SOL-306-13-000034_-_RADP_NW_-_2FBO_-_Attachment_J.14_-_Long-Term_Growth_Prospects_for_Wheat_Production_January_2012.pdf

United States Department of Agriculture www.ers.usda.gov

A Report from the Economic Research Service

Abstract Afghanistan has had success at achieving higher output for wheat, its key staple food and major crop. From 1990-2009, wheat production grew 3.5 percent per year, driven primarily by yield increases. However, given expected increases in demand, imports are likely to grow in coming years even if this production growth is sustained, suggesting growing dependence on supplies from Pakistan and other countries. For Afghanistan to achieve self-suffi ciency in the next decade, more widespread use of improved seed and fertilizer on irrigated and rainfed wheat fi elds would have to be combined with sharp increases in irri-gated wheat area—an unlikely outcome.

Keywords: Afghanistan, Pakistan, wheat, fl our, production, consumption, imports, irrigation, yield, projections, model, elasticity.

Acknowledgments Appreciation is extended to: Cheryl Christensen, Chief of the Food Security and Development Branch of USDA’s Economic Research Service (ERS), and Mathew Shane, leader of the ERS Macroeconomics group, for their support and comments; John Dyck, and Maurice Landes of ERS for their thorough reviews;

USDA’s Foreign Agricultural Service (FAS) staff members Michael Ward and Michael Shean; Hans-Joachim Braun, Director of Global Wheat Program at the International Maize and Wheat Improvement Center (CIMMYT); Hamdy Oushy (New Mexico State University), Kevin McNamara (Purdue University);

and Rajiv Sharma, Senior Scientist, Global Wheat Program, CIMMYT- Afghanistan, for their valuable suggestions and helpful comments.

Suresh Persaud, spersaud@ers.usda.gov

Long-Term Growth Prospects for Wheat Production in Afghanistan

WHS-11L-01

January 2012

Contents

Approved by USDA’s World Agricultural

Outlook Board

Introduction

Growth and Instability of Wheat Production

Consumption and Imports

Prospects for Afghanistan’s Wheat Market

Conclusions

References

Appendix 1

Appendix 2

Appendix 3

Long-Term Growth Prospects for Wheat Production in Afghanistan / WHS-11L-01

Economic Research Service/USDA

Introduction

Afghanistan, strategically positioned between Central Asia, the Middle East, and South Asia, is a landlocked country where key threats to food secu-rity stem from weak transportation links that limit Afghanistan’s access to international markets, coupled with a domestic agricultural sector that is inadequate for meeting food needs. In Afghanistan, wheat is a staple food, accounting for over half of the population’s caloric intake on average (Chabot and Dorosh, 2007). Imports from neighboring countries have played a key role in stabilizing wheat and fl our prices in Afghanistan. Although Afghani-stan imports wheat from a number of neighboring countries, Pakistan has historically supplied more than half of these imports.

Afghanistan’s location and heavy reliance on Pakistan for imported wheat leaves Afghanistan vulnerable to fl uctuations in Pakistani supplies and trade policies. For example, in 2008 Afghanistan’s food supply network broke down due to a confl uence of events, including shortfalls in Pakistani and Afghan wheat production and Pakistan’s bans on wheat and fl our exports (Persaud, 2010). Given Afghanistan’s landlocked position, its reliance on a small number of regional suppliers to meet import needs, and continuing uncertainties surrounding the reliability of these imports, this study focuses on the long-term prospects for expanding domestic wheat production.

Afghanistan has had some success at achieving higher wheat output. From 1990-2009 wheat production grew 3.5 percent per year, driven primarily by yield increases that refl ect long-term agricultural assistance efforts by international organizations and the presence of functioning seed and fertil-izer markets (table 1) (Maletta, 2007; Favre, 2004; Maletta and Favre, 2003).

