strengthen the olive oil sector, improve the quality and quantity of olive oil produced and increase exports.

Structure The report is divided into five chapters. Chapter 1 introduces the project and provides a brief background on the Lebanese socio-economic and political situation focusing on agriculture and the olive oil sector specifically. Chapter 2 discusses Lebanon’s approach to trade liberalization and reviews the agreements between Lebanon and the EU as well as relevant agreements with other countries or organizations. Chapter 3 presents an overview of Lebanon’s olive oil sub-sector and describes production chain from farming to processing to marketing. Chapter 4 discusses the results of the integrated assessment and Chapter 5 outlines the recommendations and proposes the necessary measures that should be undertaken to improve the sector’s performance and readiness for more trade liberalization. Finally, some general conclusions and suggestions for follow-up are summarized.

Target audience The report is targeted at policymakers and advocates (public sector bodies, private stakeholders, syndicates, cooperatives and NGOs) to raise awareness of the importance of taking a more integrated approach to the design of trade policies that takes into account key social and environmental as well as economic issues.

1.2 Background to the project The project was initiated in December 2004 by the Ministry of Economy and Trade (MOET) in collaboration with the Ministry of Environment (MOE) and the United Nations Environment Programme (UNEP). The aim of the study is to assess the socio-economic and environmental implications of opening up local agricultural sub-sectors to ‘freer’ trade. In June 2002 Lebanon signed the EU-Lebanon Association Agreement (AA) and in December the Agreement was ratified by the Lebanese Parliament. The objective of the AA was to provide an appropriate frame for political dialogue between the parties,

establish the conditions for the gradual liberalization of trade in goods, services, and capital, and promote economic, social, cultural, financial and monetary cooperation.1 An Interim Agreement entered into force in March 2003 allowing for the immediate implementation of economic and trade-related provisions of the AA while awaiting parliamentary ratification from all EU Member States. The AA was selected for integrated assessment because it remains a comprehensive agreement and all the studies conducted so far have assessed only its economic impacts, omitting social and environmental characteristics or likely inter-linkages between all three components. The study focuses on the olive oil sub-sector for pilot analysis due to its high importance in terms of poverty reduction, employment generation, migration, magnitude of trade, growth potential, the rural landscape, environmental implications such as waste generation and disposal, and willingness of stakeholders to provide necessary information and available data. In 2002, the economic value of olive farming was estimated at US$176 million, or approximately 20 per cent of the value of total agricultural plant production (SRI, 2004). The procedures and agents involved in olive oil production in Lebanon (from farming to milling to marketing) are surveyed, indicating from the baseline scenario areas of concern and identifying action plans necessary for the sub-sector to reap all the benefits of the AA. A number of major policies and projects are related to the current study and were used within it. These include the Strategic Environmental Assessment Project of the Ministry of Environment conducted in 2005, the World Bank country assessment strategy outlined in 1997, the various programmes under the Association Agreement such as the quality project and the ‘small and medium enterprise’ (SME) project. Furthermore, a large number of pilot projects targeting the olive oil sector have also been carried out, namely a study for the Ministry of Industry entitled “The Impact of the Euro-Mediterranean Agreement on the Olive Oil Industry in Lebanon” (Mirza, 2004). The Euro-Lebanese Centre for Industrial Modernization (ELCIM) also undertook an evaluation of necessary action plans to improve quality of olive oil, spread better farming practices (including the introduction of Integrated Pest Management) and enhance marketability of Lebanese olive oil. This study also included a comprehensive inventory of the costs involved in implementing such action plans. Moreover, the Stanford Research Institute (SRI) conducted a rapid appraisal of the olive oil sector in Lebanon (SRI, 2004); indicated ways to produce higher portions of extra-virgin olive oil. They are also intensively involved in various projects to improve Lebanese olive oil quality, enhance its marketability and export potential. Furthermore, the Lebanese National Agricultural Policy termed “Green Plan” was initiated in 1995 to provide assistance to farmers and rural communities in agricultural land development and in rural road construction, in line with environmental protection. On the one hand, land development activities are undertaken through cost sharing arrangements with the farmer who completes a land reclamation and assistance application and pays a percentage contribution before the start-up of works. On the other 1 Article 1 of the AA.

hand, agricultural roads executed by the Green Plan are usually short roads that improve access of rural communities to their land. The contribution of the current study over previous studies is that it takes a holistic approach to the assessment of the olive oil sector by integrating socio-economic characteristics and implications with environmental ones within the consequences of opening up trade (the AA).

1.1.1 Project objectives

• identify national priorities and action plans to increase exports under the AA • propose complementary measures to support implementation of action plans • promote cooperation between relevant government entities • enhance active stakeholder participation • develop country-specific methodology that could be replicated in other sectors or

planning processes.

1.1.2 Assessment team The assessment team was led by the Ministry of Economy and Trade (MOET) in collaboration with the Ministry of Environment (MOE) and with technical support from UNEP. A Steering Committee was established to coordinate the work and two workshops were held to permit a thorough and on-the-ground understanding of the sector as a whole. Members of the Steering committee were as follows: Georges Khoury, Director General by intermediary, Ministry of Industry; Marilyse Chehab, Economic Researcher, Ministry of Industry; Ghazi Freij, Ministry of Social Affairs; James Billings, Director, Lebanon Office SRI International; Mariam Eid Agro-food production expert, Ministry of Agriculture; Rabih Sabra. Head of agriculture/agroindustry department, CCIB; Saleem Hamadeh, Regional Coordinator UNDP-Ministry of Environment; Karim Hammoud, LIPSOS advisor and coordinator Vitech consulting s.a.l; Sleiman El-Daher, President LIPSOS. A multi-disciplinary team comprising a wide range of stakeholders was established, and included representatives from the following organizations and institutions: - Association of Lebanese Industrialists: Saad Ouyeenni - Central Administration of Statistics (CAS): Ziad Abdallah - Chamber of Commerce, Industry and Agriculture of Beirut: Rabih Sabra - Head of Agriculture/Agro Industry Department; Rania Bizri - Economic Researcher; Nassima Ghanem - Head of Library and Documentation Department; Albert Nasr - EU Expert; Hana Haidar - EU Database - Cortas Trader: Raja Cortas - Economic and Social Fund for Development (ESFD): Hayssam Omar; Lara Abou Saifan, Communication and Public Relations Officer; Racha Chahine; - European Commission Delegation: Fransisco Acosta, Economic and Political Coordinator

- Instituto par la cooperazione Universitaria (ICU) (Italian NGO): Jose Antonio Villaverde, Resident Representative; Hussain Hoteit, Agrofood Ingeneer - Ministry of Agriculture: Myriam Eid - Ministry of Environment: Saleem Hamadeh, Regional Coordinator; Alissar Chaker, Project Manager; Lamia Chamas - Ministry of Industry: Georges Khoury, Acting Director General; Marilyse Chehab, Economic Researcher - Ministry of Social Affairs: Joumana Kalot, NGO Liaison Officer; Hachem el Hussein, Technical Expert; Mazhar Haraké, Project Manager; Ghazi Freij - Rene Moawad Foundation: Fady Yarak, Executive Director; Delphine Copain Lebanese Interprofessionnal Syndicate of Olive Oil (LIPSOS) - Sleiman El-Daher, LIPSOS President - SRI International: James Billings, Director, Lebanon Office - Syndicate of Agro-Food: George Nasraoui - Vitech Consulting s.a.l: Karim Hammoud - LIPSOS Advisor and Coordinator.

1.3 Development of methodology This study is an ex-ante assessment of the projected impacts of increasing olive oil exports under the EU-Lebanon AA, which allows Lebanon to export 1,000 tons of olive oil to the EU duty free and continue to charge a 70 per cent import duty on all EU olive oil imports into Lebanon. Lebanon does not currently take full advantage of the terms offered under the AA, exporting only 27 tons per year (as of 2005)2. In order to achieve a maximum increase in exports, certain policy measures will need to be implemented. Thus a scenario analysis was carried out to determine the projected impacts (economic, social and environmental) of exporting the full quota of 1,000 tons to the EU by implementing the necessary policy changes measured against a ‘no policy change’ baseline. Due to limited data availability, both qualitative and quantitative techniques were used in the analysis. A ‘rapid’ cost-benefit analysis was also performed to assess the economic impacts using quantitative data used in the action plans funded by ELCIM for LIPSOS3.

1.2.1 Scenario analysis Two scenarios are compared: 2 In comparison, Lebanon exported 42 tons of virgin olive oil to EU in 2004 3 Daher S., Dragotta A., Gabr M., Hammoud K. (2004) prepared these action plans for the Lebanese Inter-Professional Syndicate for the Olive Sector (LIPSOS). They were funded by The European Commission Delegation in Lebanon, within the framework of the ELCIM project. Throughout the study, the action plans will be referenced to as “ELCIM”.

Scenario 1: Baseline scenario Assumes no policy changes are implemented to encourage an increase in export to the EU.

Scenario 2: Policy simulation scenario Assumes olive production is expanded to fulfil maximum export opportunity under the AA of 1,000 tons high quality olive oil by taking the following measures to improve quality - 1. create a suitable framework and laboratories for certification 2. upgrade mills and working conditions 3. promote good agricultural practices.

The scenario analysis was based on qualitative data compiled from comprehensive stakeholder consultations, focus group meetings, fieldwork and literature reviews.

1.2.2 Cost-benefit analysis A ‘rapid’ cost benefit analysis was carried out to assess the economic impacts using quantitative data from the Euro-Lebanese Centre for Industrial Modernization (ELCIM, 2004) study which outlined seven action plans to improve the quality and export potential of Lebanon’s olive oil.

1.4 Lebanon: a brief introduction Lebanon is a relatively small country with a diverse population of about 4 million inhabitants (including about 17 different ethnic and religious communities). It is a Republic with three branches of government: the Legislative, the Executive, and the Judiciary wherein a distribution of posts according to religious and sectarian groups is allotted to and replicated throughout the administration (Euro-Med Partnership, 2002). The Lebanese civil war spanned a period of fifteen years (1975 – 1990), damaging the socio-economic conditions of Lebanese citizens and destroying most of the country's infrastructure. Since the cessation of war in 1990, substantial progress has occurred in rehabilitating and expanding the war-torn physical infrastructure. All major public services are operating again (although not very efficiently), including basic education and health care. Internal security is also restored. A sound banking system and a resilient small and medium-scale manufacturing sector have facilitated this economic recovery. Family remittances, banking services, exports, and international aid provided the main sources of foreign exchange. The Government of Lebanon (GOL), however, still faces serious challenges. It has funded reconstruction by borrowing heavily - mostly from domestic banks (debt stands currently at over US$37 billion or over 167 per cent of annual GDP). In the meantime, it has not managed to privatize many of its inefficient public sector services. The servicing of the public debt and the relatively large portion of the national budget allocated to salaries and wages, along with known geo-political realities, have had its toll on

unemployment. Significant poverty and income disparities exist as society is increasingly split between the very rich and the poor. According to the World Bank’s crude Living Condition Index which measures the degree of satisfaction of basic needs, 32 per cent of Lebanese households are at the low end of the index, 42 per cent at the intermediate level while 26 per cent reach the high end of the index.4 A UN study calculates that 35 per cent of the population lack basic needs i.e. live below a poverty line of minimum living standards.5 There are up to an estimated one million poor in Lebanon today, of whom 75 per cent are urbanised. Economic growth and reconstruction have favoured some regions, notably parts of the Beirut region, at the expense of large parts of the country. Growth has also favoured the services sectors over the more typical labour-intensive activities in agriculture and industry. Unemployment, officially given as 8 per cent, is at least double this figure according to some studies, and is highest amongst the young.6 Tight monetary policy, a narrow tax base, and economic recession have led to declining real incomes of many salary earners. Illiteracy rates range from 11 per cent to 15 percent (see Table 4) in the more disadvantaged areas of the Bekaa, South and North Lebanon, and is most grave amongst women (C. Kasparian, 2002). Public welfare programmes and social safety nets, largely non-existent in Lebanon, are narrowly based, and often subject to mismanagement. Remittances from expatriates go some way to alleviating the situation amongst underprivileged communities. There is no national health care policy. The system favours equipment, curative and tertiary services driven by the supply of an abundant private sector, rather than primary health care and prevention (Euro-Med Partnership, 2002).

Agriculture and the agro-food industry in Lebanon Agriculture in Lebanon plays an important (albeit declining) role in the Lebanese economy, contributing 5.8 per cent of GDP (MOET, 2002), employing about 6.7 per cent of the total labour force (C. Kasparian, 2002) and sustains the agro-food industry. It should be noted, however, that many Lebanese derive part of their revenues from agricultural activities while working in another sector and are thus not included in the national accounts of agriculture. Local supply, however, is not sufficient and Lebanon has a widening agriculture deficit and growing dependence on imported food. Table 1 lists the major output of agriculture in Lebanon from 1997 to 2002. What is evident is that vegetables constitute the major share of agricultural output, followed by fruits. Olive oil represents a significant share but is subject to considerable yearly fluctuations.

4 Ministry of Social Affairs – UNDP Lebanon (1998), Mapping of Living Conditions 5 Ibid 6 CAS 1997

Table 1: Agricultural output (thousand tons)

Nature of crop product 1997 1998 1999 2000 2001 2002 Cereals 88.4 105.5 93.7 150.1 172 264.9 Leguminous vegetables 50.3 60.4 54.8 65 61.3 53.5 Vegetables 1462.7 1235.1 1240 1107.7 1074.9 1206.2 Plants for manufacturing 369.7 455 382.5 355.3 30.9 11.1 Fruits 1102.2 984.7 1022 899.5 861.2 841.5 Olives 93.4 30.3 66.4 189.5 85.5 184.4 Other 32.8 … … 19.5 16.6 39.8 Total 3200 2871 2859.4 2786.6 2302.7 2561.6

Source: Lebanon’s Economic Accounts 1997 – 2002, MOET While agriculture remains the predominant activity in poor areas, its economic importance has been decreasing over the years leading to further marginalization of the poorest income groups. Agriculture contributed around 10-12 per cent of GDP in the past decade. The Ministry of Economy and Trade (MOET) has recently revised downwards the share of agriculture in GDP from 6.3 per cent in 1997 to 5.8 per cent in 2002 (see Figure 2.1) Figure 1: Agriculture added value to total GDP

%of GDP

Source: Lebanon’s Economic Accounts 1997-2002, MOET Similarly, the active population working in agriculture has decreased from 50 per cent in the 1950s to 14 per cent in the 1990s, as revealed by the following table:

Table 2: Active Lebanese population working in the agricultural sector

Source: Dr. Michel Aouad, Situation and Economic Problems http://www.opuslibani.org.lb/lebanon/situation.html

1950s 1960s 1970s 1990s

50% 34% 18.9% 14%

6.48%

6.02% 6.18%

6.42%

6.01%

5.83%

5.40% 5.60% 5.80% 6.00% 6.20% 6.40% 6.60%

1997 1998 1999 2000 20001 2002

The monthly agricultural salaries vary from US$255/month in North Lebanon, US$195/month in South Lebanon, US$248/month in Nabatieh, and US$228/month in the Bekaa (Figure 2).

Figure 2: Base salary per US$/month in agriculture and by districts

$391

$333

$285

$255

$248

$237

$228

$195

0 50 100 150 200 250 300 350 400 450

Beirut Suberbs

Beirut

Rest of Mount Lebanon

North Lebanon

Nabatieh

Lebanon

Bekaa

South Lebanon

Base Salary (USD/Month)

Source: CAS 1997 Overall, agriculture provides the lowest source of income, accounting for 16 per cent of workers’ income and 6.2 per cent of household income, compared to industry/construction, trade, and services sectors which contribute 28.8 per cent, 27.7 per cent and 37.2 per cent respectively of total household income (see Figure 3). However, poor regions are still relatively more dependent on agricultural activity as a source of income. Income derived from agricultural activity counts for 5.3 per cent of total income in Beirut, 6.3 per cent in North Lebanon, 8.1 per cent South Lebanon, 7.5 per cent in Nabatieh, and 8.2 per cent in Bekaa. Figure 3: Percentage of worker’s income from various sources – comparative illustration

16.056.20

28.6128.81

30.4627.73

24.8837.26

0 10 20 30 40

Agriculture

Industry/construction

Trade

Services

By Worker By Household

Source: Lebanon’s Economic Accounts 1997- 2002, MOET

Furthermore, the Lebanese agro-food industry is facing competition from neighbouring Arab countries that benefit from lower production costs, direct subsidies and larger economies of scale. The relatively high local production costs in Lebanon are mainly due to higher labour costs, expensive utility services, lack of local competition, appreciation of the euro,7 the high cost of upgrading the industry (training, equipment, etc), and the high cost of capital (borrowing). Moreover, the absence of a comprehensive agriculture policy, the inefficiency of extension programmes provided by Ministry of Agriculture, the lack of institutionalized and sophisticated marketing channels to access EU markets, the lack of accreditation and certification, the poor performance of local laboratories and the inability to meet international standards pose a major challenge to this industry and are impeding agro-industrial products from entering freely into the European market.

7 The impact of appreciation of the euro on Lebanese agricultural production (due to the increased cost of raw materials) was indicated by the Agro-Food Syndicate. However, this issue has led farmers and agro-industrialists to look for alternative sources or countries, like India and China, for those raw materials, reducing thus the significance of this issue. Furthermore, the export potential of extra-virgin oil is increased by this Euro appreciation relative to the Dollar (since the Lebanese Lira is pegged to the latter) therefore indicating a benefit in that respect.

2. TRADE LIBERALIZATION IN LEBANON The Lebanese Government is a strong advocate of trade liberalization. A number of trade agreements are occurring bilaterally and regionally, for example, the Association Agreement with Europe (AA), the European Neighbourhood Policy and the Greater Arab Free Trade Area (GAFTA), as well as through multilateral mechanisms such as the expected accession to the World Trade Organization (WTO) in 2006. Lebanon is a relatively small economy that relies heavily on trade, and specifically on imports of raw material and consumer products. In 2004, Lebanon imported about US$9.4 billion worth of goods, accounting for almost 50 per cent of its annual gross national income, and exported US$1.75 billion (see Figure 4). Local production of most goods is subject to intense regional and international competition, characterized in particular by cheaper neighbouring labour and input costs. Furthermore, local producers have yet to gain better access to international markets - many Lebanese agricultural products are characterized by sub-standard quality that limits their potential to export and thus increased national income. Trade policies, regulations and/or agreements therefore have profound implications on the Lebanese economy. These agreements cannot overlook issues like regional competitiveness and quality, which creates many hardships for the Lebanese agricultural sector. Figure 4: Trade trends in Lebanon

7,168,198

1,747,019 1,879,7641,523,9351,045,495889,299714,343676,777660,949642,282

9,396,953 9,339,859

6,444,775

7,291,075

6,227,960

6,206,5337,055,191

7,456,576

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

1997 1998 1999 2000 2001 2002 2003 2004 2005

Total exports Total imports

Source: Lebanese Customs Data The following two sections (Sections 3.1 and 3.2) present an overview of the Euro-Mediterranean Association Agreement and the European Neighbourhood Policy between Lebanon and Europe, indicating the potential benefits of these agreements and gaps in the planning and implementation process. Section 3.3 briefly describes other bilateral and regional agreements currently signed by Lebanon.

2.1 Lebanese-EU AA Lebanon’s trade agreements with Europe can be traced to more than a decade ago (see Figure 5). In November 1995, Lebanon participated in the Barcelona Conference, adopted the Barcelona Declaration,8 and launched the Euro-Med Partnership. In 2002, Lebanon signed the Association Agreement (AA), followed by the negotiation of the European Neighborhood Policy in 2004. Figure 5: Lebanon-EU Historical relationship

Source: Author’s elaboration Under the AA, the liberalization of trade of European imports to Lebanon would occur gradually after five years from signing (beginning in 2007) and would take 12 years after date original of entry for total liberalization to come into force (in 2014). On the other hand, Lebanon managed to ensure duty free protection for its own agricultural products entering EU markets (with the exception of a small list of products subjected to quotas and tariffs).9 Specifically, Lebanon offered no reduction on olive oil (tariff stays at 70 per cent) and for other oils derived from olives (tariffs stay at 15 per cent). Other highly protected items (where the original tariff was 70 per cent) retained the minimum excise duty with a reduction in the ad-valorem tariff by only 20 per cent (e.g., meat, fruits) and 30 per cent (e.g., milk, fresh cheese). Within the interim period, this asymmetric liberalization in favour of Lebanese commodities should have conferred higher comparative advantages in the olive oil sector. However so far Lebanon has not been able to capture these advantages due to the absence of conformity with international quality standards and an inability to increase and sustain production. This reality is not only in the olive oil sector, but is also an impediment faced

8 In the Declaration, the Euro-Med countries agreed to establish a comprehensive partnership among the participants - the Euro-Mediterranean partnership - through strengthened political dialogue on a regular basis, the development of economic and financial cooperation and greater emphasis on the social, cultural and human dimension, these being the three aspects of the Euro-Mediterranean partnership. 9 EU considers three items to be very sensitive thereby retaining high tariff rates: cut flowers and flower buds, sugar beet and chemical sucrose, and wine of fresh grapes.

1995 2002 2003 2004

Barcelona Conference

• Association Agreement

Signature • Ratification by

the Lebanese Parliament

5 year Interim Agreement in effect

2005

Launched Negotiations and Action Plan for ENP in Lebanon

• EU Enlargement • European

Neighbourhood Policy

by most agricultural sub-sectors. Thus in order to increase exports, Lebanon needs to improve product quality, reduce production costs to compete regionally, and sustain output. Nevertheless, the potential benefits of tariff reduction (trade component) include: • A reduction in transaction costs due to the reduction and harmonization of tariffs and

regulations across all EU countries • Upgrading of domestic quality, sanitary and labelling requirements in order to comply

with export requirements to the EU • Access to a larger pool of countries. For the Lebanese economy, the AA constitutes an important milestone in the development of a more dynamic trade and economic partnership with the EU. The agreement will help Lebanon realize a greater volume of its export potential by reaping the benefits of duty-free access to EU markets. Furthermore, Lebanon will benefit from technology transfer and EU know-how resulting from foreign direct investments as well as from technical and financial cooperation projects. The agreement is expected to help strengthen the Lebanese economy and serve as a catalyst for reform. The implementation phase of the AA has increasingly involved key stakeholders through a series of ‘mise-à-niveau’ (update) workshops and projects aimed at maximizing the benefits of trade liberalization. The projects address the quality of exported goods, consumer protection, intellectual property rights, the need to upgrade and address small and medium enterprises, and rules of origin aimed at facilitating trade. With respect to olive oil, the AA should increase the incentives of olive oil farmers, mill operators and traders through price and quality signals sent back through the production system in order to meet international standards and compete in foreign markets. There is now greater potential for Lebanese high quality olive oil to enter niche markets in Europe and other regions in the world (North America and Australia). Because the trade liberalization is unilateral (European olive oil will remain taxed upon entry into Lebanon), Lebanon should take this opportunity to develop its olive oil sector. From olive growers to olive millers, wholesalers, retailers, exporters, and consumers, the AA should create a sustainable production dynamic in the form of good agricultural practices and better pricing incentives for improving quality, which will enhance local and regional economic development. Improving the quantity and quality of olive oil supply will require educating the labour force with respect to adopting better agricultural practices, applying technology where applicable (e.g. pruning machinery), and improving coordination between farmers and mill operators. Socially, the AA offers a multifaceted framework for social and cultural cooperation. It aims at promoting social security, health care systems and the empowerment of women. A major issue addressed in the AA concerns the improvement of labour relations and work conditions. Moreover, many EU funded projects aim at improving poverty reduction in Lebanon’s most deprived regions, which will contribute to improving living conditions in rural areas.

Environmentally, the AA seeks to protect water quality in the Mediterranean Sea and manage water resources. The agreement entails specific policies oriented towards improving wastewater treatment facilities, reducing industrial pollution, raising awareness and developing a sound environmental policy. Throughout the negotiation process of the AA, the government engaged the main agro-food stakeholders through regular consultations as well as direct involvement in the negotiation process. Moreover, the government is engaged in promoting the agro-food sector in foreign markets by promoting export fairs and involving Lebanese delegations in events aimed at facilitating market access to Lebanese products. However, the following gaps in the planning process have been identified: • When assessing the impact of trade liberalization on the economy, the social and

environmental dimensions were overlooked resulting in an absence of accompanying measures to address those concerns (discussed above)

• Follow-up consultations with the private sector are not regular • The dissemination of information needs to be improved - there is a need to clarify the

EU regulations on agro-food export for producers • There is an absence of monitoring and assessment of the initial impact of trade

liberalization on the agro-food industry • Regulatory and lengthy bureaucratic procedures have led to delays in technical

assistance aimed at facilitating trade through upgrading programmes • There was a lack of financial incentives and other necessary measures to address

private sector requirements, hindering the efficiency of the AA policy.

2.2 European Neighbourhood Policy (ENP)

The enlargement of the EU (ten new countries entered the EU in May 2004)10 will create opportunities, pose challenges and affect the geopolitical relations of the EU with its new neighbours, including Lebanon. There is no doubt that enlarging the EU will increase diversity and bring with it more interests and outlooks towards many important issues such as labor market policies and trade agreements (with non-EU members). This necessitates an efficient decision-making and governance mechanism that would ensure that “more” would not mean “less”. Henceforth the ENP was developed to address this new reality and build upon existing cooperation with Mediterranean Partners. The EU is proposing a new and developed mechanism to govern its relations with its immediate ring of neighboring countries, but also the EU is offering a stake in its internal market in return for closer integration and harmonization. The ENP policy, which was first outlined by the European Commission in its Communication on Wider Europe of March 2003, demonstrates the high priority that the EU accords to shaping future relations with neighbours. Substantially increased financial

10 Poland, Czech Republic, Slovakia, Hungry, Latvia, Lithuania, Estonia, Cyprus, Malta, and Slovenia.

assistance and a single dedicated European Neighbourhood and Partnership Instrument will support implementation of this policy. The ENP’s objective (implemented through country Action Plans) is to share the benefits of the EU’s 2004 enlargement with neighbouring countries in strengthening stability, security and well-being for all parties concerned. It is designed to prevent the emergence of new dividing lines between the enlarged EU and its neighbours and to offer them the chance to participate in various EU activities, through greater political, security, economic and cultural cooperation.11 The Lebanese Government has officially welcomed the ENP stressing the strategic importance in terms of deepening bilateral and regional integration. The aim of the ENP is to build and complement on the existing AA towards greater integration between the EU and its partners. The new policy will cover several key areas including: • Political dialogue: Covering international and regional political issues • Economic and social development policy: Offering neighboring countries a stake in

the EU internal market based on regulatory and legislative approximation and allowing these countries to participate in a number of EU programmes (education, environment, IT, energy , transport, etc.)

• Trade: Greater liberalization and market opening based on principles of WTO and approximation with EU standards

• Justice and home affairs: Increasing cooperation and collaboration on issues such as border management, organized crime, money laundering and other economic crimes.

The method proposed to implement the ENP is to define with partner countries a national set of priorities, whose fulfillment will bring them closer to the EU without offering membership. These priorities will be incorporated in jointly agreed Action Plans, covering a number of key areas (see above). These action plans will build on mutual commitment to common values principally within the fields of the rule of law, good governance, the respect of human rights and the promotion of market economy and sustainable development. Engagement will be introduced progressively and be conditional on mutually agreed targets for reform. Action Plans will be revised approximately every three years and progress will be monitored through a set of benchmarking indices developed in the Action Plan. Benchmarks will thus offer a credible and consistent approach between countries. While the historic relationship between Lebanon and the EU has been strengthened by the AA, the ENP will bring about a considerable value added to this relationship in all aspects of sustainable development. The ENP stands to offer Lebanon a larger window of opportunities. It is expected to: • Offer a higher stake in the EU internal market • Upgrade the scope and the intensity of political cooperation • Harmonize economic legislation and eliminate all trade barriers • Increase financial support: EU financial support through the Action Plans will be

better targeted to support the identified actions and using new financial instruments.

11 Source:http://europa.eu.int/comm/world/enp/policy_en.htm

There will also be infrastructure investment support through the European Investment Bank (EIB)

• Provide technical assistance • Develop the transport, energy and information society sectors and networks • Strengthen cooperation in science and technology.12 The Mesures d’Accompagnement MEDA programme (the main financial assistance instrument for Mediterranean partner countries to implement the Euro-Mediterranean Partnership) would continue (until 2007) to provide support for the ENP and in particular for the implementation of the Action Plans. As of 2007, a new financial instrument will be created however, incorporating all existing instruments. This new European Neighborhood Instrument (ENI) will build on existing cross-border programmes such as partnership, multi-annual programming and co-financing. Its main elements will be the promotion of sustainable development, addressing common challenges in fields such as environment, public health and the prevention and fight of organized crime, ensuring efficient and secure common borders, and promoting local cross-border ‘people to people’ type actions. With reference to the ENP, the planning process is in its early stages. However, a task force comprising mainly the Ministry of Environment and the Ministry of Social Affairs has been designated by the Council of Ministers to oversee the negotiations and the implementation of the ENP.

2.3 Other trade agreements Two other major trade agreements are impacting or will impact Lebanon; the Greater Free Trade Area (GAFTA) and the World Trade Organization (WTO).

Greater Arab Free Trade Area (GAFTA) GAFTA was launched to promote a free trade area between 17 Arab countries, and was implemented in January 2005. All other non-trade barriers (administrative, quotas, and monetary) would also be eliminated through the GAFTA agreement. Accordingly agro-food products enter duty free, however a number of non-trade barriers related to quality issues, certification and administrative issues are also impeding Lebanese exports to take full advantage of the GAFTA. The impact of Lebanese exports to the EU (through the AA) is heavily influenced by the implications of trade liberalization between Lebanon and its neighbouring countries (through GAFTA). In the case of olive oil, as of other main agro-food products, the competition faced by domestic producers from neighbouring countries on the domestic market is weakening domestic producers (loss of market share). This in turn weakens the ability and incentive to export to the EU. The need to stay competitive leads domestic producers to undergo heavy cost minimizing strategies, often impacting the ability to 12 Source: http://www.dellbn.cec.eu.int/en/pev/information.htm

penetrate EU markets or undergo the necessary investment needed to benefit from the premium associated with the production and sales of high quality olive oil.

World Trade Organization (WTO) In February 1999 the Lebanese Government submitted its application for accession to the WTO. Since then the MOET has led the negotiations, a master plan for accession was elaborated, a WTO unit was established at the MOET to oversee the accession process, which is expected to take place by the end of 2006.

3. OVERVIEW OF OLIVE OIL PRODUCTION IN LEBANON The olive oil sector was selected for analysis because it remains an important economic and cultural (traditional) activity in many regions in Lebanon. Each region in Lebanon prides itself with indigenous olive trees and therefore a distinct type of olive oil. The interactions between local variety and the environment (soil, altitude, climate, and cultural practices) produce special characteristics and tastes distinct to each region. Farmers favour this type of culture because it is not very demanding in terms of time or management, it requires little day-to-day care once the seedlings are established, and it does not require irrigation since most areas under cultivation are rain-fed. Concurrently, olive oil production is often associated with regions with poor access to water.13 Olive oil in Lebanon is mostly a family run and seasonal business, providing a considerable proportion of household family activity and income. Families take great pride when they sell their olive oil, when soap bars are made, and when the pomace14 is sold for heating purposes (fuel). The production process is made up of three stages; olive farming/harvesting, milling and marketing. Figure 6 illustrates the olive oil supply chain. Figure 6: Production chain and respective stakeholders

Olive Harvesting Milling Processes Local & International OLEICULTURE INDUSTRY MARKETING

STAKEHOLDERS STAKEHOLDERS STAKEHOLDERS - Landowners: - Mill owners Small/Large

orchard owners - Employees - Bottling and Labeling - Equipment Suppliers - Wholesalers - Farmers: - Retailers Full/Part time

workers - Exporters

- Consumers - Women: Permanent, seasonal or family

- Foreign Labor - Youth

Source: MOET

13 It would be recommended however that irrigation schemes be set up due to the fact that the dry season is getting longer. 14 Residue from the milling process.

The growing world demand for ethnic and health-oriented food products has allowed Lebanese olive oil to increase its market share and penetrate niche markets in the world economy, although the full advantage or potential benefits of this growing demand has yet to be met by increased supply. Moreover, many important socio-economic implications related to olive oil production in particular have been identified; the participation of women and minority groups in the labour force, rural-urban migration, and poverty alleviation among other issues that make the sector of particular importance. In addition to producing olives, olive orchards are also an important landscape feature in Lebanon, forming a great deal of the rural landscape.

3.1 Socio-economic characteristics of olive producers Olive producers in Lebanon face a similar socio-economic situation as do others in the agricultural sector and accordingly in the rural areas of Lebanon (or other regions outside the Greater Beirut and Mount Lebanon region or the Districts of Kesrouan, Metn, Baabda and Aley – see Map 1). This situation can be best illustrated through the poverty, education attainment and migration (patterns and intentions) indicators.

3.1.1 Poverty With respect to poverty, as measured by the Living Condition Index (LCI),15 areas that contain harvesting of olive trees (and/or are agricultural or rural in nature) seem to have the lower rates of basic needs satisfaction (Table 3). Table 3: Living Condition Index (LCI) classification based on the percentage of households having low, intermediate or high degrees of satisfaction

Percentage of households in Qada

experiencing Low, intermediate or high satisfaction

Qada

Hectares pertained to Olive Orchards (see

Map 1) Low Intermediate High

Bent Jbeil 1000 - 3000 67.2 28.5 4.3 Hermel 1000 - 3000 65.9 28.6 5.6 Akkar > 5000 63.3 29.1 7.6

Marjayoun 1000 - 3000 60 32.3 7.6 El-Minieh 1000 - 3000 54.2 39.3 6 Baalbeck 500 - 1000 49.2 40.1 10

Tyre 3000 - 5000 45 41 14 Hasbaya 3000 - 5000 41.5 48.4 10 Nabatieh 3000 - 5000 40 47.4 12 Rachayya 500 - 1000 39.5 51.9 8

15 The LCI is an overall index adopted for measuring the degree of satisfaction basic needs for households and individuals residing in Lebanon. It is used to classify households according to degrees of satisfaction. The index has 5 classifications of satisfaction reduced to three (which in themselves include fields such as housing, water and sewerage, education, and income-related indicators); low, intermediate, and high (Mapping of Living Conditions, 1998).

Jezzine 100 - 500 35.7 49.8 14 Tripoli 500 - 1000 34.9 38.2 26.9

Becharre 100 - 500 34.8 45.4 19.8 Batroun 1000 - 3000 34.2 45 20.8

All Lebanon - 32.1 41.6 26.4 Baabda 500 - 1000 31.6 42.2 26.1 Chouf 3000 - 5000 31 50 19

Western Bekaa 1000 - 3000 30.7 53.6 15.8 Jbeil 500 - 1000 30.1 46.7 23.2

Zgharta > 5000 29.7 43 27.3 Saida 3000 - 5000 29.7 47.2 23 Zahle 0 - 100 28.9 45.3 25.8 Koura > 5000 27 44.7 28.3 Aley 1000 - 3000 25 45.6 29.3

El-Metn 100 - 500 19.7 43.9 36.4 Beirut 0 - 100 18.4 38.7 43

Kesrouan 0 - 100 13.5 38.3 48.2 Source: Mapping of Living Condition, 1998

3.1.2 Education With respect to education, the areas most noted for urbanization, like Greater Beirut and Mount Lebanon have illiteracy rates below the national average (which stands at approximately 8 per cent). The areas that are considered mostly rural in nature, however, have relatively much higher illiteracy rates. In fact, these areas have a large olive oil sub-sector (as shown by the hectarage allocated to olive orchards in Table 4).

Table 4: Illiteracy rates in Lebanon, 2001 (10 years of age and more)

Mohafazat (in %) Men Women Total Average Range of Hectares dedicated to Olives orchards (see Map 1)

Rest of mount Lebanon 2.7 5.5 4.1 0 to 1000 Beirut 2.6 6.7 4.7 0 to 100

Beirut suburbs 3.9 8.4 6.2 0 to 100 Lebanon (Average) 5.1 10.9 8 -

South Lebanon 7.3 12.6 10 500 to 5000 Bekaa 5.8 15.6 10.5 500 to 1000

North Lebanon 7.8 14 10.9 1,000 to > 5,000 Nabatieh 7.8 22 14.9 3,000 to 5,000

Source: C. Kasparian (2002)

3.1.3 Employment and migration The national unemployment rate in Lebanon is of 8 per cent. Official unemployment rates in Northern Lebanon, Southern Lebanon, Nabatieh and the Bekaa are 11.10 per cent, 7.40 per cent, 6.30 per cent and 10.10 per cent respectively (CAS, 1998) and are the highest in

the country. Unofficially, however, all the unemployment rates are thought to be at least double their respective official estimates. Migration patterns, on the other hand, are closely linked to employment opportunities, as people move to the cities to find work and improve their financial situation. Table 5 indicates the results of a survey (C. Kasparian, 2002) undertaken in the various Regions of Lebanon inquiring about the intentions of the youth in those regions to migrate. What is important to note in this respect is that migration intentions (and migration) are high throughout the country, not only in rural regions, even in the relatively better off capital Beirut and Mount Lebanon. Poverty and unemployment opportunities in rural regions have exacerbated rural-urban migration (mostly to seek work) that has led to poverty belts around cities, especially Beirut. Overcrowded, these urban areas become in themselves over-supplied with job-seeking individuals and thus the migration intentions of these individuals (mostly to outside Lebanon) are high.

Table 5: Youth migration intentions

Men Women Total Nabatieh 49.2% 21.5% 41.5% South Lebanon 40.4% 14.1% 33.3% Rest of Mount Lebanon 37.3% 26.1% 33.4% Bekaa 46.3% 13.4% 39% Beirut 47.6% 27% 39.3% Beirut Suburbs 50.6% 25.5% 42.5% Total 43.3% 23.2% 37.4%

Source: C. Kasparian, (2002) Rural areas are economically dependant on agricultural activities for complementary income. This type of low-income activity leads the inhabitants of those rural areas, especially the young, to consider migration as a way of escaping poverty. The high unemployment rates in Beirut (some unofficial estimates place it at 20 per cent)16 precisely denote migration patterns caused by the young’s attraction towards big cities and the capital, with the intention of finding a job. Developing existing activities in rural areas would help curb migration if it generates enough income to enhance life quality. In this respect the olive oil sub sector presents a range of economic opportunities that could limit rural-urban migration. In addition, the specificities of this sector make it difficult to be easily replaced by another crop. Indeed, the olive tree has a wide adaptability with regard to soils: it will tolerate a variety from sands to clays and grow in very arid areas and in specific locations where others crops, such as fruit trees, could hardly survive. Additionally, olive trees require little day-to-day management and is not very time consuming. This feature is extremely important since rural household activities are much diversified and allocate their resources to different activities on and off the farm. Moreover, even though rain-fed crop yields vary widely according to the amount of annual rainfall, and Lebanon is relatively well endowed with

16 C. Kasparian (2003), “L’entrée des jeunes libanais dans la vie active et l’émigration », USJ Press.

water for irrigation, the lack of infrastructure and access to water makes olive cultivation a suitable activity. In addition to being considered an important Lebanese cultural tradition, olive processing provides farmers with some considerable by-products of economic value. In fact, olive oil solid residues are used as heating material (fuel), and are almost as important as the income coming from selling oil. The Lebanese winter season can be very cold and temperatures very harsh, and 8.4 per cent of the Lebanese population have no means of heating (16.8 per cent use charcoal or firewood heating) (CAS – 2004). Furthermore, olive oil which is expired or unfit for consumption can easily be transformed into high quality olive soap, either for domestic use or sold in the village. In certain regions, widowed women live from this industry where they earn US$10 per soap tank produced.