However, model-based simulations indicate that this production growth, even if sustained until 2020, will not outpace expected increases in consumption, Table 1 Wheat area, yield, and production growth in Afghanistan

Period average Area Yield1 Production

(1,000 ha) (mt/ha) (1,000 mt)

1979-81 2,300 1.20 2,754

1989-91 1,623 1.06 1,725

2008-10 2,355 1.42 3,350

Growth rates (percent)2

1980-90 -4.10 -1.30 -5.3

1990-2009 1.51 1.97 3.5

1980-2009 0.10 0.40 0.5 mt = metric ton.

ha = hectare.

1Computed by dividing 3-year average of production by its respective 3-year average of area.

2Least squares growth rate.

Source: USDA, Foreign Agricultural Service, Production, Supply and Distribution (PSD) online database, and author’s calculations.

Economic Research Service/USDA suggesting growing dependence on supplies from Pakistan and other coun-tries. To achieve self-suffi ciency in the next decade, more widespread use of improved seed and fertilizer on irrigated and rain fed wheat fi elds would have to be combined with improbably sharp increases in irrigated wheat area.

Economic Research Service/USDA

Growth and Instability of Wheat Production

With mountainous terrain comprising roughly three-quarters of Afghanistan’s land area and an arid to semi-arid climate, arable land in 2008 amounted to 7.794 million hectares or approximately 12 percent of the country’s area (FAO, 2011). Most of Afghanistan’s agricultural and irrigation development occurs along the country’s few fertile valleys, which are formed by rivers extending from the Suleiman and Karakoram mountains and the Hindu Kush range (Rout, 2008). The vast majority of Afghanistan’s wheat area and production is located in the northern plains bordering Turkmenistan and Uzbekistan (USDA, 2008).

During the main growing period there is little, if any, reliable rainfall, meaning that Afghanistan must depend on irrigation to meet the majority of its crop water requirements. Winter snowfall in the mountain ranges of central Afghanistan supplies over 80 percent of the country’s annual precipi-tation (USDA, 2008). The primary storehouse of the country’s irrigation water is in the Hindu Kush range (Rout, 2008). Snowmelt in the spring is the major source of irrigation water, running through rivers and streams that originate in the mountains. Given the absence of suffi cient rainfall during the critical growing period, the timing and duration of annual snowmelt is a key factor in determining the volume of irrigation water and the length of time that it is available (USDA, 2008).

Uneven Historical Trends

In 1976 Afghanistan harvested 2.94 million metric tons (mmt) of wheat from about 2.4 million hectares (ha) of land, implying a yield of 1.23 mt/

ha. Production remained stable for about 10 years thereafter, and then dete-riorated sharply beginning in 1987 (fi g. 1). Yield and area planted to wheat contracted, and by 1992 Afghanistan’s wheat output was little more than half of its 1976 level (fi g. 2). Grain production deteriorated due to the combined effects of prolonged droughts and the destruction of irrigation networks and infrastructure during years of confl ict, fi rst between Afghan and Soviet forces and then during the civil war that followed the 1989 Soviet withdrawal.

Wheat production trended upward from 1993-99, driven primarily by strong gains in yield. At 1.3 mt/ha in 1998, yield was at a then historic high in Afghanistan. However, throughout the 1993-99 period, the quantity of wheat harvested never exceeded the 1976 peak due to relatively slow growth in area cultivated to wheat. Moreover, these production gains proved to be fragile.

Successive droughts in subsequent years led to substantial crop shortfalls in irrigated as well as rain-dependent areas, particularly in 2000 and 2001 when wheat production reached new lows, falling below the 1992 level.

Growing conditions were relatively favorable between 2002 and 2007. In 2003 production fi nally surpassed the earlier 1976 peak. The 2003 wheat harvest was estimated to be 3.55 million metric tons, a level that Afghanistan achieved again in 2005 and approached in 2007. These production peaks were achieved primarily as a consequence of higher yields. Throughout the

Economic Research Service/USDA

1,000 metric tons

Imports

Production

Notes: Includes flour imports expressed in wheat equivalent. One ton of wheat converts, with some variation, to approximately 0.74 tons of flour. Data are on a marketing-year basis; 2008 refers to July 2008–June 2009.