3.2 Production, hectarage and yields The Lebanese Ministry of Agriculture estimates that 57 per cent of all farmers in Lebanon are olive growers (out of 195,000 farmers, 111,000 are olive growers).17 In the last quarter century, the area under olive cultivation has nearly doubled from 30 to 57 thousand hectares, sustaining an annual growth rate of area under cultivation of around 3 per cent (SRI, 2004). Olive cultivation is the main agricultural activity in many regions in Lebanon, specifically in the provinces of North Lebanon and Nabatiyeh, accounting for 33 per cent and 47 per cent of total cultivated crops respectively. However, even in areas where it is not the primary crop cultivated as in Mount Lebanon and South Lebanon, the percentages of total cultivated crops remains substantial (37 per cent and 31 per cent respectively). In 2002, the economic value of olive farming was estimated at US$176 million, or approximately 20 per cent of the value of total agricultural plant production (SRI, 2004). Table 6 illustrates the importance of olive farming in each district in Lebanon, as a percentage of total cultivated crops in the region.

Table 6: Percentage (%) of total crop output in each province in Lebanon

Region Cereals Fruit trees Olives Industrial crops Vegetables Total (%)

Mount Lebanon 1.49 46.28 36.75 0.76 14.71 100.00 North Lebanon 19.05 21.47 33.17 5.98 20.34 100.00

Bekaa 31.02 22.67 3.28 15.97 27.06 100.00 South Lebanon 13.18 43.16 31.27 5.12 7.26 100.00

Nabatieh 23.95 8.35 46.71 16.10 4.88 100.00 Lebanon 22.18 25.46 22.43 10.58 19.35 100.00

Source: Ministry of Agriculture/FAO 2000 However, olive farming and processing is very often a secondary occupation; it is viewed as a family business, mainly intended for local market consumption. It is farmed on a part time basis and land property is very much segmented. Seventy per cent, 59 per cent, and

17 Year 2002 figures

67 per cent of Lebanon’s olive farmers in South Lebanon, North Lebanon and Mount Lebanon respectively are part-time olive farmers (LIPSOS, 2005). Ninety five per cent of the total olive orchards are rainfall dependent. They are distributed in four geographical areas; North Lebanon including Koura (41 per cent); the South and Nabatieh (43 per cent); Bekaa Valley (6 per cent); and Mount Lebanon (10 per cent), occupying about 20 per cent of total agricultural land (271,752 hectares) (see Map 1). However, the average field size for more than 50 per cent of farmers is less than 0.5 hectares. This small land ownership ratio subjects the land to much division, increasing its price, and preventing mechanisation in many locations (coupled with topographic limitations for using mechanized procedures). Map 1: Geographic distribution of olive cultivation areas

Source: FAO – MOA (2000) The production of olives and olive oil however is not synchronized with the growth of area under olive cultivation, as it varies widely from year to year, with a typical trend of one high production year followed by a low production year (Table 7).18 This fluctuation in production from one year to the next is mainly due to a lack of care given to local olive trees, misuse of fertilizers and a lack of proper irrigation.19 The Ministry of Agriculture

18 This fluctuation is believed to become less serious due to the use of fertilizers among other things (LIPSOS). 19 This lack of irrigation is potentially becoming a problem due to the dry season becoming relatively longer (climate change implications).

estimates that out of the total production of olives, around 70 per cent is transformed into olive oil. Table 7: Olive production indicators (1997-2002)

Key olive Production Indicators Year 1997 1998 1999 2000 2001 2002 2003 2004

Surface area (1,000ha) 51 52 54 55 56 57.6 - -

Production (1,000metric

tons) 93.4 30.3 66.4 189.5 85.5 184.4 83 198

Farm gate price

(US$/ton) 1000 1026.7 1113.3 934.7 923.3 958.7 - -

Source: SRI 2004 (1997-2002) & LIPSOS (2003-2004 figures). Local olive oil production is not synchronized with the increasing domestic consumption. The annual average per capita consumption of olive oil in Lebanon is about 2.5 kg or 3.12 litres. The total consumption of olive oil in Lebanon averages about 9,500 tons per year. The FAO forecasts that local demand for olive oil in Lebanon will increase by 1.5 per cent per year so that local demand should reach 19,000 tons by 2010. On the other hand, existing mill infrastructures suffer from low productivity due to outdated equipment. In Lebanon the number of mills varies between 450 and 550, of which 350-400 are registered officially. Eighty-five per cent of the registered mills are considered traditional, applying technology based on crushing and pressing and characterized by low productivity and very intensive labour contribution. Cleaning and/or washing steps as well as kneading are often absent or unsatisfactory. In addition, oil separation from wastewater is achieved by gravitational decanting, often leading to high oil contents in by products. Automatic or semi-automatic mills represent 10-15 per cent of registered mills and rely mostly on a horizontal decanter for oil separation.

3.3 Costs, prices and profits

3.3.1 Farming and milling costs The cost of olive farming is shown in Table 8, indicating that on average, labour has the largest share of costs (37 per cent), followed by land lease (29 per cent), plowing (14 per cent) and fertilization (12.8 per cent). Table 8: Costs of olive production in Lebanon (US$ per ha)

Costs of Olive Production in Lebanon (US$ per hectare)

Cost Category North South Average Plowing 160 270 215 Fertilization 225 170 198

Pest Control 96 43 70 Land Lease 578 313 446 Pruning/Maintenance 16 28 44 Labour 530 612 571 Total Olive Production

Costs 1603 1436 1544

Sources: SRI RA, May 2004; FAO/Ministry of Agriculture, Production Surveys, 2003 To attain a comparative perspective, the average costs of Lebanese olive farming in year 2000 was about US$520 per ton, while it only amounted to US$230 per ton in Syria and US$270 per ton in Jordan. In Lebanon there are about 435 traditional mills, 67 modern mills and about 42 are unknown (ELCIM – IMP, 2004). Farmers pay mill operators a cash payment varying between US$0.23 and US$0.45 per litre (average $0.34 per litre) of olive oil produced, regardless of whether traditional or modern mills are employed. The lack of price differential makes mill operators indifferent to the technology they use and often leaves mills in a poor shape. Though modern mills are more expensive than traditional ones (up to 3-4 times as much) they guarantee better quality olive oil (partly due to the poor hygiene in traditional mills) and more capacity per hour (more than 3 times as much). Furthermore, modern mills also require less labour to operate, which promise more returns.

3.3.2 Domestic and international pricing strategies

3.3.2.1 Domestic prices Since export markets currently constitute only a small percentage of the market channel (for example, Lebanon exported in 2002, a high production year, only 3 per cent of total oil production),20 pricing practices reflect local market preferences and patterns. Extra-virgin and virgin olive oil are not usually distinguished, and the two oil categories are sold simply as ‘olive oil’ and could even be blended or mixed at the mill, leading to one blended price closer to virgin oil price on the international market. In low production years the local price of olive oil is higher - typically about $3.50 per litre (or higher) similar to the export price for extra-virgin olive oil. In high production years, the local price drops to about $1.90 per litre, or about 45 per cent less than in low production years. In those years the international price is about 25 per cent higher than the local price, so it becomes more attractive for producers to sell their olive oil on the international market if they can find the proper export market channel. Unlike the international market (where extra-virgin oil is the main desired product and it fetches a price about double that of virgin olive oil), in the local Lebanese market there is little premium paid for extra-virgin olive oil. Since there is a minimal difference in price between extra-virgin and other products, the farmers typically do not capture the full

20 SRI, 2004.

premium value that their product could fetch if it were sold in local or international markets as extra-virgin oil. Table 9 indicates olive oil retailers and consumer local prices from 1999 to 2004.

Table 9: Olive oil retailer and consumer prices (1999-2004)

Olive Oil Selling Prices in Lebanon ($/litre) up to August 2005 1999 2000 2001 2002 2003 2004

Extra-virgin Oil Farm gate price 3.125 2.81 2.5 2.5 2.4 2

/private/wholesaler 4.68 4.5 3.9 3.4 3.2 3.2 Virgin Oil

Farm gate price 2 1.68 1.75 1.5 1.4 1.1

private/wholesaler 3.125 2.81 2.5 2.1 2 2

Source: LIPSOS 2005 Recent trends in domestic prices of olive oil have been decreasing steadily, reaching 40.2 per cent of their 1996 level in 2004. This drop is partly attributed to fierce Syrian competition whereby Syrian extra-virgin olive is sold at U$1.92/litre on the domestic market or 37 per cent lower than the Lebanese domestic production costs. Syrian olive oil is sold at US$1.2/litre, 52 per cent lower than domestic production costs. Furthermore, the increase in domestic supply is another contributing factor to the general decrease in price.

3.3.2.2 Progression of price along the supply chain – distribution of profits The price premium paid by the domestic retailer is relatively high (Table 10). In fact it is estimated that it can reach many times (more than 3.5 times) the farm gate price. This in turn is reflected in the discontent of local farmers and domestic consumers turning to lower priced products originating from neighbouring countries.

Table 10: Price chain

Progression of Price Along Local supply Chain

• Farm gate price to trader • Farm gate price to private individuals • Retailer price

1.92 $/litre 2.8$ - 4.03$/litre in tanks 7.2$/litre

Source: LIPSOS 2005

4.3.2.3 International prices International prices of virgin and extra-virgin olive oil are following an upward trend driven by an increase in world demand. Demand for extra-virgin olive oil has increased steadily vis-à-vis other oil categories leading to a high premium associated to extra-virgin olive oil that can go up to double the price of virgin oil. In general, prices of all categories of olive oil tend to be higher in North and East Europe than in the southern producing

countries. Producer prices for extra-virgin olive oils are priced the highest and do not vary significantly within the EU. Retail prices (final consumer price) vary considerably throughout the EU. In southern European producing countries such as Greece, Spain and Italy, prices tend to be among the lowest. Prices for high quality extra-virgin olive oil (‘speciality’ high end oils) tend to be about 15-20 per cent higher in price in northern European markets. For instance, virgin olive oils cost slightly under 3€/l, while high end extra-virgin oils tend to be over 4€/l (SRI, 2005).

4.3.2.4 EU pricing strategy Prices in EU markets are significantly affected by EU pricing policies. The main objective of the EU olive oil regime is to prevent large price fluctuation and provide income security to farmers in the poorest regions of the EU where olives are mainly grown. Thus when olive oil prices within the EU are higher than world market prices, the difference may be covered by an export refund. The European Commission decides on the level of the export refunds and the number of licences to award. When EU prices are close to world market prices, the European Commission does not pay any refunds. Nevertheless, demand or consumption of olive oil in the EU has shown a consistent increase since 1990 (Figure 7) while supply or production has fluctuated just above this demand. Figure 7: Consumption and production (1000 ton) of olive oil – EU

0

500

1000

1500

2000

2500

3000

1990/9

1

1991/9

2

1992/9

3

1993/9

4

1994/9

5

1995/9

6

1996/9

7

1997/9

8

1998/9

9

1999/0

0

2000/0

1

2001/0

2

2002/0

3

2003/0

4

2004/0

5

Consommation Production

Source: IOOC data, http://www.internationaloliveoil.org/

3.4 International trade patterns

3.4.1 Export volumes and trends Due to the yearly fluctuations of high and low production yields of olives in Lebanon, export volumes concurrently alternate between two extremes. During low production years (e.g. 2005-2006), export volumes fall to about 25 per cent of levels in the alternative previous high production years. Nevertheless even in high production years,

export volumes are still low by international standards and low with respect to local production levels. In 2002 for instance, Lebanon only exported 3 per cent of its total olive oil production. It is estimated that extra-virgin oil constitutes about 25-35 per cent of exports. The main markets for olive oil exports are the US, Canada and Australia. However, this rate may be overvalued since a large volume of non-Lebanese oil is often bottled and sold in Lebanon and abroad as Lebanese oil, a phenomenon also believed to occur in many if not most of the olive oil producing nations. Exports of olive oil to the EU have been increasing recently due to the increased demand for olive oil and the elimination of duties as well as the enlargement of the EU and the depreciation of the dollar with respect to the euro21 (rendering Lebanese products generally more competitive). However they represent a small percentage of overall exports, are subject to the existing exchange rate between the dollar and the euro at any one time, and are well below the 1000 tons quota granted to Lebanese olive oil by the AA (see Table 11). The level of integration between local and export markets is currently low. In a typical year, exports only represent about 3-6 per cent of total market sales. The local market represents the primary market outlet and is thus determining the growing practices and pricing strategies. In other words, most Lebanese farmers are not persuaded to adapt to international norms and integrate with the EU given that olive oil is sold in 20 litre bulk containers to the local market without the need to test or grade the quality of the output. Table 11: Lebanese olive oil exports

2002 2003 2004 2005 (up till May) Quantities Value Quantities Value Quantities Value Quantities Value up to May 2005 (in tons) (in thousand $) (in tons) (in thousand $) (in tons) (in thousand $) (in tons) (in thousand $)

15.09.10 Virgin Olive Oil Exports

EU 8 26 10 30 42 95 17 75

Canada 100 220 179 421 113 308 71 226 USA 36 91 146 355 87 240 32 120 Australia 11 23 12 30 33 81 40 147 15.09.90 Other Olive Oil Exports

EU 39 80 214 488 430 902 93 271

Canada 58 100 62 135 107 347 79 254 USA 255 626 209 557 347 1168 242 827 Australia 44 108 109 230 52 144 121 386

Source: MOET estimation from Customs Data

3.4.2 Import volumes and trends With respect to import patterns, Lebanon imports from neighbouring countries, specifically Syria, due most probably to lower production costs and low or non-existent

21 Exchange rates between the Lebanese Lira (which is pegged to the U.S Dollar) and the Euro is fundamental, according to interviewed local traders, in determining export volumes.

trade barriers. Imported olive oil from the EU is relatively low in Lebanon due mainly to the high tariff rate imposed on EU products (70 per cent). Table 12: Lebanese olive oil imports

2002 2003 2004 2005 (up till May) Quantities Value Quantities Value Quantities Value Quantities Value up to May 2005 (in tons) (in thousand $) (in tons) (in thousand $) (in tons) (in thousand $) (in tons) (in thousand $)

15.09.10 Virgin Olive Oil Exports

Syria … … … … 33 64 532 1048 EU 3 11 3 18 1 6 1 7

15.09.90 Other Olive Oil Exports

Syria 1 2 … … 16 31 0 0 EU 3 7 1 4 2 17 0 3

Tunisia … … … … … … 0 1

Source: MOET Estimation from Customs Data 3.5 Quality of olive oil produced: Coordination between mills and farmers Most mills are owned by private individuals and companies with few owned by farmers and cooperatives. Farmers typically bring their olives to the mills in closed and dirty plastic bags, with processing taking between 2 – 10 days (thus causing fermentation). Only a few mills have managed to convince farmers to adopt crates for olive transport and enforce strict production schedules to permit processing within 24 hours of harvesting. Against this reality the basic factors influencing oil quality and level of acidity (extra-virgin oil status) that should be controlled through the coordination between the farmers and the millers include: • The quality of the olives and their grading with tree-picked olives separated from the

fallen olives gathered from the ground • The waiting time at the mill prior to processing • The storage conditions at the olive farm before pressing and the conditions of oil

storage at the mill.

3.6 Environmental issues

3.6.1 Environmental concerns from olive oil production The olive oil sector comprises three main production stages: farming/harvesting, milling and marketing as illustrated in Figure 6. Each production stage (specifically the first two) affects fresh water resources, soil quality, biodiversity, air quality and landscape among other things. In general, there is an absence of concrete data concerning the environmental effects of olive farming in Lebanon, especially quantitative data on

specific impacts such as soil erosion and water pollution. It is therefore unfeasible at this moment in time to undergo a thorough quantitative analysis. However, there is a general consensus in the scientific literature and among experts on the particular impact olive oil farming has on the following sub-sections; soil, water, air, biodiversity (flora and fauna) and landscape. These environmental implications have been to a certain extent validated by sporadic field visits, expert meetings, and stakeholder observations.

3.6.1.1 Impact on soil Olive tree orchards in Lebanon are beneficial with respect to soil preservation, in that they have the potential, specifically those olive trees located on terraces, to reduce soil loss. As reported by Beaufoy (2001) and in numerous agronomic publications, olive farming prevents soil erosion and desertification. As so in Lebanon, the lack of intensified olive farming is a major cause of soil erosion and desertification. Abandoning olive agriculture in Lebanon may lead to the degradation of agricultural terraces, some of which date back hundreds of years, facilitating water run-off and soil erosion (SOER, 2000) which will result in major environmental problems.

3.6.1.2 Impact on water Olive farming in Lebanon is rainfall dependent. Unlike other crops it does not require intensive irrigation themes, which indicates that olive farming has a positive impact on water conservation. However the application of fertilisers and pesticides in olive cultivation leads to the contamination of surface waters via soil erosion caused by wind or heavy rain. Groundwater may also be contaminated by extensive use of fertilizers (e.g. nitrogen leaching) and other agrochemicals. Information on the volume and type of pesticide use for agricultural purposes in Lebanon is limited but Table 13 indicates the amount of pesticide use for the year 2000:

Table 13: Use of agricultural pesticides in Lebanon (2000)

Type of Culture Year 2000: Kg.ha (Pesticide Use)

Stone fruits 7.953

Olive 5

Tobacco 10.7

Viticulture 1.247

Banana 1.08

Vegetables 16.7

Citrus 5.9-6.15

Sugar Beet 8.6

Source: MOE Indicators for the Environment, 2001

In 1998, the MOA banned 110 pesticides (Decision 94/1, dated 20/5/98), including aldrin, dieldrin, endrin and DDT, all of which are known to be very potent and persistent in the environment. Furthermore in May 2001, the GOL signed the Stockholm Convention on persistent organic pollutants. Customs have been instructed to monitor incoming pesticide shipments and so far a high level of compliance has been maintained (SOER, 2001). Table 14 lists the kilogram use of pesticides per hectare of some nations and the weighted average of all nations (including those not listed in Table 14). Although the how, where and when application of pesticides is more important to assess with respect to the environmental and health implications, olive orchard pesticide use per hectare in Lebanon is almost twice the weighted average of pesticide use per hectare in the world, a rough indication of pesticide misuse.

Table 14: Pesticide use per hectare – A comparative view

Country Kilogram Pesticide Use Per Hectare (2000) Ghana 0 kg Iraq 0.1 kg Norway 0.4 kg Finland 0.5 kg Sweden 0.6 kg Yemen 0.8 kg Oman 1.2 kg Turkey 1.3 kg Jordan 1.4 kg Germany 2.5 kg Greece 2.8 kg U.S 4.5 kg France 4.6 kg Portugal 5.3 kg Netherlands 9.4 kg Colombia 16.7 kg Costa Rica 51.2 kg

Weighted average:22 2.9 kg Source: http://www.nationmaster.com.

22 Weighted average worldwide - including those not listed in the table.

3.6.1.3 Impact on biodiversity Olive plantations potentially harbour a diversity of species. Impacts on biodiversity are caused by: type, quantity and timing of pesticide use; method, frequency and timing of weed control; and the presence of natural and semi-natural features. In general, low-yielding plantations tend to be of a higher natural value than those from which high-yields are achieved through intensive management practices. Little research however is available concerning the effects on biodiversity from olive farming in Lebanon. Low levels or controlled use of pesticide should allow a rich flora and insect fauna to flourish, providing in turn a valuable food source for a variety of avifauna.

3.6.1.4 Impact on landscape and agro-tourism Where olives trees form a part of a diverse land-use system, for example in combination with pastures, arable cultivation and vineyards, they are an important landscape feature in Lebanon adding considerably to habitat diversity and the natural scenery. Furthermore, the landscapes of olive orchards are a potential destination for local agro-tourists. For example, the NGO Mercy Corps promote the natural and cultural assets in many areas. Among the “natural escapades” advertised in their brochures are the “flavours of Lebanon,” in which tourists are encouraged to visit the olive orchards of Hasbaya, stating that “the low hills of this area are famous for their delicious olive produce and historical olive oil press houses, as the region is covered with rows of silver-green olive trees enabling you to discover a serenity and charm that exist in very few other places”. Other areas, like Chebaa (Southern Lebanese region) are promoted through making public the fact that there are 500 year-old water and olive mills that exist (among other things).