Source: USDA, Foreign Agricultural Service, Production, Supply and Distribution (PSD) online database.

Figure 1 Wheat and flour supply in Afghanistan

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1975 77 79 81 83 85 87 89 91 93 95 97 99 03 05 07 092001

Area (1,000 hectares) Yield (tons/hectare)

Notes: Data are on a marketing-year basis; 2008 refers to July 2008–June 2009.

Source: USDA, Foreign Agricultural Service, Production, Supply and Distribution (PSD) online database.

Figure 2 Wheat area and yield in Afghanistan

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Area Yield

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2002-07 period, there was no year in which estimated area planted to wheat exceeded the mid-1970s level. Yield, on the other hand, reached a new high in 2007 at 1.52 mt/ha, which was signifi cantly above the previous 1998 peak (1.3 mt/ha).

The years of favorable wheat harvests were followed by below-average levels of rain and snow during the 2007/08 wet season, which reduced Afghani-stan’s 2008/09 wheat crop to 2.1 million metric tons.

Excellent growing conditions allowed Afghanistan’s wheat crop to rebound in 2009/10 to a record 4.3 million tons. Yield rose to a new high of 1.65 tons per hectare, a 68-percent increase over the previous year, and signifi -cantly above the previous 2007 peak (1.52 mt/ha). At 2.6 million hectares in 2009/10, area planted to wheat fi nally rose above the 1976 level. Growing conditions have continued to be favorable and USDA forecasts that 2010/11 wheat production and yield will be 3.7 million tons and 1.57 tons per hectare, respectively (USDA, 2011).

Efforts To Raise Wheat Yields

The growth in wheat yields refl ects long-term efforts at seed development and availability in Afghanistan supported primarily by the United States Agency for International Development (USAID), the Food and Agriculture Organiza-tion of the United Nations (FAO), and the International Center for Agricultural Research in the Dry Areas (ICARDA). These yield increases also demonstrate that seed and fertilizer markets have continued to exist and function, albeit with signifi cant disruptions and under a great deal of adversity (Maletta, 2007;

Favre, 2004; Maletta and Favre, 2003). This has allowed yield to reach a number of new highs when favorable growing conditions occur.

International organizations developed contracting arrangements with Afghan farmers to achieve the adoption of higher yielding seed varieties. These arrangements created demonstration-effects, allowing neighboring farmers to observe and gauge the impacts of adopting new seed varieties, while also facilitating farmer-to-farmer exchanges (Favre, 2004). These demonstra-tion effects likely encouraged the adoption of higher yielding seeds through market-based mechanisms and supply chains.

Available information from the 2001-02 season indicates that wheat farmers in irrigated areas relied to a signifi cant degree on markets to obtain seed (Maletta and Favre, 2003). In 2003, 58 percent of the seed planted was the farmers’ own (saved) seed1; approximately 40 percent was purchased in local bazaars, and the remainder was obtained from other sources such as humanitarian organizations. Similar results were found in rainfed wheat areas, where the farmers’ own (saved) seed and bazaars provided 43 percent and 53 percent, respectively, of the wheat seed planted. In the irrigated wheat subsector, the data show a replacement rate of 39 percent for seed, which suggests a willingness on the part of Afghan wheat farmers to take risks to raise yield and hence production through a process of rapid adoption of improved seed (Favre, 2004).

1Farmers also retain wheat for house-hold subsistence.

Economic Research Service/USDA

Total fertilizer use on all crops just before the Soviet invasion in 1979 is estimated at only about 50,000 mt (or roughly 20 kgs/ha). In recent years, however, the use of fertilizer has become widespread in irrigated wheat areas, with a national average of 179 kg per fertilized hectare of irrigated wheat in 2001-02. The 78 percent of surveyed farmers who used fertilizer on irrigated wheat, typically consisting of urea in the spring and diammonium phosphate (DAP) in the autumn, applied a total of 187,000 mt. This growth in nutrient application was fostered by private traders who sell imported fertilizer throughout the country in the absence of Government programs. The growth underscores the key role of markets in supplying agricultural inputs, despite chaotic, war-torn conditions (Favre, 2004). Fertilizer use continued to grow, by almost 50 percent, to 300,783 mt in 2003 (Roy, 2003).

The fertilizers used in Afghanistan are mainly urea and DAP, and to a lesser extent mono ammonium phosphate obtained from Iran. Afghanistan’s demand for DAP is met through imports from the United States, Australia, China, and Pakistan. Fertilizer from the United States and Australia tends to be shipped fi rst to Pakistan, where it is repackaged and then sold to Afghanistan. Although Afghanistan imports urea from a number of countries, including Tajikistan, Iran, Uzbekistan and Saudi Arabia, the major supplier is Pakistan. Afghanistan’s relatively high prices attract shipments of urea and DAP from Pakistan. The Government of Pakistan’s fertilizer subsidies, including those that seek to cap domestic Pakistani prices, may be a factor contributing to cross border movements (Husain and Gilroy, 2009).

Although functioning markets for seed and fertilizer have allowed growth in yield and output, at 1.4 mt/ha (2002-09 average), Afghanistan’s yield is still low relative to most other countries in the region (fi g. 3). Moreover, the historical performance of Afghanistan’s wheat production sector reveals its sensitivity to variations in weather and precipitation. The destruction and continuing disrepair of the country’s irrigation systems, aside from exac-erbating the impact of adverse growing conditions, likely also explain the

Yield (tons/hectare)

Sources: USDA, Foreign Agricultural Service, Production, Supply and Distribution (PSD) online database.

Figure 3 Wheat yields in Afghanistan and in neighboring countries (2002-09 average)

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Kazakhstan Afghanistan Turkmenistan Tajikistan Russia Iran Kyrgyzstan Pakistan Uzbekistan

Economic Research Service/USDA negligible growth in wheat area, which in turn constrained growth in output.

Consequently, imports of wheat and fl our have played a key role in fostering the growth and stability of Afghan consumption.

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Consumption and Imports

Household surveys demonstrate the centrality of wheat in Afghan food consumption patterns, as wheat accounts for approximately 60 percent of total caloric intake (Government of Afghanistan, 2003). Indeed, the majority of the poor in Afghanistan rely largely on fresh bread and green tea for break-fast and lunch. At 186 kilograms per person per year (2002-09 average), per capita consumption of wheat in Afghanistan was below neighboring countries such as Turkmenistan, Uzbekistan, and Iran but signifi cantly above Pakistan (fi g. 4).2 However, considerable uncertainty surrounds estimates of Afghani-stan’s population and consumption, implying that per capita consumption fi gures are likewise uncertain (see appendix 3).

Apparent per capita consumption of wheat has grown rapidly in recent years, increasing 7.4 percent per year from 2002-09 despite double-digit growth (11 percent) in real fl our prices (fi g. 5).3 Afghanistan’s economy expanded rapidly over this period—offi cial real (adjusted for infl ation) gross domestic product per capita grew at an annual rate of 7.3 percent (IMF, 2010).4 Growth in wheat consumption cannot be attributed completely to rising income. Rehabilitation of the country’s infrastructure and marketing chan-nels allowing increased fl ows of grain into remote areas, combined with a relatively stable macroeconomic environment, have also fostered an upward trend in wheat consumption.5 Rising incomes are expected to lead to dietary diversifi cation in Afghanistan (Maletta, 2007), and current levels of consump-tion are already high. Future growth in consumption may not be as rapid as in the past decade.

Role of Wheat Trade

Given the wide fl uctuations in Afghanistan’s wheat production, imports have helped to stabilize consumption levels and meet the food needs of

2Per capita consumption is approxi-mated as (total domestic consumption– feed & residual) / population.