3.6.2 Environmental concerns from olive oil milling The Lebanese olive oil industry is suffers from low productivity, producing only between 17 – 25 per cent of the total weight of olives when pressed in mills. By-products, in the form of solid waste residue (pomace) and wastewater (vegetable water) are considerably polluting, in that their impacts are exacerbated by the fact that they are geographically concentrated within regions of olive cultivation (see Map 1) and within a specific period of time. Table 15 indicates the expected mass balance of the three olive oil extraction systems based on a one ton input of olives.

Table 15: Mass balance of the three olive oil extraction systems

Method Inputs Amount of

Inputs Outputs Amount of Outputs

Olives 1 ton Oil 200 kg Washing water 0.1 – 0.12 m3 Pomace (25%

water + 7% oil) & vegetable water (88% water)

400 – 600 kg (pomace), 0.4 – 0.6 m3

(vegetable oil)

Traditional Pressing

Energy 40 – 60 kW

Olives 1 ton Oil 200 kg Washing water 0.1 – 0.12 m3

Fresh water for decanter

0.7 – 1.0 m3

Polishing water for impure oil

10 Litres

Pomace (40% water + 4% oil) & vegetable water (94% water + 1% oil)

500 – 600 kg (pomace), 1.0 – 1.2 m3

(vegetable oil) 3-Phase

Energy 90 – 117 kW Olives 1 ton Oil 200 kg Washing water 0.1 – 0.12 m3 Pomace (60%

water + 3% oil), vegetable water

800 – 950 kg (pomace), 0.1 – 0.15 m3

(vegetable oil)

2-Phase

Energy < 90 – 117 kW

Source: RAC/CP, 2000

3.6.2.1 Olive mill residue (pomace) Pomace is the solid residue containing the pulp of olive, the stone and the tegument23 with a moisture level (and oil residue) that varies according to the processing method between 25 – 40 per cent for the traditional and three-phased milling, to 60 per cent for the two-phased. Pomace burns well, and so it is often used as fuel for domestic heating purposes, or commercially as a fuel for pottery kilns. It is also used as fertilizer and animal feed. However, the extraction of kernel oil from the pomace leads to the emissions of carbon oxides, sulphur oxides and nitrogen oxides, as well as particulate matter (PM), with potential health implications. It is practiced in Lebanon intensively due to the high costs of alternative fuel. Table 16 estimates (based on Table 15) the maximum amount of pomace likely to be produced in Lebanon per year, based on the highest and most recent productive year (2000). Table 16: Estimated maximum amount of olive mill pomace output in Lebanon

Region Max olive season (tons)

Olives to be pressed (tons)

Range in pomace outputs (tons)

Average pomace outputs (tons)

Estimated pomace (tons)

Lebanon 189,500 132,650 0.4 – 0.6 0.5 66,325

Source: MOET estimation

4.6.2.2 Olive mills wastewater The processing of ten tons of olive would normally produce 3.5 tons of liquid waste. The characteristics of the olive mill wastewater (OMW) varies in quantity and strength yet is best characterized by its low pH, high biological oxygen demand (BOD) and carbon oxygen demand (COD) (80,000 – 200,000 mg/l depending on the pressing technology) levels as compared to domestic wastewater (that has a COD value of about 400mg/l). The composition of the organic portion of the OMW contains grease, proteins, carbohydrates, 23 Tough outer layer or skin.

organic acids, polyalcohols, pectines, tanines, glucosides and polyphenols, while the mineral matter is composed of carbonates, phosphates, sodium and potassium among others. The olive mill wastewater is characterized by its black-brownish colour due to substances of polymeric nature considered also aesthetically undesirable. Table 17 estimates (based on Table 15) the maximum amount of olive mill wastewater that could be produced in Lebanon, based on the highest and most recent productive year (2000).

Table 17: Estimated maximum amount of olive mill wastewater output in Lebanon

Region Max olive season

(tons) Olive to be

pressed (tons) Range in

vegetable water outputs (m3)

Average of vegetable

water outputs (m3)

Estimated vegetable water (m3)

Lebanon 189,500 132,650 0.6 – 1.2 0.9 119,385

Source: MOET Estimation

Presently, only 17 per cent of all mills discharge the wastewater into the municipal sewer, whereas the rest mostly resort to direct discharge into the environment, 9 per cent dump it into rivers and sea, 10 per cent dump it in the valley. Very few (8 per cent) use it for irrigation purposes (see Figure 8).

Figure 8: Olive mills disposal distribution 2002

26%

24%

17%

6%

10%

8%

5%

4%

No Data

Open Discharge

Sewer

Cess Pool

Valley

Irrigate

River

Sea

Source: ICU PowerPoint presentation

The implications of olive oil wastewater could be severe, specifically for ecosystems, depending on where they are discarded. In the region of Hasbaya for example, the vegetable wastewater is dumped into the Hasbani River, where the water turns to black and the high BOD present is detrimental to the flora in the river and fish populations, among other organisms. This is replicated in many areas across Lebanon. Box 1 reviews a regional project underway aimed at recording and quantifying the impacts of olive oil milling (by-products) on the surrounding environment and to introduce an integrated management system to mitigate those impacts in Lebanon, Syria and Jordan.

Box 1: Project on integrated management of olive oil production waste Integrated management of olive oil production waste in Lebanon, Syria and Jordan The UNDP Regional project “Integrated Management of Olive Oil Production Waste in Lebanon, Syria and Jordan” is funded by the European Commission through the SMAP Programme. The project document was signed between the United Nations Development Programme (UNDP) and the Lebanese Ministry of Environment, in the presence of the Council of Development and Reconstruction and the European Commission Delegation in Lebanon. The project aims at introducing an integrated management system for olive oil production waste and associated in-line complimentary industries in the participating countries, as a polluting industry which contributes to the degradation of water quality and agricultural lands by discharging waste effluents (pomace and vegetable water) in rivers, water currents and land without prior treatment. The proposed activities to achieve this goal are classified under the following headlines: 1- Database development 2- Introducing cleaner production options, prevention measures and control and treatment options including demonstration actions, such as pilot projects in each participating country 3- Setting/updating relevant environmental quality standards as well as developing and implementing an efficient monitoring strategy 4- Undertaking financial and economic analysis to identify incentives for improvement 5- Implementing institutional strengthening and capacity building programmes. Memorandums of Understanding between the collaborating relevant authorities and stakeholders, along with an encouraging industrial approach to properly manage olive oil production waste, will prepare the platform for the development of an eco-labelling recognition scheme and financial incentives system, and thus constitute the last step for closing the loop and developing a decision-aid tool for economic and environmental management of the olive oil industry. The implementation period laid down in the project’s document is three years, with a total budget of almost 2.2 million euros. Source: Author’s elaboration

4. INTEGRATED ASSESSMENT This chapter compares the economic, social and environmental impacts of olive oil production under two alternative scenarios and presents the results of a cost-benefit analysis of the economic impacts of Scenario 2. The results are summarized at the end of the chapter.

4.1 Scenario analysis

4.1.1 Scenario 1: Baseline scenario The baseline scenario assumes that no policy changes are made to enhance the production and quality of the olive oil sub-sector to enable it to benefit from the opportunities offered under the AA. Without implementing the necessary policy measures, the impact of the AA as it stands currently is relatively minor because only a small proportion (42 tons in 2004) of the 1,000 ton duty free quota of extra-virgin olive oil is being exported to the EU.

4.1.1.2 Economic impacts Prior to the enforcement of the Interim Agreement between the EU and Lebanon, olive oil imports into the EU were subject to Common Customs Tariffs (CCT). The various rates are presented in Table 18.

Table 18: Common Customs Tariffs (CCT)

Common Customs Tariffs on Imports of Olive Oil into the EU

Import Duty Product (EUR/100kg net - since July 1, 2000)

1509. 10. 10 Lampante Virgin 122.6 1509. 10. 90 Other Virgin 124.5 1509. 90. 00 Other Olive oil 134.6 1510. 00. 10 Other Crude Oil from Olives 110.2 1510. 00. 90 All Other Oil from Olives 160.3 Source: SRI 2004

The elimination of duty on Lebanese exports to the EU should have had important implications on the direct profit margins of exporters and middlemen agents (and indirectly thereby on farmer’s). Prior to the AA, the 1.2 euro/kg duty on Lebanese virgin olive oil exported to the EU accounted for approximately 60 per cent and 70 per cent of the export price prior to the free entry to the EU market in low and high production years, respectively. In addition, there were other costly requirements (that fell on Lebanese exporters) upon entry to the EU market such as import license and technical regulations in the form of product inspection and registration.

Since the AA, Lebanese exports of virgin and extra-virgin olive oil to the EU have increased by about 365 per cent, from 8 tons to 42 tons (see Figure 9) partly due to the elimination of customs duties within the quota restriction, the depreciation of the dollar relative to the euro, and the ability of a small group of producers to meet the necessary production, testing, labelling and bottling requirements demanded by the EU.

Figure 9: Lebanese virgin olive oil exports to the EU

2730

107

42

108

26

95

0

20

40

60

80

100

120

140

160

2002 2003 2004 2005

Quantities Values (USD 000')

Source: MOET estimation from customs data Although total export to the EU has been in the range of 0.36 – 2.8 per cent of total domestic production and has had almost no impact on the domestic price and production structures, the increasing trend does reflect a willingness to take advantage of higher prices mainly in extra-virgin olive oil sales associated with the EU market. However this impact is still minimal and enhancement of production processes are necessary to benefit from the 1000 ton quota granted under the AA.

4.1.1.3 Social impacts The vast majority of olive oil farmers in the poorest regions scattered throughout the country are currently unable to benefit from the AA. This is because they tend to be small, unorganised, and lack sufficient resources and capacity to apply proper methods of production. They also lack the necessary incentive to target high quality olive oil due to the fact that the price obtained from the sale of virgin and extra-virgin olive oil is not differentiated. Impacts on poverty There is a high correlation between olive oil production and the poorest rural areas in Lebanon. This is not to say that olive oil production is the cause for such poverty however, as many (if not most) agricultural sub-sectors are facing similar hardships, as indicated by a declining role of agriculture in the national economy. The issues faced by the olive oil sector is analogous to those other agricultural sectors, in that Lebanese production costs are higher in comparison to other countries in the region (exacerbated by

inefficient border controls to curb illegal entry of cheaper products) quality standards are often low (due primarily to poor agricultural practices), and an inability to find and sustain exporting and marketing channels. Given that the other agricultural sub-sectors are facing similar hardships, and based on consultations with stakeholders (steering committee), finding alternatives to olive oil farming would be characterized as a leap from one struggling sub-sector into another. Olive oil production and sales still represent an important source of income for farmers (and subsequent agents), albeit not a sufficient one by itself, and therefore acts as a social safety net keeping farmers from extreme poverty. This is the only available social safety net for those farmers. Impacts on employment / income Olive oil production is seasonal and Lebanese olive orchards are rain-fed, therefore there is ample time for seeking additional (as opposed to alternative) employment. Also, olive trees grow in arid areas and in specific locations where other crops that might be potential alternatives to olive oil, such as fruit trees, could hardly survive. Further, olive oil residues (pomace) are in high demand in winter as fuel for heating, specifically in the rural areas. This demand enables farmers and mill operators to generate extra income. More importantly, selling the pomace for domestic fuel lowers demand for more expensive heating substances like kerosene and coal (thereby saving income), and reduces the demand for wood that entails the cutting down of trees.24 Therefore, before seeking olive oil alternatives, the tackling of issues that stifle the sector, and which are identified in Scenario 2, would be a better first approach to tackling rural-urban migration and poverty (among other things). Impacts on traders There are currently traders who are capable of meeting EU standards as well as establishing marketing channels that benefit from the elimination of duties. Of particular interest are the ones exporting high quality extra-virgin olive oil and are thus able to benefit from a high price premium as well as larger markets. The primary beneficiary is thus the trader (whether also producer or only agent) who is able to capture the highest price premiums. However, the number of traders in olive oil is limited. Traders buy olive oil in bulk from producers. They incur costs associated to transport, testing, bottling, packaging and certification. Traders can also easily access olive oil produced by neighbouring countries. They dominate the local market and thus derive power from this privileged position by manipulating price levels. Nevertheless, they remain net price takers on international markets and are subject to fierce competition. Traders are unable to insure continuous domestic supplies to foreign market and are consequently reluctant to enter long term

24 Kerosene, wood, and coal are used in rural areas for heating purposes. Therefore the use of pomace for that purposes does not entail a position from no-indoor air pollution to indoor air pollution.

contracts with foreign agents and local producers. This pattern creates a general climate of uncertainty and thus hinders durable investment. Consequently, sustainable growth rates are not a given, affecting particularly farmers who are not sure that they will be able to sell their annual stocks. In order to export, especially to highly regulated markets such as the EU, traders have to follow specific testing procedures that are too costly most of the time. Since traders are constrained to buy small quantities of oil from a large number of different producers, they are at a disadvantage when they target foreign markets. Some traders produce olive oil as well. However their revenues from trade (whether coming from other local or foreign production) are by far larger and more secure then revenues from direct production. Producers are unable to invest in this sector due to the high uncertainty created by erratic annual supplies. Producers are highly unorganized mainly because of the nature of the land distribution. In addition producers are constantly faced with neighbouring countries competition.

Summary of social impacts The configuration of the olive oil supply chain creates an asymmetric structure between direct producers and traders’ economic activity. This characteristic creates a situation in which a large number of vulnerable producers (scattered all over the country and each producing a relatively insignificant fraction of national production of olive oil) are dependant on a few influential traders that have access to cheap foreign olive oil in order to sell their product on local or international markets. Thus, the situation is neither beneficial to producers nor to traders, although for now traders remain the net beneficiaries due to their dominant position; appropriate efficient investment could be highly beneficial for both traders and producers that will ultimately form a continuous supply of high quality olive oil. All in all, currently there is no significant impact of the AA on the social structure embedded throughout the olive oil production chain since the incentive to export high quality is absent, and most of the agents participating in the production and supply chain are not even aware of the 1,000 ton quota granted under the AA .

4.1.1.4 Environmental impacts As indicated in Section 3.6, there is insufficient concrete date concerning the environmental implications of olive oil production. However, there is a general consensus in the scientific literature and among experts on the particular impact olive oil farming has on soil, water, air, biodiversity (flora and fauna) and the landscape. Also, according to stakeholder discussions carried out in the current study, olive tree orchards in Lebanon are beneficial with respect to soil preservation, in that they have the potential, specifically those olive trees located on terraces, to reduce soil loss.

Impact of rural-urban migration on environment Rural-urban migration creates specific problems in the dense urban “poverty” belts around the major cities in Lebanon. These areas are known for their poor environmental standards due to the absence of well-established water and wastewater infrastructure, absence of solid waste disposal systems, high density of vehicle emissions and dust as well as an overall dwelling condition resembling shanty towns. A case study based on a field visit to the Hasbaya region in South Lebanon provides a good illustration of the environmental implications of olive oil production, as described in Box 2 Box 2: Case study: Impacts of rural-urban migration to the Hasbaya region in South Lebanon Case study: Impacts of rural-urban migration to the Hasbaya region in South Lebanon On the farming level, it was indicated that pesticides were not often used and when they were used they were applied only in small quantities in Hasbaya. What is noteworthy here is that some Integrated Pest Management techniques were used, specifically “Fermon traps” and “Macfay traps” (which emit a captivating smell) to capture the olive fruit fly and reduce their infestations of olives. If a certain threshold is crossed (active infestation is greater than 10%) then pesticide use is recommended (by the ICU and the MOA). However it is important to note that the olive fruit fly is not a big problem in Hasbaya due to the high altitude and the cold/snow of winter. Milling operation in Hasbaya involved mostly 3-phase operating systems and some 2-phased ones. The 2-phase system excretes no vegetable waters, only pomace with high moisture content. These are taken always (and are in high demand) for compost purposes. On the other hand, the 3-phase milling operators visited in the region emitted large quantities of vegetable waters which found their way into the Hasbani River, turning it almost completely black. These vegetable waters have negligible health implications as they are organic in nature, however their extremely high Biological Oxygen Demand (BOD) and Chemical Oxygen Demand (COD) meant that oxygen levels in the Hasbani River were very low (within and beyond or downstream from the point of the milling-operation wastewater outflow). Low levels of oxygen are having severe implication for the river ecosystem and fauna (in particular fish) life. Picture 1 shows the Hasbani River near to its source while picture 2 shows the same river after the outfall point of all the olive milling vegetable water effluents are discarded in Hasbaya. The difference is as lucid as white and black. It is important to note that residents in Hasbaya get their water from the Hasbani River also, yet nearer to its source and where olive milling excretes are non-existent. Furthermore, the water taken and distributed to the people for bathing and drinking purposes is treated.

With respect to pomace from the 3-phase milling operators, these are sold instantly due to high demand as they serve heating purposes. Pomace burns well, gives a steady, high heat, and burns almost completely to ash – producing therefore some returns to mills (or saves costs) and avoids environmental constraints. Source: Author’s elaboration.

Picture 1: Hasbani River before vegetable water out-fall

Picture 2: Hasbani River at point after vegetable water outfall

4.1.2 Scenario 2: Policy impact scenario Scenario two assumes that by implementing the three policy options outlined below, the required olive oil quality improvements will be achieved so that Lebanon can take full advantage of the 1000 ton duty-free quota to Europe. 1. Create a sustainable regulatory framework and laboratories for product certification It is essential to strengthen institutions responsible for fraud prevention and consumer protection in order to obtain some quality improvements. Certification will ensure that products (Lebanese or imported) conform to international standards by referring to the different olive oil classification. Indeed, local producers often face unfair competition from neighbouring countries that label their products as Lebanese or dump their products on the local market thus depressing prices and distorting markets. This leads domestic producers to trade-off production processes that would lead to high quality oil for cheap competitive production processes. For the policy to be effective it is essential that the origin of the product is controlled so that the local producer is encouraged to produce high quality products that in turn could be exported. Moreover, extra-virgin olive oil produced in Lebanon is sold domestically at a price very close to the virgin olive oil and is not certified. This does not provide the incentive for producers to increase their production of extra-virgin olive oil since no substantial return is associated to production of the latter. This is a key bottleneck (for a full analysis of the bottlenecks, see Annex 4). It is thus essential that extra-virgin and virgin olive oil is differentiated, properly regulated and implemented, and is translated into price differences. Furthermore, due to climate and soil characteristics, Lebanese olive oil has unique characteristics that are not recognized within the EU certification bodies, creating some non-trade barriers to some local products. For example, acidity levels of Lebanese oil may prevent it from entering foreign markets. It is essential that within the framework of the policy, amendments are made to take account of local character, and help Lebanese oil preserve its unique taste, albeit in conformity with international requirements. Accordingly, creating a system of geographic indications that would define regional characteristics is crucial to allow product recognition. Accredited laboratories should be able to certify origin, insuring a sustained standard of quality that would build the credibility of Lebanese olive oil in local and international markets. The Association Agreement does provide the Ministry of Economy and Trade with financial and technical assistance to upgrade and certify existing testing laboratories. This would enable producers to benefit from cheaper and more accessible laboratories and give their products the required certification. In addition, a decentralisation of testing equipment is required, allowing all levels of the production process (farming, milling, bottling) to access quality-testing equipment.

2. Upgrade mills and their working conditions A first step towards upgrading mills and working conditions is to document and assess the present registration of mills in different Lebanese regions, and provide the technical and financial support to renovate old mills. Milling plays a central role in quality improvement. To begin with, to ensure their mills will produce high quality oil, mill operators can impose upon farmers good agricultural practices according to the following principles: good olives must be separated from bad, leaves must be taken out, and the olives must be are cleaned (with minimum usage of water). Moreover, the daily cleanliness of the milling machines and the filters must be maintained and strict sanitary conditions of the mill (smoking, eating, presence of animals and insects…) should be respected. Other improvements include the modernization of the machinery, and infrastructure and production lines to comply with international standards. Efforts toward this end, specifically towards the establishment of Hazard Analysis and Critical Control Point (HACCP) and ISO 9001:2000 quality management systems (see Annex 1) would ensure Lebanese olive oil is distinguished technically and geographically from other world oils. 3. Implement good agricultural practices (GAP) To produce good quality extra-virgin olive oil, the entire supply chain needs to be targeted, starting with farmers adopting good agricultural practices (GAP). GAP would enable farmers to increase quality and reduce important production costs. Table 22 briefly outlines the necessary steps (including IPM) that should be taken at the farming level to ensure the vigour of olive orchards, the quality of olives, the reduction of year-to-year harvest fluctuations, and the sustainability of the surrounding environment. Added to this is the important fact that weather conditions have seemingly changed, with a shorter rainy season, covering only November until March instead of October until May. Local and international research has indicated that introducing supplemental irrigation would substantially increase olive yields and improve quality (ECLIM – IMP).25 The transition process that separates olive harvesting from milling is among the most crucial to ensure better quality olive oil. This important channel suggests that olives picked from the ground ought to be separated from those picked directly from the trees, the olives be placed in open plastic crates (as opposed to closed plastic bags) for transport to the mills, the waiting at the mills does not exceed 48 hours (preferably 24 hours), and that the storage of the olives meantime is in a clean, dry and well ventilated area.

25 A socio-economic and technical assessment study is needed to analyse the implications of climate change on Lebanese agricultural sector in general and the olive oil sub-sector, in order to consider the long-term viability of olive oil production and the necessary adaptive management measures required.

Figure 10 illustrates the level of quality-improvement that can be achieved by improving methods at each stage of the production process - for example, improving the harvest method would increase quality by 10 per cent, while getting the right oil storage equipment would improve quality by 5 per cent.

Figure 10: Impact of each production stage on quality

oil storage equipement

5%cultivars

15%

orchard management

10%harvest period25%

harvest method

10%

post harvesting

20%

Extracting method

15%

Source: ICU Power-point Presentation

4.1.2.1 Economic impacts The economic benefits of applying the policies proposed under Scenario 2 are truly substantial when considering the implications of producing extra-virgin olive oil (and not necessarily limited to the 1,000 ton duty free EU export quota). Assuming that the quota is fully exploited, the potential economic benefits (as compared with Scenario 1) that could be (or could have been) obtained from export to the EU are presented below (Table 19). Note that the price used is an average export price quoted to the SRI team by exporters for 2002 and 2003. The table shows an increase in revenue under Scenario 2 of 2,380 per cent when compared to revenues from exports generated under the conditions of Scenario 1 (i.e. US$3,500,000 compared to US$ 147,000).

Table 19: Net economic benefits from using the 1000 ton quotas in retrospect26

Extra-Virgin Olive

Oil Year 2002 2003 2004 2005 (Up to May)

Exports (Quantity in tons) 8 10 42 17 Price in EU ( US$/ton) 3,500 3,500 3,500 3,500 Scenario 1

Revenue (in US $) 28,000 35,000 147,000 59,500 Exports (Quantity in tons) - 1,000 1,000 1,000

Price in EU (in US$) - 3,500 3,500 3,500 Scenario 2 Revenue (in US$) - 3,500,000 3,500,000 3,500,000

Net benefits (in US$) - 3,465,000 3,353,000 3,440,500 Source: Customs data and SRI In absolute terms the increase in revenues from exports are only slightly significant assuming prices are fixed. Moreover, when accounting for an increase in the production of high-quality olive oil, the economic benefits would be even more substantial. Scenario 2 will enable changes in milling standards, boosting the production of extra-virgin oil, thus changing the pricing structure and the export potential. If the Lebanese olive oil industry were to reach international milling standards such as those in Spain (which has 40 per cent of its oil output as extra-virgin oil, 23 per cent as virgin oil, 28 per cent as ordinary oil and 9 per cent lampante oil), extra-virgin olive oil would reach 40 per cent of its oil production (or about 10,326 metric tons in 2002 instead of 2,582), increasing Lebanon’s olive oil exporting potential. Unfortunately, extra-virgin olive oil produced in Lebanon (for the year 2002) was only 11 per cent of total, as shown in Table 20. At US$3,500 per metric ton (or US$3.50 per litre), improving Lebanese olive oil quality would entail increasing the amount of extra-virgin olive oil to over 10,000 metric tons (from 2840), a potential increase in revenues of more than US$27 million per year (totalling US$36 million for the sale of extra-virgin olive oil).27

26 Figures used to assess the net benefits are from MOET estimations on custom data. 27 The revenues obtained initially from amount of lampante olive oil that is assumed to be converted to extra-olive oil to achieve the additional US$26 should be subtracted also from the later.

Table 20: Lebanese olive oil distribution for 200228

Lebanese olive oil distribution for 2002 Category of Olive Oil Quantile (in metric tons) % per Categorya

Total oil of edible quality - Extra-virgin olive oil - Virgin olive oil - Ordinary olive oil

13 166 2 582 7745 2840

51% 10% 30% 11%

Total lampante olive oil 12 365b 49% Total olive oil produced 25 816 100% Sources: a) LIPSOS, b) FAO/MOA, 2003 This additional revenue would increase local farmers’ share in the domestic market (relative to non-local farmers) due to the fact that the reorientation towards extra-virgin olive oil production coupled with consumers’ awareness campaigns would shift demand towards the premium product, which in turn would re-enforce supply. Lebanese products would therefore gain segments of the domestic market. Note that poor quality olive oil would still be subject to foreign competition since Lebanese production prices are much higher than in any other country. For example, Syrian olive production costs are 2.3 times cheaper than Lebanese, while Jordanian are 1.9 less expensive (in year 2002). Employment rates would be very likely to increase slightly as the production of extra-virgin olive oil calls for a more qualified and efficient labour force that can adapt to mechanisation or managerial changes. This would hopefully aid in curbing the aggravating rural unemployment rates that increased, between 1997 and 2004, by 0.8 per cent and 1.4 per cent in the two most important olive oil producing regions (North Lebanon and Nabatieh respectively). As a result of these improved economic indicators, national welfare would also improve slightly since exports, employment, and incomes would be enhanced by qualitative improvements, optimising AA potential. The main policy to achieve economic, social and environmental sustainability is to target the quality of olive oil by identifying the key bottlenecks and implementing a series of accompanying measures. (For a detailed overview of the key bottlenecks identified in this study, see Annex 4).

4.1.2.2 Social impacts An increase in the production of extra-virgin olive oil would create a spillover effect which would impact on employment patterns, poverty levels, migration trends, and educational opportunities.

28 Extra-virgin olive oil has acidity of less than 1 per cent, virgin is less than 2 per cent, ordinary olive oil is less than 3.3 per cent and lampante olive oil has greater than 3.3 per cent, which is not fit for human consumption without refining.

Employment patterns In response to an increase in demand for premium olive oil, olive growers will need to hire, in the harvesting period, more seasonal labourers for picking olives in a more sustainable manner (as opposed to current pruning practices). Those hired for harvesting purposes are predominantly local women and foreign labour because they cost less; women represent 52 per cent of the seasonal labour force (other than family) employed in agriculture and 25 per cent of the permanent labour force. With respect to milling, improving and smoothing the yearly fluctuations of olive orchard yields (by applying Scenario 2 assumptions) would generate employment opportunities which would translate into increased income for the hired labour force as well as provide a more reliable safety net - employment in the olive oil sector is not continuous and is subject to supply fluctuations and seasonality. This need to smooth fluctuations in employment rates exists throughout the entire supply chain. According to a report prepared by the Ministry of Environment,29 the number of employees hired per mill fluctuates from season to season depending on the quantity of olives harvested: in a low season most mills hire half the total number of employees needed to operate the mill in a good season. On the other hand, reorientation of the production processes towards producing extra-virgin olive oil could, at least in the short-run, impose social costs such as the displacement of unskilled workers. Trade liberalization gives an incentive to enhance methods of production, rewarding those able to meet EU requirements. However, in the case of Lebanese products, control of quality is almost non-existent due to a lack of technical capacity coupled with a lack of domestic regulation and control. Consequently, this allows producers as well as traders of cheap, low-quality products to benefit by selling their products without any control. If the policy is to induce a change in methods of production together with the necessary quality and certification control through a quality programme, a large portion of producers and traders will be faced with a loss of market share, an inability to sell in the domestic market and a need to readdress their production processes. It is thus expected that a serious labour reallocation will occur to the disadvantage of unskilled workers, exacerbating extreme poverty (Figure 11).

29 Ministry of Environment, (2002)“Environmental Compliance and Phasing Program for the Paper Industry (Paper and Cardboard) and the Food Industry (Olive Pressing) – Final Draft Report for Olive Pressing”

Figure 11: Poverty - Olive Oil Sector

Lack of youth involvement • Increased migration • Urbanization • Scarcity of young olive farmers

Source: Author’s elaboration Furthermore, modernizing of farming techniques30 and mills would also affect women. Women’s educational attainment is low; 43.9 per cent are illiterate and only 28 per cent have achieved primary schooling, implying they will be unable to find an alternative source of income. Reallocation towards related industries such as soap factories might be a way to mitigate negative aspects and provide unskilled women with another source of income. For example, in Hasbaya (a southern Lebanese region), women working in this industry can earn up to 10 US$ per soap tank produced (ICU, Steering Committee member). Also, in the short term, benefits of the increased exports of premium olive oil, enhanced by the AA, are likely to be concentrated in small and specific regions or communities that already have NGO and/or government support, or that have local capacity (farmers that are able to sell are usually traders as well) to undergo the necessary adaptation measures.31 In the short run (i.e. like in Scenario 1), the vast majority of the intended beneficiaries, mainly farmers in the poorest regions scattered throughout the country, are unlikely to benefit from the actions under Scenario 2. This is because getting the sector organized is a long process. .

Impacts on poverty In order to apply Scenario 2 and to achieve a favourable effect on income and poverty reduction it will be necessary to support the vast majority of beneficiaries in terms of

30 By mechanizing the pruning process. 31 Based on observations from NGOs within the Steering Committee.

Poor agricultural practices

Increased poverty and

living conditions deterioration

Lack of employment opportunities

Low levels of schooling • Difficulty secure

income and employment

• Income insecurity • Increasing

unemployment • Minimizes ability to respond to changes rates

improving farming and milling practices. This support would be in the form of ensuring a relative stability in output year on year along with improving quality. This quality improvement would not occur without allowing farmers easy access to low-cost laboratories to test olive oil quality in order to achieve price differentiation between the different categories of olive oil. An increase in the income of poor households leads to a reallocation of expenditures towards education and health, the main poverty indicators in Lebanon. According to the 1997 household survey (CAS), approximately 32 per cent (in Beirut) to 38 per cent (in Nabatieh and Bekaa) of total household budget is allocated to food products, regardless of geographic location. As shown by the data (Figure 12), education and health expenditures increase with income since in Beirut and Mount Lebanon they account respectively for 14 per cent and 8-10 per cent of the budget, whereas in more deprived areas, they total 10-12 per cent, and 7.5-9 per cent. In addition, most low-income households rely heavily on credit to access education and health services, crowding out any possible investments in other economic activities and creating a high repayment burden (interest rates charged to low-income households is very high as they are deemed very risky). Access to higher income would allow those households to also access cheaper credit to and use it in productive economic activities. Indeed, the data shows that at least 22.8 per cent of North Lebanon households and 21.3 per cent of Bekaa households are indebted just to be able to buy daily life commodities. Moreover, in those same deprived areas respectively, 12.9 per cent and 12 per cent of households borrow to spend on education. In North Lebanon for example, 46 per cent of households consider their income as insufficient to maintain decent living conditions, whereas this number is 37 per cent for Lebanon. Figure 12: Household distribution and budget allocation: primary charges (1997) – By Mohafazats

50.60

36.60

0.80 1.205.00

7.50

18.00

24.7021.5 20.6

0.3 1.7 1.2 0.2 2.67.5

0.00

10.00

20.00

30.00

40.00

50.00

60.00

Food Clothing Dwelling Schooling Health Leisure Transport Other

North Lebanon Beirut

Source: CAS – 1997

Impacts on youth and migration In Scenario 2 there are positive implications in the form of curtailing migration and balancing the rural age structure (41 per cent of olive farmers are over 68 years of age, 63 per cent of them are over 55 years of age while only about 13 per cent are less than 31 years of age). Without this balancing, the sector will face more problems because the level of any economic activity is highly correlated to the level of investments – and that depends on the presence of a young and dynamic workforce to provide the basic infrastructure. Many of the poor areas where olive oil production remains the dominant farming activity suffer from a soaring rate of school dropouts, high migration to urban areas or other countries and a lack of basic infrastructure such as roads and proper irrigation. Higher economic returns to the sector would create incentives to remain in those communities, lobby for better infrastructure provisions (that would help decrease cost of olive oil production), and increase investment in equipment and training. Keeping youth in rural areas and integrating them into the economic landscape is fundamental to the sustainability of the rural sector, even more so in the Lebanese context where production techniques are still traditional, investment in human and physical capital is minimal and much of the inability of local products to meet international standards is linked to an unwillingness to adapt to appropriate methods of production. The participation of a younger generation has many positive externalities such as assimilating technology transfer, risk-taking and increased investments among other things. Enhancing the quality of life and sustaining economic activities in rural areas could play an important role in stopping migration, especially among the young. However, low income unskilled and disfavoured rural migrants will be faced with unemployment and harsh living conditions in the urban areas they choose to settle in, due to a lack of skills and the high cost of living associated to cities, thus aggravating their social condition in addition to exacerbating the problems of high unemployment and poverty pockets found in urban areas. As such, providing economic opportunities in rural areas would create an incentive to stay and develop those areas. High migration due to the lack of economic opportunities is worst in regions with high concentration of olive orchards (Figure 13)

Figure 13: Youth unemployment rates by region (2002)

0 5 10 15 20 25 30

Beirut

Bekaa

Beirut Suberbs

Nabatieh

Lebanon

Rest of Mount Lebanon

North Lebanon

South Lebanon

Men Woman Total 18-35

Source: C.Kasparian (2002) As mentioned above, youth decisions to migrate are the results of a trade-off between staying in poor, low-income regions and the opportunity cost of the latter. At the moment this opportunity cost is relatively high and explains the need to migrate. Using basic wage as an indicator, urban wages reach 175 per cent of rural wage (ref). In addition, most of the economic growth is triggered by a boom in services and industrial activities both mainly located in or close to cities. In the case of olive oil production and activity, the rate of return can be very high. Furthermore, olive oil production is under-exploited and profits are untapped. A very small fraction of Lebanese farmers are aware of foreign niche markets potential and income differential they gain by exporting high quality extra-virgin olive oil. Making the youth aware of such opportunities and reviving the olive oil sector, according to Steering Committee experts, is very likely to attract them back to this activity. Increased revenues and improved living conditions will become more and more tangible in comparison to job opportunities in cities and abroad. The poverty – unemployment – migration – education patterns, if not addressed properly, are likely to reinforce each other in a vicious circle, leading to a massive deterioration of the already poor living conditions. Higher economic returns in the sector would create the incentive to remain in the community, lobby for better infrastructure and increase investments. An increase in household budget will also allow a reallocation of expenditure towards goods and services related to health and increase access to medication, vaccines and vitamins, and allow better nutrition. Improving health will in turn increase work attendance and performance and decrease the percentage of household expenditures on health. Loosening up the cash constraints will enhance investment and access to credit. Very often, the poor cannot access banking or financial facilities because they have no

collateral or guarantees. However, agricultural holdings do not necessarily offer a means to escape poverty unless the size, soil productivity, and marketing outlet are adequate to generate sufficient income.

4.1.2.3 Environmental impacts Article 45 of the AA encourages “cooperation in preventing deterioration of the environment, controlling pollution and ensuring the rational use of natural resources, with a view to ensuring sustainable development.” This cooperation will encourage the development of environmental policies that should target the control and prevention of marine pollution, waste management (particularly that of toxic waste), the impact of agriculture on soil and water quality, soil preservation and conservation, and environmental awareness and education among other things. The application of Article 45 of the AA with respect to olive oil production should target the entire process from farming to marketing. This will require a change of unsustainable farming practices such as the misuse of pesticides and the pruning of olive branches. In the milling process, the environmental impacts concern mainly the untreated disposal of vegetable waters to preserve natural ecosystems (specifically river ecosystems). And finally in the marketing process, this could entail the use of recycled material for bottling and the encouragement of recycling on sold bottles. Exporting 1000 tons of olive oil to the EU does not necessarily mean an increase in production or supply, though that is highly possible, yet more so it would entail a re-orientation of production categories to target extra-virgin olive oil and better packaging for export purposes. Therefore, the environmental implications of taking exporting 1000 tons are relatively similar to what is currently occurring, yet when Article 45 is implemented, then the implications for the environment are positive in that better agriculture practices are advised. These environmental mitigation measures potentially also encourage better olive oil quality, offering thus a win-win situation. Encouraged by the AA, environmental mitigation of pollution from olive oil production is necessary to ensure the social well-being of the people working and living in and around olive oil orchards and mills. Environmental sustainability with respect to olive oil production begins with proper agricultural practices and reaches to the mitigation of olive mill wastewater and pomace.

Improved farming practices Significant benefits may be achieved in terms of biodiversity, soil and water conservation through changes in farming practices. The scope of these farming practices include tree management, weed control and soil management, fertilization, pest control, irrigation, and biodiversity and landscape conservation (see Table 21).

Table 21: Environmental protection through good agricultural practice (GAP)

Category Proposed Good Agricultural Practice with Basic Environmental Protection

Tree management

Avoid Excessive pruning. Pruned matter should be chipped and incorporated in the soil to increase organic content. Maintain old trees for their biodiversity and landscape value.

Weed control and soil management

New minimum tillage and contour tillage are effective to control ground vegetation and reduce vulnerability to soil erosion. Measures to increase organic content of soil are important, such as applying farm-yard manure, cover crops, and pruning and processing residues.

Fertilisation In many cases farmers apply more fertilisers than the crop really needs. Most integrated production systems propose fertilisation on basis of soil and leaf analysis of tree requirements. Quantity and timing of fertilisation is crucial to improve the organic content of soil, minimise leaching and acidification of soil and reduce vulnerability to erosion.

Pest Control Only treat pests when above thresholds on advice of local advisor. Employ Integrated Pest Management (IPM) techniques.

Irrigation Respect Laws on water extraction, reducing water losses (Sustainable water management) In Lebanon however most olive plantations are rain-fed.

Biodiversity and landscape conservation

Comply with existing laws on species and habitat protection and landscape protection.

Source: MOET Special attention needs to be placed on pest control. Losses caused by olive pests in the Mediterranean region are roughly estimated to be from 10 to 50 per cent of marketable production, including table olives and oil olives. Olive production losses due to pests vary greatly in terms of olive cultivars and their susceptibility to pests, soil fertility, climatic conditions, olive’s biennial cropping pattern, regions and so forth. Promptness in processing after harvest is very important since the fruit continues to degrade with time.

Introduction of Integrated Pest Management (IPM) raises the question as to whether these practices are economically viable for farmers.32 Economic benefits and costs associated with IPM programmes should be evaluated along with their testing under local conditions to make sure that farmers will have strong incentives to adopt them. The results obtained from any favourable evaluations can serve to inform farmers about the advantages of IPM strategies. Evaluation of production costs and potential profits may be instrumental in convincing growers to adopt new IPM technologies. Information on the social benefits of IPM practices could provide a basis for policymakers to design and formulate comprehensive agricultural policy programmes that incorporate IPM practices into a national strategy of pest control (Daku, L 2002). Table 22 presents a framework for IPM. 32 IPM is the combined use of biological, chemical, and cultivation methods improper sequence and timing to keep the size of pest population below the size that causes economically unacceptable loss of a crop or livestock animal (Miller, 2002). Some IPM techniques are already being used in olive oil (see Section 4.1.3).