3In response to the 2007/08 price spikes, D’Souza and Jolliffe (2010) found that ho useholds shifted away from meat, fruits, and vegetables toward staples like wheat as a means of buffer-ing the shock to their caloric (energy) intake. In urban areas, the authors found evidence of Giffen behavior, i.e., increases in demand in the face of price increases.

4This fi gure excludes Afghanistan’s opium crop sector.

5The prices of food commodities that substitute for wheat may have also exhibited an upward trend, thus discouraging consumers from shifting away from wheat.

Consumption (kilograms/person)

Sources: USDA, Foreign Agricultural Service, Production, Supply and Distribution (PSD) online database; and UN FAOSTAT database.

Figure 4 Wheat consumption in Afghanistan and in neighboring countries (2002-09, average)

KazakhstanAfghanistan TurkmenistanTajikistanRussia IranKyrgyzstanPakistan Uzbekistan

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Afghanistan’s growing population (see fi gure 1). Based on a measure of temporal variability known as the coeffi cient of variation, Afghan production has been three and a half times more variable than consumption, as imports have partially offset poor domestic harvests due to droughts, thereby damp-ening fl uctuations in Afghan consumption (Persaud, 2010).

Afghanistan is a landlocked country, bordered on the west by Iran, on the south and the east by Pakistan, and on the north by Turkmenistan, Uzbeki-stan, and Tajikistan. Afghanistan imports wheat and fl our from a number of neighboring countries. However, with a shared border of 1,600 kilometers and a long history of trade, Pakistan is the dominant supplier of wheat to Afghanistan. The private millers and traders of Pakistan work closely with Afghan traders (Khan, 2007). Pakistani wheat fl our is widely accepted by Afghan consumers because of its quality, and Pakistani mills extend credit to Afghan traders seeking to purchase fl our (Schulte, 2007; Khan, 2007).

Links to Pakistan Market

The Government of Pakistan has implemented price policies aimed at improving the availability of food for its population (Dorosh and Salam, 2006). The Government intervenes in domestic wheat markets by procuring wheat from farmers at a support price. The Government also releases wheat to the provinces, which is sold to the fl our mills at a Government-determined “issue” or “release” price (USDA, 2009). These interventions, which tend to involve sales of wheat to fl our mills at below-market rates, generate profi ts for millers while also incurring fi scal costs for the Government because the issue prices do not cover the full cost of procurement (domestic or imported), storage, and handling (USDA, 2009; Dorosh and Salam, 2006). The growth

Consumption (kilograms/person)

Sources: USDA, Foreign Agricultural Service, Production, Supply and Distribution (PSD) online database; and UN FAOSTAT database.

Figure 5 Per capita consumption of wheat in Afghanistan

1990 92 94 96 98 2000 02 04 06 08 10

Economic Research Service/USDA of Pakistan’s fl our mills has been concentrated in provinces neighboring Afghanistan, and a large number of Pakistani mills operate only when they are able to purchase subsidized wheat from their Government (Khan, 2007).

Pakistani traders have incentives to move fl our into relatively high-priced nearby markets, thus providing strong competition for Afghan millers.

Since Pakistan is a major player in the Afghan grain market, wheat prices in Pakistan and Afghanistan tend to move in the same direction. Using monthly data for January 2002 through June 2005, Chabot and Dorosh (2007) conducted formal econometric tests to explore issues of (1) market integra-tion between major markets within Afghanistan, and (2) market integration between Pakistani and Afghan markets. Cointegration results suggest that wheat prices in major markets in Afghanistan and in Lahore, Pakistan, tend to move together in the long run (Chabot and Dorosh, 2007). Changes in Paki-stan’s Government-fi xed release or issue prices, to the extent that they infl u-ence market prices of wheat within the Pakistani market, would also shape prices that prevail in Afghanistan. Indeed, from 1999-2009, the real issue price of wheat in Pakistan and the real retail price of wheat in Afghanistan are well-correlated (correlation coeffi cient = 0.91), implying that shifts in Pakistan’s price policies impact Afghan consumers.