Table 22: Framework for Integrated Pest Management (IPM) Intervention Logic Objectively verifiable

indicators Source and means of

verification Contribute to the agricultural sector, food security and the sustainability of the Lebanese environment

Laboratory Analysis of chemical residuals on olive and olive oil

Labs results

Ove

rall

obje

ctiv

e

Foster capacity building for cooperatives, syndicate and extension systems in the field of IPM

Field analysis to estimate fields infection and loss

Monitoring and evaluation (M&E) reports

Improve the farmers knowledge and skills

Number of farmers and extensionists trained

Training and extension reports

Increase the olive productivity and quality

Number of farmers applying new IPM techniques

M&E and reports

Create safe and healthy working atmosphere

Cooperation stand between the syndicate and the farmers

Spec

ific

Obj

ectiv

es

Increase the earnings of the olive farmers

1. Raised and increased awareness Average Olive production increased at least 20%

2. Capacity building through training of concerned agricultural extension officers

Average olive oil production per olive unit increased by 20%

3. Capacity building through training of small farmers groups

Past harvest loss is reduced…

Exp

ecte

d R

esul

ts

4. Applied IPM research Biological controls management controls

Genetically based controls Through supporting existing

agricultural research centers

Olive and olive oil quality is improved…

Source: ELCIM – IPM Lebanon 2004 Enhanced milling processes Treatment technologies for olive mill wastewater include anaerobic treatment, aerobic treatment, thermal and natural evaporation, composting, adsorption and bio-filtration, irrigation, lime treatment, membrane processes and damp oxidation among others. Annex 2 (Table A2.1) sketches these technologies and processes, including the advantages and disadvantages of each and the associated cost of treating OMW per metre cubed. Annex 2 (Table A2.2) also indicates the factors that need to be taken into account when selecting a treatment technology for olive mill wastewater.

With respect to olive mill pomace, the main solid wastes generated in the production of olive oil are spent olives and moist spent olives. The treatments available on an industrial and economically viable scale when the mills are of suitable size are as follows: • Drying of spent olives and extraction of olive-kernel oil (traditional extractors or

olive-kernel oil plants (present mostly in large producing countries) • Drying of mixtures of spent olives and moist spent olives followed by extraction • Second extraction by centrifuge of the moist spent olives and incineration of treated

moist spent olives to produce electricity (not viable in Lebanon) • With certain limitations (market, demand, distances), part of the waste is utilized with

other aims: composting of spent olives or moist spent olives, pyrolisis of stones to obtain active carbon and additives for animal fodder. (RAC/CP, 2000)

Annex 2 (Table A2.3) also outlines the possible technological treatment options for pomace in Lebanon, indicating their respective advantage and disadvantages. The choice of one treatment technology over another, whether olive mill wastewater or pomace depends on a series of factors related to: • The location of the oil mill and the surrounding conditions like availability of lands

with appropriate crops, urban or rural character, and the existence of demand or capacity of use of residues and by-products.

• The dimension of the oil-mill in terms of volume of olive milled (or the quantity of residues and by-products generated).

• The existence of olive-kernel oil or 2nd extraction industries at a reasonable distance. • The organisation or degree of integration, current or potential, between oil-mills in

the same area. • The cost(s) or investment(s) and technical know-how available and the vehicle of

payment (if mill owner themselves are to treat their olive mill wastes or whether or not the treatment be subsidized by the government). (RAC/CP, 2000)

Improved marketing Suitable marketing of Lebanese olive oil produce in foreign markets is essential to ensure sales and profits. This undoubtedly requires more attractive and appropriate bottling and packaging, or an increase in the ratio of packaging material to olive oil quantity supplied. Similarly, the potential increase of exports to the EU would concurrently require increased transportation. This increase of transported products would certainly have implications on air pollution, in both nations of origin and destination, albeit these impacts would be relatively minor. These impacts of marketing and transportation could be mitigated by encouraging the recycling of bottled olive oil (e.g. through recycling labels on the bottles) and through a well managed and pooled system of transport and/or exportation respectively.

Integrated environmental impacts Mitigation of environmental impacts can have implications for employment in the olive oil sector. Specifically, the creation of wastewater treatment plants, whether those pertained alone to olive oil vegetable water or plants that treat the latter with municipal sewage alike, necessitates operators of these plants, both skilled and unskilled. The extent of this employment depends upon the number, type and location of treatment plants.

More importantly, the preservation of natural ecosystems, and in specific river ecosystems, is an underlying necessity for eco-tourism in many regions in Lebanon. The situation of the Hasbani River discussed in Box 2 is can be seen in other regions. Such disregard to river ecosystems would not only entail the loss of biodiversity but also the potential loss of tourist destinations that could generate income to the targeted region. Environmental degradation will also lower soil productivity and affect the quality of olives. Land degradation is caused by depletion of soil organic matter that reduces land fertility and moisture retention among other things. This will lead to a reduction in productivity of olive orchards, decreasing sales and consequently wages, and ultimately increasing unemployment and poverty. Farmers will then have the tendency to intensify the exploitation of land and the plantations by overusing fertilizers and other drastic measures, causing further degradation of the environment.

4.1.3 Summary of the scenario analysis The results of the analysis are summarized in Table 23 based on a qualitative assessment among stakeholders. The stakeholders were asked to assess the impact of each scenario on economic, environmental and social indicators by using different levels of impact from severely negative to severely positive. Table 23: Indicator matrix under two alternative scenarios

Scenario 1

(Baseline) Scenario 2

(Quality improvement) Economic Indicators Larger domestic market share (by locals)

+

++ Exports of extra-virgin olive oil

+

+++ Employment None + National welfare None + Environmental Indicators33 Waste water None ++ Solid waste None ++ Social Indicators Migration Reduction (from rural areas) None

++ Income of the farmer

+

++ (Agricultural) Know-how

+

+++ Quality of life (health) of the farmer

+

++ Total aggregate benefits or costs + 5 + 20 - Minor negative, - - Negative, - - - Major Negative + Minor Positive, ++ Positive, +++ Major positive

33 The environmental implications depend more on local abatement initiatives, than on trade liberalization per se.

From the assessment, Scenario 2 clearly offers the most potential benefits relative to Scenario 1 on all three fronts - economic, social and environmental.

4.2 Cost-benefit analysis A ‘rapid’ cost-benefit analysis was undertaken based on the (national) Action Plans funded by the European Commission and prepared by the Euro-Lebanese Centre for Industrial Modernization (ELCIM) for the Lebanese Inter-Professional Syndicate for the Olive Sector (LIPSOS). To undertake a full cost-benefit analysis for Scenario 2 would require extensive information, in particular a clear idea of the policy initiatives and action plans that would be undertaken (i.e. applying Scenario 2 assumptions) and the socio-economic and environmental benefits of such an endeavour. Given time, financial restraints and data constraints, information of such tailored nature is not possible to attain first hand, and therefore a ‘rapid’ CBA, based on existing information (from the ELCIM study) is currently the most appropriate approach. Environmental and social costs and benefits however are not included due to lack of quantitative data. The ELCIM estimates are based on action plans that are similar (albeit not exact) in nature to the assumptions of Scenario 2. Estimations present in the ELCIM study include costs of:

1. Applying and disseminating good agricultural practices 2. Applying Integrated Pest Management 3. Yield Improvement/ On Farm Water Use Efficiency 4. Harvesting, post harvesting and milling programming (optimizing some key-

phases in olive oil production by creating a quality-oriented approach) 5. Modernizing and Improvement of Mills 6. Quality modernization review and improvement (Good manufacturing practices

and HACCP) 7. Bottling Plants and Packaging Modernization 8. Quality Control/Testing and Laboratory Facilities 9. National Marketing Facilitation and Promotion 10. By-Products Development 11. Olive Oil Office.

Annex 3 provides a description of these seven initiates that are similar to the assumptions made in Scenario 2. Based on the ELCIM study, Table 24 registers the complete costs of each category listed above. These costs include both the costs of hiring the required team (including cost of required equipment) and the costs of such things as training, awareness raising and so forth as specified in Annex 3.

Table 24: Total costs of applying ELCIM assumptions

Category Cost (EURO)

1. GAP Preparation of the Document 96,000 Campaigning for Awareness 115,000 Training 175,000 Required Team, Equipment & Services Costs 2,666,809 2. IPM Campaigning for Awareness 215,000 Training 95,000 Applied IPM Research 2,000,000 Required Team, Equipment & Services Costs 6,228,096 3. Yield Improvement/Farm Water Use Efficiency Campaigning for Awareness 115,000 Training 95,000 Applied Research 250,000 Required Team, Equipment & Services Costs 3,425,229 4. Harvesting/Post harvesting/Milling Programming Required Team, Equipment & Services Costs 2,444,993 5. Modernizing and Improvement of Modern Mills Required Team, Equipment & Services Costs 249,771 6. Quality modernization review and improvement Required Team, Equipment & Services Costs 520,615 7. Bottling Plants and Packaging Modernization Required Team, Equipment & Services Costs 814,662 8. Quality Control/Testing and Laboratory Facilities Required Team, Equipment & Services Costs 2,766,720 9. National marketing facilitation & promotion Required Team, Equipment & Services Costs 168,050 10. By-Products Development Campaigning for Awareness 115,000 Converting Pomace to fertilizers 167,000 Required Team, Equipment & Services Costs 1,137,718 11. Olive oil office Preparation of constitution of the Lebanese Olive Oil Office 10,000 Campaigning for awareness for the role of LOOO 25,000 Website construction 15,000 Required Team, Equipment & Services Costs 1,652,717 TOTAL COSTS 25,563,380 Euro or 30,676,056 USD34

Source: MOET compilation The calculations shown in Table 24 cover the costs of the seven action plans mentioned, wherein many needed initiates or items (e.g. hiring a project manager) have a span of four years while others (e.g. hiring technicians, local experts) have spans that vary from a one year to 16 years. Thereby the cost is spread out across these varying time frames to a

34 Taking 1 euro = 1.2 US dollars

maximum of 16 years. However, most of these costs are incurred in the first two years of the action plans, and it would therefore be reliable not to discount the costs (because the undiscounted costs are relatively a small part of the total costs). Moreover, action plans could be taken as national in coverage, as most of the regions are targeted within the scope of the plans, albeit not every area is included. The action plan of mills modernization however targets only the modern mills operating (i.e. about 70 mills) and not the traditional ones. As aforementioned, quality of olive oil is guaranteed with modern mills and not with traditional ones. The conversion of traditional mills to modern ones would necessitate the following assumptions: • The capacity of modern mills is about three times as much as traditional mills • There are 435 traditional mills • Thereby not all the traditional mills would be changed to modern ones, yet only 145

(1/3 of total) to assume a similar capacity of production • The cost of a complete modern mill is about US$ 350,000 (SRI, 2004) • The total cost of installing new modern mills (and eliminating therefore traditional

ones) is 145 multiplied by US$ 350,000 which is US$ 50,750,000. Total costs of implementing all seven action plans listed, including changing traditional mills to modern ones is about US$ 81.4 million. To compare the benefits to the costs, a time frame is needed due to the fact that the calculated benefits are in the form of marginal revenues per year received (in the order or range of US$27 million).35 It would be assumed therefore that the benefits would be incurred from Year 4 of commencing the action plans, and would span the total of 16 years. These benefits furthermore are assumed to accrue if Lebanon (that had output of extra-virgin olive oil equal to 11 per cent of total olive oil production in 2002) follows the categories of olive oil production in Spain (where 40 per cent of olive oil output is extra-virgin olive oil), and should therefore only be taken as an order of magnitude. Furthermore, the year 2002 was selected as it is a year that is considered high in production supply. This is the case however because after the application of the aforementioned action plans, it is hoped that production will not fluctuate as it did before between one high production year followed by a low production year, yet be consistent and significant. The benefits therefore are assumed to be US$ 27 million per year over a 13 year period (and after three years of commencing with action plans). These benefits have to be discounted as they extend into the future.

35 These benefits were assumed to accrue to Lebanon if local olive oil produce emulates the production categories of Spain (based on year 2002) and thus should only be regarded as an order of magnitude because benefits would depend on world prices, local production supplies - among other things. Furthermore, achieving the percentage categories of Spain is not an objective in itself, yet increased extra-virgin olive oil production out of total is.

Different countries may use different discount rates when evaluating projects, normally taking three alternative discount rates. In Lebanon, no formally used discount rate is prescribed and therefore the commonly used discount rates of 0 per cent, 3 per cent and 5 per cent are used. Table 25: Potential net discounted benefits of ELCIM assumptions

Benefits Years 1-3 0 US$/Year

Years 4-16 27 US$ million/Year

0% 351 US$ million

3% 218.73US$ million

Discounted Benefits

5% 160.79 US$ million

Source: MOET Estimation The total net benefits from applying ELCIM assumptions would therefore be approximately US$ 269.6 million, US$ 137.3 million, and US$ 79.39 million at discount rates of 0 per cent, 3 per cent, and 5 per cent respectively. The future values are derived using the above mentioned discount rates, a time period of 16 years and the present value of US$ 27 million. The net benefits are the total benefit minus the estimated costs. These values however should only be taken as an order of magnitude. The analysis was limited to the information and estimations present, the latter of which constituted a single estimated number and not a range of costs or benefits. The costs of treatment of vegetable wastewater were excluded, yet concurrently excluded were the costs of environmental degradation due to the present lack of information in this regard. All in all the economic values indicate an immense potential benefit for applying Scenario 2.

5. RECOMMENDATIONS AND PROPOSED MEASURES

5.1 Recommendations Recommendations for improving the olive oil sector are drawn upon the identification of key bottlenecks (see Annex 4) and the views of the Steering Committee. They embrace different complementary measures that should be undertaken to implement the action plans and successfully reform the sector. As a pre-requisite to the implementation of the action plans however, it is worth emphasizing that necessary measures need to be undertaken. These measures could partly be in the form of continuing technical and financial assistance from the EU within the framework of the European Neighborhood Policy (ENP), a commitment to enforce relevant regulations, and stakeholders’ commitment to a public-private partnership. 1. Recommendations to the EU: The European Union has a very important role to play in facilitating access of Lebanese products and in particular olive oil products to the EU markets. The EU should undertake the following measures: 1. Continue technical and financial assistance within the framework of the European

Neighborhood Policy (ENP) 2. Commit to enforce relevant regulations 3. Trade regulations, such as quality standards as well as regulations with respect to

duties and their gradual elimination should be communicated to all parties involved in order to ensure efficiency and the minimization of refused (and returned) products

4. Technical and non-trade barriers such as lengthy bureaucratic procedures should be revised and eliminated when unnecessary.

2. Recommendations to the Lebanese Government 1. The Government of Lebanon should encourage each region in Lebanon to use

regional branding. 2. Within its prerogatives, the Government ought to create an enabling environment by

improving intra-ministerial coordination to aid the olive oil sector efficiently 3. The Government, through the Ministry of Economy and Trade (MOET) should

upgrade and certify existing testing laboratories, disseminate information and build databases (based on surveys of olive oil quality output).

4. The Government, through the Ministry of Agriculture (MOA) should provide training for farmers and mill operators (e.g. good agricultural practices and good milling practices), facilitate by-product management, and provide access to capital.

5. The treatment of wastewater (introducing technologies outlined in Annex 2) ought to be financed and implemented by the Government through the Ministry of Environment (MOE) in order to preserve environmental ecosystems in the areas of

olive oil production. With respect to pomace, those products that are not used for heating purposes should be treated also in accordance with the technologies specified in Annex 2. Economic instruments (e.g. a small charge per litre or kilogram of wastewaters and pomace respectively to be paid by mill operators) could be used for cost recovery, operation and maintenance of these treatment plants.

6. Centralizing decision-making with respect to olive oil (e.g. by forming a national olive oil office) would go a long way in assessing and taking in all the concerns and priorities of the various stakeholders. As an output, a national policy (with respective action plans) could be formulated in which the various stakeholders are given specific responsibility to better the sector. The policy should be towards the production of better quality olive oil by decentralizing quality checks and enforcing necessary laws (e.g. with respect to hygienic milling conditions and olive oil quality categorizing).

3. Recommendation to the private sector 1. The private sector could, by getting organized, play a major role in achieving

economies of scale (e.g., inputs, fertilizers), promoting fair competition, disseminating information and proposals, investing in newer technologies and production techniques, maintaining a competitive edge, coordinating with NGOs, and promoting public- private partnership.

4. Recommendation to NGOs 1. NGOs should continue their efforts in raising awareness, training farmers,

enhancing intra-NGO networking, disseminating information and coordinating with the private sector, and facilitating public-private partnership.

5.2 Proposed measures to support implementation of action plans 1. Establish a public sector task force to coordinate activities From an organizational perspective, for the positive impact of the AA (and at a later stage for the ENP) to be maximized, it is necessary to have one body or task force within the public sector to be in charge of coordination between various beneficiaries. This would allow proper monitoring and avoid duplication, which tends to be the case. Political will and engagement is necessary if effective changes are to be realized. Institutional capacity building is central to improving coordination between all stakeholders and regions, disseminating information and implementing new regulations and quality controls. This process has already started with the establishment of the Steering Committee for the current IAP that includes representatives from relevant ministries, the chamber of commerce, the olive oil syndicate and active NGOs within the field. The ability of the committee to positively impact the sector will depend on its ability to translate decisions and priority issues into actions at the community level. This could be done through the

MOA and the Ministry of Social Affairs (MOSA) in partnership with NGOs. In fact MOSA and MOA are very active at the community level and have already accumulated the expertise and the necessary networks. In an inter-ministerial meeting held at the MOA to discuss the enhancement of the olive sector oil sector, the necessary steps that should be undertaken by each respective ministry for that end was delineated. 2. Commit public institutions to prioritize olive production The Council of Ministers was urged to establish a decision that would commit public institutions to give priority to olive producers through purchasing programmes. The MOA was designated to manage the sector by examining the subsidized olive tree seedlings (and ensuring Lebanese origin), raising farmer awareness, creating a regulatory framework for the mill operators, establishing a team specialized in olive oil tasting, research, and coordinating with other ministries, international institutions and NGOs. 3. Establish a fraud committee The MOET was designated to protect Lebanese producers through establishing a committee for swiftly tackling fraud by examining olive oil at the point of sales and coordinating with the MOA all projects and decisions with respect to the olive oil sector. The MOE is responsible for finding solutions to olive oil wastewater and pomace, and communicating all its findings, projects and decisions with the MOA. 4. Upgrade and monitor milling equipment The Ministry of Industry (MOI) is responsible to monitor in detail the milling equipment with the coordination of the MOA, including a representative from the latter in the formers’ committee for licensing or permits (for olive oil presses). In addition, upgrading as well as increasing regional cooperation would encourage access into the farmer’s community that is the most difficult group to reach. Active coordination with the regional chamber of commerce on a regular basis could ensure better channels of communication and dissemination of information between farmers and traders. Increasing awareness concerning the AA and the potential of producing extra-virgin olive oil is central to exploit the agreement’s full potential. 5. Monitor olive oil production Finally, the public sector could monitor olive oil production by engaging stakeholders into regular meetings and undergoing regular sectoral analysis. The public sector has a key role in insuring fair competition, regulations that protect local producers, dissemination of information, and skill upgrading through vocational training is necessary to insure sustainable methods of production and ability of labour force to adapt to the new production processes (mentioned above). This could be achieved by involving all relevant stakeholders and government agencies. Figure 14 summarizes the key organizational issues discussed above.

Figure 14: Mapping of organizational issues

National Committee for Building Institutional Capacity - “Olive Oil Office” (Including representatives of relevant ministries, the chamber of commerce, the olive oil

syndicate, active NGO’s) • Prerogatives: Enforce existing regulations and create new ones; Implement Geographic

Indicators System; Upgrade and certify existing laboratories and create new ones as needed, Build national databases, Coordinate with EU and various stakeholders and insist on existing projects : - MOA programs: raising awareness, training farmers, subsidy… - MOET: fraud control. - MOE: wastewater and pomace management - MOI: scope milling equipments, licence and permits

• Expectations: Increase intra ministerial coordination; enforce public/private partnership; enhance the sector’s sustainability, Implement the action plans.