In addition to Pakistan’s price policies, its trade policies and domestic supply situation have infl uenced Afghan wheat prices. Although wheat price changes in these two countries have, over the years, generally been similar in terms of directionality, the gap between Afghan and Pakistani wheat prices increased sharply in 2008 (fi g. 6). Afghanistan’s food supply network broke down due to a confl uence of events, including shortfalls in Pakistani and Afghan wheat production and Pakistan’s bans on wheat and fl our exports (Persaud, 2010).

U.S. $ per metric ton

Notes: Pakistani wheat prices are Peshawar retail prices; Afghan wheat prices are simple averages of prices from Kabul, Jalalabad, Mazar, Faizabad, Hirat, and Kandahar.

Sources: Pakistan’s wheat prices are from Government of Pakistan, Monthly Review on Price Indices (various issues). Afghan wheat prices are from the U.N. World Food Programme’s Price Analysis in Afghanistan (World Food Programme, 2011).

Figure 6 Prices of wheat in Afghanistan and Pakistan

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As supply disruptions eased, Afghan-Pakistani price gaps decreased after May 2008.

More recently, Pakistan experienced large-scale fl ooding after unusually heavy monsoon rains that began at the end of July 2010. This latest shock to Pakistani agriculture is not an immediate threat to Afghan food security due to a combination of relatively abundant Afghan supplies, the availability of imports from Kazakhstan, and notably, Pakistan’s high levels of wheat stocks that allow Pakistan to continue exporting. Also, despite the severe fl ooding, Pakistan’s 2010/11 wheat crop is estimated at 23.9 mmt, only slightly below the previous year’s (2009/10) record wheat production of nearly 24.0 mmt.

In December 2010 the Government of Pakistan removed its ban on exports, allowing private traders in the country to export up to 1.0 mmt of wheat.

The decision to lift the export ban will likely result in increased exports to Afghanistan (USDA, 2010).

Signifi cant future growth in Afghan wheat consumption is likely, if domestic production and Pakistani policies support such growth. We expect popula-tion to grow at an annual rate of 2.25 percent through 2020, in line with Maletta (2007). Real GDP is projected to grow 6.94 percent per year from 2009-14, consistent with a recent International Monetary Fund Country Report (IMF, 2010). Population and income growth rates of these magnitudes raise the question of whether domestic production of wheat will keep pace with consumption, or whether Afghanistan will experience a widening gap between demand and domestic supply.

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Prospects for Afghanistan’s Wheat Market

Afghanistan’s agricultural potential is limited by its predominantly moun-tainous terrain and arid to semi-arid climate. Nevertheless, further increases in wheat production and productivity are possible.

Water and Irrigation

Afghanistan’s water resources include an estimated 75 billion cubic meters (bcm) of potentially available renewable water resources annu-ally, comprised of 57 bcm of surface water and 18 bcm of ground water.

Given the country’s low precipitation, ground water supplies are recharged mainly by surface water. Although agriculture is the primary user of water, accounting for approximately 93 percent of Afghanistan’s actual total water use, irrigation consumes only about 20 bcm per year—far less than the country’s potentially available annual renewable water resources (75 bcm) (Ahmad and Wasiq, 2004).

The U.N. Food and Agriculture Organization estimates that 7.794 million hectares of Afghan land were arable in 2008 (FAO, 2011). However, given the country’s relatively low and variable rainfall, irrigation is critical— approximately 85 percent of the total agricultural output and 70 percent of wheat production are supplied by irrigated areas. Afghanistan’s potential irrigable area is about 5 million hectares, well above the currently developed area of about 2.6 million hectares (ADB, 2003).

The relatively modern, formal river-diversion structures that were built in the 1960s and 1970s in Afghanistan account for only 15 percent of the total irrigated area. Traditional systems that employ informal river-diversion structures maintained by the users account for about 55 percent of the total irrigated area, while traditional systems that are based on natural springs account for the remaining 30 percent. The very low effi ciency rating of these irrigation systems (about 25 percent) indicates substantial room for reducing water wastage and increasing the irrigated area.6 Aside from damage resulting from confl icts and lack of maintenance, salinity and water logging problems affect a number of the more modern systems and larger traditional systems (ADB, 2003).