Translate decisions / priority issues at the regional level

Regional Level • Prerogatives: Assess existing projects, infrastructures and key bottlenecks; Report to the

National Committee; Help in implementing the Geographic Indicators System • Expectations: Empower regional Cooperatives and disseminate information

Tap into the farmer’s community

Local Level • Prerogatives:

- Enforce MOA and MOSA (through Social Development Centers) who already have networking and expertise

- Coordinate with local NGO’s to avoid duplication • Expectations: Target farmers in poor areas and increase the sustainability of the olive

Source: MOET

5.3 Conclusions and follow-up

5.3.1 Conclusion The Lebanese olive oil sub-sector is passing through many hardships not dissimilar from other agricultural sub-sectors. The reasons for these hardships are due mainly to high production costs compared to other countries in the region and poor quality output that limits exportation potential. The Association Agreement should be taken as an

opportunity for the olive oil sector, or any other sector, to re-examine its production techniques and processes, address key bottle-necks that prohibit better profitability of the sector, and improve the overall socio-economic situation of farmers, mill operators and traders. In the report, the two scenarios discussed give an overall picture of what is occurring (Scenario 1) and what could be occurring (Scenario 2) and the different socio-economic and environmental implications of both. The key to success lies in the ability of all concerned stakeholders - from farmers, NGOs, the Government, the public sector (traders and other private sector agents) - to work in coordination to implement the necessary programmes and action plans that realise the intended policies of improving production competitiveness, quality of output and marketability. Lebanese olive oil, like most other Lebanese agricultural sub-sectors, needs internal support and strengthening in the form of concrete action plans before complete liberalization should occur. This support would ensure that once trade is completely liberalized, Lebanese products are competitive enough - in terms of both quality and price - to survive and potentially increase their share in international markets. The AA gives the Lebanese Government time, by gradually eliminating duties on imported EU products, to ensure that the agro-food sector is strengthened enough to be ready for more competition.

5.3.2 Follow-up As outlined earlier in the study, a series of actions are necessary to insure the sustainability and development of the olive oil sector. The following section proposes immediate activities that would lay the ground for the actions proposed in section 4. To insure the co-ordination of all public sector activities, Steering Committee members should be meeting on a regular basis twice a month with the main objective to implement the above mentioned action plans and co-ordinate the steps outlined below. The priorities of the committee should be the following:

- Campaigning with producers, millers and traders on how to benefit of the quota

accredited to Lebanon under the trade agreement of the Association Agreement between the EU and Lebanon.

- Disseminate the results of the study as well as proper documentation on Best

Practices to produce high quality olive oil at the municipal and regional level through chambers of commerce, municipalities and social centers. Also insure that producers are aware of the potential economic benefits (disseminate the AA potential benefits, world price, etc.) of producing high quality olive oil.

- Insure training of trainers; in this case direct funding and technical assistance

directed to the pool of agro-engineers working at the MOA and operating on the field.

- Insure that a regulatory framework is set into place creating an incentive to upgrade existing mills. This framework should be coupled with the establishment of an accreditation system linked to eco-labeling and should be put into place with the active participation of the Ministry of Agriculture, the Ministry of Environment and the Ministry of Industry.

- An adequate financing mode should be established to help the upgrading process.

There should be access to finance through the Agriculture Development Project (ADP), KAFALAT, Economic and Social Fund for Development (ESFD), EIB, and new financial instrument under the ENP. Access to credit should be linked to a large extent to scale, quality production and waste management.

- Insure that quality control is made available at the regional level, tapping on the

existing structure at the MOA level, coupled with donor activities (provision of physical capital, capacity building, vocational training)

- Disseminate the economic benefits derived from the use of the Geographical

Indication System thus increasing the profitability of the olive oil production sector by labeling origins of production. Propose the olive oil sector as a potential beneficiary of such a system, disseminate to the producers the information on the procedures and standards required to access such a system and start the implementation process.

- Reactivate the initiative of establishing an official accredited taste panel, necessary

steps and actions have already been initiated by existing NGOs and public sector bodies. Follow up on the activity and creation of the panel.

REFERENCES Beaufoy Guy (2001), “The Environmental Impact of olive Oil Production in the European Union: Practical Options for Improving the Environmental Impact”, European Commission for the Environment. Begon M., Harper J.L & Townsend C.R. (1996), Ecology, Blackwell Science, USA. C. Kasparian (2003), “L’entrée des jeunes libanais dans la vie active et l’émigration », USJ Press. C. Kasparian (2002), “L’entrée des jeunes libanais dans la vie active et l’émigration », Preliminary results. USJ Press. Cano-Munoz German (2002), “Olive Oil Processing Mills: Oil Quality; By-Products Management”, Prepared for ELCIM Lebanon. Central Administration of Statistics Lebanon (1998), Households Living Condition Survey in 1997, Lebanon Central Administration of Statistics Lebanon (2005), Households Living Condition Survey in 2004 - Preliminary Results, UNDP – Ministry of social Affaires, Lebanon Dalal-Clayton B., Sadler B. (2005), Strategic Environmental Assessment – A Sourcebook and Reference guide to International Experience, Earthscan Publications, London. Dake, S. L. (2002), “Assessing Farm-level and Aggregate Economic Impacts of Olive Integrated Pest Management Programs in Albania: An Ex-Ante Analysis”, Dissertation submitted to the Faculty of the Virginia Polytechnic Institute and State University, Virginia. Daher S., Dragotta A., Gabr M., Hammoud K. (2004), “Production Practices Review and Improvement Series”, Prepared for the Lebanese Inter-Professional Syndicate for the Olive Sector (LIPSOS) and Funded by The European Commission Delegation in Lebanon. Action Plan A1 - Integrated pest Management / biological Production planning Action Plan A2 - Good Agricultural Practices/ Traceability Action Plan A3 - Yield Improvement/ On Farm Water Use Efficiency Action Plan A4 - Cost Reduction – Mechanization Daher S., Dragotta A., Gabr M., Hammoud K. (2004), “Industrial Production Modernization Review and Improvement Series”, Prepared for the Lebanese Inter-Professional Syndicate for the Olive Sector (LIPSOS) and Funded by the European Commission Delegation in Lebanon. Action Plan B1 - Harvesting, Post Harvesting and Press Programming Action Plan B2 - Mills Modernization and Improvement Action Plan B3 - Bottling Plants and Packaging Modernization Action Plan B4 - Environmental Management Systems Action Plan B5 - By-Products Development Daher S., Dragotta A., Gabr M., Hammoud K. (2004), “Quality modernization review and improvement Series”, Prepared for the Lebanese Inter-Professional Syndicate for the Olive Sector (LIPSOS) and Funded by The European Commission Delegation in Lebanon. Action Plan C1 - Good Manufacturing Practices/ Hazard Analysis & Critical Control Point Action Plan C2 - Quality Control/ Testing & Laboratory Facilities Action Plan C3 - ISO 9001:2000 Quality Management Systems

Daher S., Dragotta A., Gabr M., Hammoud K. (2004), “National marketing facilitation & promotion”, Prepared for the Lebanese Inter-Professional Syndicate for the Olive Sector (LIPSOS) and Funded by The European Commission Delegation in Lebanon. Action Plan D1, D2, E1 - “Buy Lebanese” Local Campaigns / Strategic Markets Promotion / Diaspora Targeting / Website Initiative Daher S., Dragotta A., Gabr M., Hammoud K. (2004), “National marketing facilitation review and Improvement”, Prepared for the Lebanese Inter-Professional Syndicate for the Olive Sector (LIPSOS) and Funded by The European Commission Delegation in Lebanon. Action Plan E2 – Olive Oil Office ELARD, Ministry of Economy and Trade, University of Balamand, and Life (European Commission) (2004), Strengthening Environmental Legislation Development and Application, Lebanon. ESFD Lebanon (2002), Short Term Mission on Social and Municipal Development – Poverty Analysis and Targeting Mechanism for the ESFD Project, Project Funded by the European Union. Euro-Med Partnership, Lebanon, Country Strategy Paper (2002-2006) & National Indicative Programme (2002-2004), 2002. European Neighbourhood Policy – homepage http://europa.eu.int/comm/world/enp/policy_en.htm FAO (2004), “Summary of the Oleiculture Sector in Lebanon”, in french FEMISE (2003), “Impact of Agricultural Liberalisation in EU-MED”. Gasparini Paul & Mezher May (2002), “Olive Industry in Lebanon: A Sectoral Analysis”, Prepared for FAO, in French. Larsen B., Owaygen M., and Sarraf M. (2004), “Cost of Environmental Degradation – The Case of Lebanon and Tunisia”, Environmental Economic Series, Paper N°97. LIPSOS (2004), “The Olive Oil Farmers Attitudes towards the Association Agreement Survey”, Lebanon. LIPSOS (2005), “Oleiculture in Lebanon”, Lebanon Miller, G.T., (2002), Living in the Environment, Principles, Connections, and Solutions, 12th Edition, Wadsworth Group, U.S.A. Ministry of Environment (Lebanon) & ECODIT, Lebanon: State of the Environment Report, 2001. Ministry of Finance, Fiscal, Trade and Structural Developments, Quarter I, 2002, Issue number 6. Ministry of Social Affairs – UNDP Lebanon (1998), Mapping of Living Conditions in Lebanon – Analysis of the Housing and Population Database, Lebanon

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Ministry of Social Affairs – UNDP Lebanon (2001), Population’s Economic and Social Characteristics in Lebanese Districts, Vol. 1,2,4,6,7,13,29,21,23 Mirza Zeinab (2004), “The Impact of the Euromed Agreement on the olive oil industry in Lebanon”, Prepared for the Ministry of Industry - Lebanon Office of the Deputy Prime Minister (2004), Sustainability Appraisal of Regional Spatial Strategies and Local Development Frameworks, Consultation Paper, London. Regional Activity Centre for Cleaner Production (2000), “Pollution Prevention in Olive oil Production”, Mediterranean Action Plan. SRI International (2002), “The US Market for Olive Oil and the Potential for Lebanese Exports”, Expanding Economic Opportunities in Lebanon, Prepared for USAID Lebanon. Available Online at http://www.inmadevelopment.org/SRI/Uploads/Reports/96.pdf SRI International (2003), “The Olive Oil Market Outlook in the European Union”, Expanding Economic Opportunities in Lebanon, Prepared for USAID Lebanon. Available Online at http://www.inmadevelopment.org/SRI/Uploads/Reports/97.pdf SRI International (2003), “Market Outlook for Organic Foods in the EU”, Expanding Economic Opportunities in Lebanon, Prepared for USAID Lebanon. Available Online at http://www.inmadevelopment.org/SRI/Uploads/Reports/110.pdf SRI International (2004), “Rapid Appraisal of the Olive Oil Market Chain in Lebanon” Expanding Economic Opportunities in Lebanon, Prepared for USAID Lebanon. Available Online at http://www.inmadevelopment.org/SRI/Uploads/Reports/111.pdf Team International Engineering & Management Consultants (2002), “Environmental Compliance and Phasing Program for the Paper Industry (Paper and Cardboard) and the Food Industry (Olive Pressing)”, Final Draft, Lebanon.

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Annex 1: Outline of quality management systems - HACCP & IS0 9001:2000

Hazard Analysis and Critical Control Point (HACCP) involves seven principles:

• Analyze hazards. Potential hazards associated with a food and measures to control those hazards are identified. The hazard could be biological, such as a microbe; chemical, such as a toxin; or physical, such as ground glass or metal fragments.

• Identify critical control points. These are points in a food's production--from its raw state through processing and shipping to consumption by the consumer--at which the potential hazard can be controlled or eliminated. Examples are cooking, cooling, packaging, and metal detection.

• Establish preventive measures with critical limits for each control point. For a cooked food, for example, this might include setting the minimum cooking temperature and time required to ensure the elimination of any harmful microbes.

• Establish procedures to monitor the critical control points. Such procedures might include determining how and by whom cooking time and temperature should be monitored.

• Establish corrective actions to be taken when monitoring shows that a critical limit has not been met--for example, reprocessing or disposing of food if the minimum cooking temperature is not met.

• Establish procedures to verify that the system is working properly--for example, testing time-and-temperature recording devices to verify that a cooking unit is working properly.

• Establish effective recordkeeping to document the HACCP system. This would include records of hazards and their control methods, the monitoring of safety requirements and action taken to correct potential problems. Each of these principles must be backed by sound scientific knowledge: for example, published microbiological studies on time and temperature factors for controlling foodborne pathogens.

International Standard Organization - ISO 9001:2000

The principles of ISO 9001:2000 are tabled below.

Principle Steps Description 1 Customer focus Organizations depend on their customers and therefore should

understand current and future customer needs, should meet customer requirements and strive to exceed customer expectations.

2 Leadership Leaders establish unity of purpose and direction of the organization. They should create and maintain the internal environment in which people can become fully involved in achieving the organization's objectives.

3 Involvement of people

People at all levels are the essence of an organization and their full involvement enables their abilities to be used for the organization's benefit.

4 Process approach A desired result is achieved more efficiently when activities and related resources are managed as a process.

5 System approach to management

Identifying, understanding and managing interrelated processes as a system contributes to the organization's effectiveness and efficiency in achieving its objectives.

6 Continual improvement

Continual improvement of the organization's overall performance should be a permanent objective of the organization.

7 Factual approach to decision making

Effective decisions are based on the analysis of data and information

8 Mutually beneficial supplier relationships

An organization and its suppliers are interdependent and a mutually beneficial relationship enhances the ability of both to create value.

Annex 2: Treating olive mill wastewater and pomace technologies A2.1: Olive mill wastewater treatment technologies

Treatment Technology

Brief Description of process Advantages Disadvantages

Anaerobic treatment (Cost: 18-41 $/m3)

Biochemical fermentation process in which organic substances such as proteins and fats or carbohydrates are degraded by means of fermentation into intermediate products, acids and alcohols. It may occur at mesophilic (35oC) or thermophilic (55oC) temperatures.

• Reduction in organic content

• Destruction of toxicants

• Biogas yield • Low

maintenance needs

• High organic load (needs prior dilution)

• Individual units cost high

• Needs post aerobic treatment

Aerobic treatment (Cost: 20-25 $/m3)

The Biological degradation of organic pollutants present in OMW by means of micro-organisms that consume the oxygen dissolved in water that is supplied by means of diffusers, paddles or stirring rods. Clarification of the wastewater is then carried out resulting in clean effluents. The sludge remaining can be used as an organic corrector in farming land.

• Low Toxicity • Low gas

generation • Controllability

of process

• More expensive than anaerobic treatment

• Low decrease in organic matter

• High demand for energy

Thermal evaporation (Cost: 7-14 $/m3 for a 5,000m3

/year capacity & $180,000 installation costs.

The use of thermal energy to evaporate OMW resulting in steam, condensation water (which could be purified and recovered), a concentrated residue of un-dissolved matter and sludge. The matter and sludge in turn could be reused as an efficient fuel to provide evaporation heat needed.

• Yields a residue that may be used as fuel

• High investment and maintenance costs

• Gaseous emissions

• High energy consumption

Natural evaporation (Cost: < 0.03$/m3)

Also known as natural evaporation in pools, it is promoted by the action of the sun and wind.

• Yields a residue that may be used as fuel

• Lack of space for the process

• Bad odours • Need to treat the

sludge formed • Danger of

subsurface infiltration and contamination.

Composting (NR)

Expose OMW (placed for e.g. on pomace and olive tree leaves) to aeration to induce decomposition.

• Return of nutrients taken-up by olive tree cultivation to cropland

• Need to construct composting plant.

Adsorption and bio-filtration (Cost: 20$/m3)

In Bio-filtration processes filters also serve as a nutrient for bacteria, such that biological degradation of dissolved organic substances takes place.

• Eliminates solids and organic content

• Filtered residue can be used for irrigation

• Need to treat the resulting cake

Irrigation In small amounts, this OMW • Low cost • Phytotoxic

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(Cost: 0.005 $/m3 depending on storage + distance)

brings valuable trace elements as well nitrogenous organic residues.

• Water rich in nutrients

effects • Need to specify

proper doses

Lime treatment (NR)

Much pollutant substances in OMW may be removed by a rather high percentage with the process of lime treatment.

• High removal rates especially o-diphenols

• Clean effluent • Gaining in

popularity

• Removal of nutrients inhibiting the use of OMW as fertilizer

• Sludge generation

Membrane processes (Cost: 40-50$/m3)

E.g. Ultra-filtering and reverse osmosis, allows the complete elimination of the original COD

• Complete elimination of COD

• Little space required

• Can re-use effluent

• Membranes undergo degeneration

• Pre-treatment required

• High energy demand

Damp oxidation (Cost: 15-20 $/m3)

Process of oxidizing organic substances in the liquid phase using oxygen or another chemical oxidizing agent (e.g. hydrogen peroxide), at high pressure (10 – 220 bar) and relatively high temperature (120 – 330 oC), yielding carbon dioxide and water (mostly). When oxidation is not complete, the compounds too difficult to bio-degrade are transformed into biodegradable fragment, so that a biological treatment plant is normally positioned downstream from the oxidation plant.

• Need post-biological treatment

• Small space requirement

• Can discharge water directly to river

• High energy demand

• Gaseous emissions

Source: Team International, 2002 The selection of treatment technologies should take into account factors such as the characteristics of the OMW generated, density of olive mills, cost effectiveness (for olive mill owners and municipalities) and land availability. Table A3.2 creates a matrix wherein criteria for different treatment alternatives are defined, assigned a weight ranging from 1 (least important) to 3 (most important), and assigned a magnitude ranging from 1 (least favourable) to 5 (most favourable). The weights and magnitude allocated are based on data from the literature and international experiences with the various techniques (Team International 2002): A2.2: Scoring matrix for the selection of OMW treatment techniques

Criterion Cost Technology Space requirement

Sludge generation

Removal of organic load

Total score

Weight 3 2 2 1 3 Anaerobic treatment

3 3 4 3 4 38

Aerobic 2 3 3 3 1 24

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treatment Thermal evaporation

4 3 2 4 4 38

Natural evaporation

5 4 1 3 2 34

Composting 2 3 2 3 3 28 Adsorption and bio-filtration

2 2 4 2 4 32

Irrigation 5 5 5 5 4 52 Lime treatment

3 2 4 1 5 37

Membrane processes

1 1 3 1 5 27

Damp oxidation

2 2 4 3 2 27

Table A3.3 outlines the possible treatment technologies for pomace in Lebanon, along with their respective advantages and disadvantages (Team International 2002). A2.3: Treatment technologies and end-uses of pomace and their costs Treatment category and Costs ($/Kg of dried pomace)

Description of process Advantages Disadvantages

Use for extraction of residual oil (0.01-0.02 traditional & 0.005 2-phase)

Oil extraction conducted through the use of solvents (e.g. hexane). The fibrous material left over from secondary extraction may be disposed of by composting or burning, and is commercially valued as a fuel for pottery kilns.

• Oil recovery • End product can

be used as fuel

• Use of solvents • High

investments • Cannot

accommodate seasonal operation patterns

Use as fuel (0.2 two-phase)

The calorific power of olive mill pomace ranges between 2,800 and 3,500 Kcal/kg (depending on oil & moisture content). Its use as fuel needs drying in large central facilities before hand (only justified if production exceeds 10,000 t/year of olives.

• Gaseous emissions are not noxious

• Inert solid residues

• High investment

Use to treat water (NR)

Pomace collected and kept under anaerobic conditions for 1 week to separate oily phase from residue. Then it is dried and washed with hexane to extract oily phase. Results indicate that pomace could be used to remove lead and zinc from aqueous solutions buy adsorption.

Under experimental stage

Foodstuff for livestock (NR)

The nutritional values of spent olives allow them to be used as foodstuff for

• No prior treatment is needed

• Degradation due to fermentation if ensilage is not

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cattle though their appetizing quality is moderate.

performed

Composting (0.014 two-phase)

Controlled bio-oxidative process carried out by micro-organisms, generating products such as carbon dioxide, water, minerals and stabilized organic matter free from phyotoxic and pathogenic compounds.

• Generated compost has high quality

• Needs a compost plant

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Annex 3: Cost categories of applying ELCIM assumptions In accordance with the ELCIM study funded by the EC, the following are descriptions of the cost categories involved that aid in improving the quality of olive oil in Lebanon (on a national level), improve revenue and ensure environmental sustainability. These categories are more or less similar to the main assumptions of Scenario 2. 1. Applying and disseminating good agricultural practices

Good agricultural practices cover a wide range of on-farm and post-farm operations related to food safety and quality, the physical, chemical and biological features of the soil, on-farm water use, norms and standards of produced crops and animals, crop and animal health, the social and economic welfare of farmers, farm workers and health and safety of the farming community, and the agro-biodiversity on-farm and in the surrounding area. Activities herein would be in the form of a preparation of an integrated framework and implementation strategy for GAP (olive oil sector), convening an expert group meeting on GAP, campaigning for raising and increasing awareness, and training of farmers.

2. Applying Integrated Pest Management (IPM)

The activities involved in dissemination IPM in Lebanon for olive oil farmers include campaigning and raising awareness, training of farmers, and applied IPM research.

3. Improving Yield/Water Efficiency An emerging weather problem is lately very well sighted by the Lebanese farmers including Olive farmers that the raining season became shorter and covers only November till March instead October till May. This means that the dry period gets longer. This emerging problem affects negatively the olive production and the olive oil contents accordingly, if no supplemental irrigation has been arranged. Recent research works inside and outside Lebanon on introducing supplemental irrigation showed substantial olive yield and quality increase.

Activity 1. Campaigning for Raising and Increasing Awareness

The campaign aims at raising awareness by the farmers, consumers in general and environmentalists for the importance of such action plan to the communities. This should be done through well prepared and nicely presented informative materials such as short TV reportages, posters, pamphlets, presentations, and well organized meetings. This activity includes but not limited to the following actions:

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• Mobilize the craft / momentum of the concerned key players concerned in the project and coordinate among them for an effective cooperation.

• Prepare the required informative materials needed for the campaign. • Prepare and undertake:

- 3 TV short reportages - 3000 posters to be distributed in various olive areas in Lebanon, schools, and

related institutions. - 5000 to 10000 pamphlets and brochures all over Lebanon. - 3 expert groups meetings to be convened in the three major olive areas. - One national conference. - Agricultural extension meetings for small groups of olive farmers. - Arrange for press campaigns. - Schools and class rooms drawing competitions on the IPM issues - Exhibitions & mobile fairs to be presented in relevant places within the

country. Activity 2. Training

• Training of Concerned Agricultural Extension Officers This training could be done through:

- Lectures of scientific and practical nature on various aspects of supplemental irrigation delivered by specialized experts. - On-farm demonstrations for the proposed tools for implementing the irrigation technique.

• Training of small Farmers Groups on practical supplemental irrigation

practices The consultants in close cooperation with the already trained agricultural extension officers will train the olive farmers on the practical methods of the implementation of the supplemental irrigation. The training will be conducted in the following way:

- Form small farmers groups - Assign and service the demonstration fields - Arrange farmers’ visits to other relevant sites; research centres, olive oil mills, retail markets, etc...

Activity 3. Applied Research

A systematic research in the different following areas of irrigation for olive production needs to get a priority in the research fields:

- Research work for 4 consecutive years on water needs of olive trees in selected sites of the major four areas of olive production in Lebanon. - Establishing 4 artificial water collectors (ponds) for water harvesting; one in each of the 4 major olive production areas in Lebanon.

4. Harvesting, post harvesting and milling programming (optimizing some key-

phases in olive oil production by creating a quality-oriented approach) Implement a correct plan for right harvesting (period and techniques); post harvesting, and press programming in order to obtain a higher quality olive oil;

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• Implementing pilot applied research activities to determine the best moment to harvest according to the regional Lebanese variability.

• Raising awareness both in farmers and millers in olive oil quality loss due to bad harvesting and post harvesting habits and techniques.

• Encouraging millers to differentiate payment form and amount depending by the date of product delivery and/or the acidity. Encourage millers to lease at symbolic price plastic boxes and nets for harvesting bought thank to a special subsidy/allowance in kind. Encourage millers in recording the main data and implement simple procedures at the oil mill.

5. Modernizing and improvement of mills

This action plan calls for the modernization and improvement of olive oil mills (for 67 recognized automated/semi-automated mills) with the aim to bring their infrastructure and production lines in compliance with international standards. This effort will pave the way to the establishment of HACCP food safety systems and ISO 9001:2000 quality management systems, which in turn will ensure that Lebanese olive oil is distinguished technically and geographically from other world oils.

Following are the specific objectives of the modernization and improvement of olive oil mills action plan to be performed in close cooperation and coordination between the beneficiaries and the donors:

• Improve infrastructure of olive oil mills according to Good Manufacturing

Practices • De-bottleneck process lines complement them with equipment to comply with

hygienic operational requirements and operational best practices. • Build capacity of oil mills in the area of operation and maintenance (O&M). 6. Quality modernization review and improvement; Good Manufacturing

Practices (GMP) & Hazard Analysis & Critical Control Point (HACCP) The followings are the main activities of the food safety management system Good Manufacturing Practices (HMP)/HACCP action plan; Activity 1. Set Up Food Safety Systems Project Coordination Unit at LIPSOS

- Recruit a Food Safety Project Coordinator at LIPSOS (18 months). - Select and Qualify the commercial mills capable of entering the HACCP program and able to positively impact National production and contract

consultant. Activity 2. Develop Systems Guidelines - Conduct Training Workshop

- Develop HACCP workshop course and materials including Model pre-requisites and HACCP Manuals & Plans.

- Organize and Conduct two 3-days workshops, up to 35 trainees per workshop, one in North Lebanon and one in South.

Activity 3. Customize and Implement GMP and HACCP at Mills - Adapt pre-requisite programs individually to 65 mills. - Adapt HACCP plans and manuals individually to 65 mills. - Conduct pre-assessments prior to external audits & recommend actions (65 wd).

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Activity 4. External Audit Mills & Register with Internationally Accredited Bodies

- Select and contract accredited International registrar and certification body. - Audit and register 65 mills to CAC HACCP standard (130 wd). The present action must end with the organization of all files for the participating mills in preparation for the “ISO 9001 Quality Management System” action plan, and the subsequent readiness to promote the Food Safety and Quality Achievements.

7. Bottling plants and packaging modernization • Design and set up two facilities to International standard for grading and storage

of oil created in different geographic zones offering bottled product of consistent quality and establish state of the art bottling facilities.

• Recruit and train storage and bottling plant operators and technicians in oil blending, panel testing, analytical testing and quality and food safety management systems, and the implement the HACCP and ISO 9001 quality systems and the certification and registration of the plants.

• The creation of inventory credit programs and other financial schemes.

8. Quality control/testing and laboratory facilities

These could be specifically depicted in the followings:

• Establishing a pilot quality control network and regional small laboratories. • Raising awareness on olive oil quality at all levels of the production. • Raising awareness on olive oil quality among consumers. • Supporting oil mills with dedicated credit/allowances program. • Implementing applied research concerning the main topics related to quality in

Lebanese olive oil. 9. National marketing facilitation & promotion

The specific objectives of this action plan are to create the material necessary to promote what has been achieved in other action plans and advertise and promote to the consumer at home and abroad a new image of Lebanese olive oil, one of quality of a premium national product linked to authentic historical culinary traditions coupled with the perspective of healthy modern living; • Assess current attitudes and perception of the Lebanese consumer and provide

direction for product image development in order to increase sales of premium Lebanese olive oil.

• Build the communication platform and networks that would motivate Lebanese consumers to use Lebanese olive oil.

• Create a cost effective tool for advertising to consumers worldwide and communicating with customer and between stakeholders through the establishment of dynamic website/portal at LIPSOS.

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• Increase National per capita consumption from 4.8 kg to 11 kg (as was in 1960’s) by raising consumer awareness of advantages of consuming Lebanese Olive Oil and creating consumer loyalty to Lebanese Olive Oil over time.

10. By-Product Development

Activity 1. Campaigning for Raising and Increasing Awareness

The campaign aims at raising awareness by the farmers, consumers in general and environmentalists for the importance of implementation of the action plan of olive by-products development to the communities. This should be done through well prepared and nicely presented informative materials such as short TV reportages, posters, pamphlets, presentations, and well organized meetings. In all media tools, the benefits of the by-products development action plan should be highlighted where such action plan, if implemented properly, will generate more incomes to the farmers, supply the consumers with healthier food and contribute positively to the sustainability of the environment. This activity includes but not limited to the following actions: • Mobilize the craft / momentum of the key players concerned in the project and

coordinate among them for an effective cooperation. • Prepare the required informative materials needed for the campaign. • Prepare and undertake: - 3 TV short reportages - 3000 posters to be distributed in various olive areas in Lebanon, schools, and

related institutions. - 5000 to 10000 pamphlets and brochures all over Lebanon. - 3 expert groups meetings to be convened in the three major olive areas. - One national conference. - Agricultural extension meetings for small groups of olive farmers. - Arrange for press campaigns. - Schools and class rooms drawing competitions on the IPM issues - Exhibitions & mobile fairs to be presented in relevant places within the

country. Activity 2. Converting olive pomace to organic fertilizer Converting olive pomace to organic fertilizer through aerobic fermentation Lebanon is poor with organic fertilizers and the olive pomace presents good opportunity to the olive oil mills to produce valuable organic fertilizers. The main idea of this activity is to produce organic fertilizers through mixing olive pomace with manure and leaves of trees. The process is an aerobic fermentation. The proposed activity aims at establishing a fermentation unit to produce 500 tons of organic fertilizers. The quantity of needed pomace, manure and leaves is about 1500 tons.

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11. Olive Oil Office Activity 1. Preparing the constitution of the Lebanese Olive Oil Office (LOOO) This action plan includes preparation of the constitution of LOOO in line with the mandate of LIPSOS and the Lebanese law governing the establishment of such institutions. The first draft should be discussed with representatives of the different stakeholders and related official bodies. According to the results of the meeting, the draft should be finalized. Activity 2. Campaigning for Raising and Increasing Awareness for the role of LOOO The campaign aims at raising awareness by the farmers, millers, cooperatives, consumers in general and environmentalists for the importance of LOOO for the olive sector. This should be done through well prepared and nicely presented informative materials such as short TV reportages, posters, pamphlets, presentations, and well organized meetings.

This activity includes but not limited to the following actions: • Mobilize the craft / momentum of the key players concerned in the project

and coordinate among them for an effective cooperation. • Prepare the required informative materials needed for the campaign. • Prepare and undertake:

Short TV reportages, posters to be distributed in various olive areas in Lebanon, schools, and related institutions, and one national conference.

Activity 3. Initial launching the work

o This needs to appoint core office staff for two years equipped with necessary facilities and services such as cars, office equipments( computers and related ones), telecommunications, furniture, etc.

Activity 4. Establish a web site for LOOO

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Annex 4: Identification of key bottlenecks possible action plans and expected outcomes of Scenario 2

Scenario 2 Quality-oriented: Improve exports of extra-virgin olive oil and mitigate negative

social and environmental effects Key Bottlenecks Action Plans Expected Outcomes Responsibility

High Production Costs • Farming techniques : no comprehension of the pruning/plowing/ fertilizing relation

Pruning : most of the time, no pruning/ not mechanized Plowing Fertilizers : very high prices compared to other countries, inappropriate application period

Pruning: provide mechanical pruning machines to cooperatives and pilot demonstrations. Support vocational training for farmers. Disseminate information on the proper pruning period and differentiate practices on old and young trees Fertilizers: reduce cost by efficiently using the fertilizers at the appropriate time. Reduce costs by implementing soil tests from accredited laboratories. Use wastewater by treating residues as fertilizers

- More constant production yields and increased supply

- Increased competitivity of Lebanese oil on the local and international market

- Reduced time and labour costs due to mechanization

- Improved farmers socio economic conditions and income sustainability

- Reduces pollution caused by wastewater residues composition

Ministry of agriculture, Local NGO’s Cooperatives

• Pesticides use: quantity/time misuse

- Provide the chemicals needed & support in spraying

- Establish a system of distribution

- Disseminate information on the proper application and time frame

Or eco friendly alternative : IPM - Mobilize key players

concerned in olive IPM - Provide workshops and

undertake field demonstrations

- Train extension officers and farmers

- Improved productivity by increasing the quantity of olives available for pressing

- Improved quality by reducing olive pests and diseases

IPM will result in : enhanced eco tourism, healthier working place, increased productivity, minimized chemical residue content, skills diffusion and knowledge

Ministry of agriculture,

Local NGO’s

Cooperatives

• Harvesting : Mainly done by hand and/or wood sticks. Very low level of mechanization. Harvesting period corresponds to the first winter rain (sometimes December!)

- Provide mechanical harvesting machines to cooperatives (along with the pruning machines)

- Vocational training to optimize harvesting efficiency: extension officers, skilled labor in the villages (students of technical schools…)

- Establish a regional harvesting calendar

- Awareness sessions on the cost reduction due to various techniques used

- Improved quality and quantity of olives available for milling

- Production costs reduction, thus increased competitiveness

- Increased skills for farmers and improved potential to adapt to technological changes

Ministry of agriculture,

Local NGO’s

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Qualitative Issues • Organizational

issues Millers do not coordinate with farmers, no reservation to minimize the queuing time.

- Share information between all relevant stakeholders,

- Install an organisational protocol

Cooperatives

• Processing issues

FARMERS - Train farmers to properly separate infected fruits from clean ones trough demonstrations (despite extra labor costs) - Awareness campaigns concerning the importance of carrying harvested olives in open plastic boxes and not storing them over 24h before pressing. Provide farmers with those boxes and/or a storage facility with stainless steel containers MILLERS - Train mill owners on mill management skills to reduce waiting period between harvest and pressing and increasing efficiency to obtain qualitative olive oil - Control cleanliness of filters and conditions of machinery and equipment (sanitary conditions) by keeping cost and maintenance control sheets

Ministry of agriculture, Local NGO’s

• Farmers/millers awareness

- No differentiation between extra-virgin oil potential selling prices and other oils

- No awareness on the potential of exporting extra-virgin olive oil

- Awareness campaigns for growers, cooperatives, municipalities, policy makers on the different quality classes of olive oil and their relative international prices

- Develop information pamphlets, taste panels, national olive oil fairs, and free tasting campaigns to increase information exchange and incentives

Governments (MOA, MOET) Local NGO’s Private sector

• Consumer awareness

Consumer is unaware of the quality of olive oil he’s consuming and the health effects of poor quality oil

- National awareness campaign (TV spots, flyers, publicity in food magazines, website…)

Increased extra-virgin olive oil demand will in turn operate has an incentive for farmers and millers to produce qualitative olive oil.

Governments (MOA, MOET) Local NGO’s Private sector

• Irrigation Olive trees are rain fed and under irrigated

- Demonstrate the simplicity and the benefits of irrigating 2/3 per year.

- Increased quality - More constant production yields and increased supply

MOA, MOE, Local NGO’s

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Regulatory Framework • Mill registration

- Document and assess present registration in different Lebanese regions, regulations regarding the issuing of the certification of origin for olive oil

MOA, MOF

• Certificate of origin of oil

- Document and evaluate the regulations regarding the issuing of the certification of origin for olive oil

- Allow the traceability of oil source (quality control) and protect the local regional source of oil

- Create a system of geographic indications (“Appellation d’Origine Controlé”) for local olive oil in order to assess the oil coming from different regions/villages

- Certification by accredited laboratories

Governments

• Lebanese olive oil specificities

- Olive oil output could still be of distinct nature and not meet some criteria requirements under international standards due to local climatic and soil conditions.

- No organoleptic taste panel

- Draft an agreement taking into account European standards and Lebanese specificities

- Support in the completion of the training and certification of the locally trained tasting panel group

- Improve quality of olive oil - Insure quality and credibility of Lebanese olive oil on international markets

Governments

Marketing • Bottling ,

packaging & labelling

- Provide cooperatives with bottling and labelling facilities when not available in the vicinity

- Workshops to inform on the nutritional labelling requirements in the local and external markets

- Training on label design and image

- Increased exports both on local and international markets - Poverty alleviation through increased income - Increased incentives to produce high quality olive oil

MOA, MOET, Private sector

• Quality testing - Identify specific national laboratories for testing the olive oil

- Reduce testing costs in the existing laboratories by making agreements or subsidizing some

- Provide small scale testing equipment (peroxide & acidity)

- Increased credibility and meet international quality standards requirements for exports

Governments Local NGO’s Private sector

• International publicity of

- Campaign to promote the high quality of Lebanese oil

- Increased demand will lead to increased supply, in

MOA,

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Lebanese olive oil from different regions through TV spots, participation in international fairs, create a national food shoe,

accordance with the qualitative in already in place.

- Poverty alleviation for farmers and millers by increasing income, employment…

Local NGO’s private sector

Environmental Degradation Reduce wastewater production, try and use it as fertilizers, reduce dumping in ponds.

- Workshop to increase awareness and pilot demonstrations to show what is the right time and proper amount of wastewater to use.

- Reduced yield fluctuations, increased productivity

- Increased quality - Decreased pollution,

biodiversity conservation, - Positive effect on health

MOA, MOE Private sector Local NGO’s

Source: Author’s elaboration

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Annex 5: Steering Committee Members and stakeholder contact details Institution Name & Position Contact

Ministry of Industry Georges Khoury (Director General by intermediary)

economydpt@industry.gov.lb

Ministry of Industry Marilyse Chehab - Economic Researcher

01/427 006 (ext 231) cmarilyse@hotmail.com

Ministry of Social Affairs Ghazi Freij 01/611 260 (ext 217)

SRI International James Billings Director, Lebanon Office

01/985 377 james.billings@sri.com

Ministry of Agriculture Mariam Eid Agro food Production Expert 01/824 100 -

CCIB Rabih Sabra. Head of agriculture/agroindustry dprt

aai@ccib.org.lb

UNDP-Ministry of Environment

Saleem Hamadeh Regional Coordinator

01/97605550(ext 408) - drshamadeh@moe.gov.lb

Vitech consulting s.a.l Karim Hammoud LIPSOS advisor and Coordinator

01/366 026 – khammoud@inco.com.lb

LIPSOS Sleiman El-Daher LIPSOS President

06/550 252 dahersc@hotmail.com

Stakeholder contact details • Association of Lebanese Industrialist Saad Ouyeenni

• Boulos SAL

Tony Maroun

• Central Administration of Statistics (CAS)

Ziad Abdallah

• Chamber of Commerce, Industry and Agriculture of Beirut.

Rabih Sabra – Head of Agriculture/Agro Industry Department Rania Bizri – Economic ResearcherNassima Ghanem - Head of Library and Documentation Department Albert Nasr - EU Expert Hana Haidar - EU Database

• Cortas – Trader Raja Cortas

• Dove Processing S.A.L – Obegi Consumer Products Group / Trader

Gay Mandour – Product Manager

• Economic and Social Fund for development (ESFD)

Hassam Omar Lara Abou Saifan - Communication and Public Relations Officer Racha Chahine

• European Commission Delegation Fransisco Acosta – Economic and Political Coordinator

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• Instituto par la cooperazione Universitaria (ICU) – Italian NGO

Jose Antonio Villaverde - Resident RepresentativeHussain Hoteit - Agrofood Ingeneer

• Ministry of Agriculture Myriam Eid – Agro food Production Expert

• Ministry of Environment Saleem Hamadeh - Regional Coordinator Lamia Chamas Samar Khalil

• Ministry of Industry

Georges Khoury - Acting Director General Marilyse Chehab - Economic Researcher

• Ministry of Social Affairs

Joumana Kalot - NGO Liaison OfficerHachem el Hussein - Technical Expert Mazhar Haraké - Project Manager Ghazi Freij

• Ministry of Economy and Trade Joey Ghaleb - Head of the Economic Unit-Senior Economist - National Co-coordinator Makram Malaeb - Senior SME Specialist Mira Merhi- Senior Economist - Trade Specialist Rana Samaha - Development Economist Pamela Bassil - Development Economist Hassan Harajli - Environmental Economist Diala Nasr - Research Officer Bechir Saade – Political Economist

• Rene Moawad Foundation Fady Yarak - Executive Director Delphine Copain • Lebanese Interprofessionnal Syndicate of Olive Oil

(LIPSOS) Sleiman El-Daher - LIPSOS President

• SRI International James Billings - Director, Lebanon Office

• Syndicate of Agro-Food George Nasraoui

• Vitech Consulting s.a.l Karim Hammoud - LIPSOS Advisor and Coordinator

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