Mainly because of unpredictable water availability that has been exacerbated by years of military confl ict, in 2009 only 3.2 million hectares, or less than half of the land that could be used for crops, was actually cultivated. Since only 3 of Afghanistan’s 34 provinces have fully operating irrigation systems in place (Torell and Ward, 2010), cropped area may grow as a consequence of investments aimed at rehabilitating existing irrigation networks, without the necessity of building new dams (Maletta, 2007). Additions to cropped area, being irrigated land, would be expected to provide relatively high yields.

However, efforts to exploit water resources may lead to confl ict among Afghan communities. Water is a shared resource, and projects that are designed to harvest water in one location may reduce its availability in adja-cent farming communities. In addition to the lack of technical and fi nancial resources, the issue of water rights has been a complicating factor in the

6Despite being a useful metric, ir-rigation effi ciency, defi ned as the ratio between the estimated irrigation water requirements and the actual irrigation water withdrawal, does not account for the possibility that unused water can help recharge aquifers (FAO, 2004).

Economic Research Service/USDA development of Afghanistan’s surface-water irrigation systems (Rout, 2008).

Land has remained idle, not only as a consequence of physical damage to canals, but also as a result of shortcomings in water management, depriving some farmers of access to water (Maletta, 2007).

Moreover, programs to harness Afghanistan’s rivers may also generate tensions with neighboring countries, to the extent that such investments reduce the fl ow of water to adjacent countries that share the same river basin with Afghanistan. Afghanistan’s three major watersheds include (1) the Helmand River, fl owing from the southern slopes of the Hindu Kush and proceeding southwest to the Sistan Basin in Iran; (2) the Kabul River, which begins in the southeastern Hindu Kush and moves south through the city of Kabul, before turning east and joining the Indus River in Pakistan;

(3) the Amu Darya, which begins on the northern slopes of the Hindu Kush.

The Amu Darya basin is notable in that it extends into the Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan, as well as Afghanistan (Ahmad and Wasiq, 2004). Large-scale investments aimed at actualizing Afghani-stan’s irrigation potential may in some cases require treaties with affected downstream countries.

Although farmers have responded to limited access to surface water by digging wells, ground water is a critical, and, for many households, the sole source of drinking water. Water tables in Afghanistan are already falling, requiring deeper wells. Shifts toward greater agricultural usage of ground water is risky and will likely come at the cost of human consumption (United Nations, 2008).

Given the diffi culties and the potential for confl ict that are associated with expanding the country’s irrigation sector, imports of wheat have played an important role in allowing Afghanistan to compensate for its own domestic constraints on water availability. Water, a fundamental input for crop produc-tion, is embedded in agricultural products—trade in agricultural commodities can be viewed as a virtual fl ow of water from producing and exporting coun-tries to importing countries. Thus, arid and semi-arid countries can achieve welfare improvements through food imports, while reducing potential competition among neighboring countries that share the same river basins.

Yield Potential

Observations of farmers who have adopted improved inputs, as well as evalu-ations of emergency programs that distribute fertilizer and improved seed, provide a rough indicator of the potential for increasing wheat productivity in Afghanistan.

Almost 20 years ago, the Swedish Committee Agricultural Survey esti-mated that yields from improved seed varieties ranged from 2.98 mt/ha in the Northwest to 3.47 mt/ha in the East Central region in 1993 (Swedish Committee for Afghanistan, 1993). A key point is that these were actual observed yields obtained by farmers and not experimental or expected yields. Since 1993, newer varieties of improved seed with even higher yields have been introduced. In 2001-02 and 2002-03 improved seeds yielded 3.0-4.0 mt/ha on average. Depending largely on soil quality as well as factors such as the availability and use of water and fertilizer, many Afghan

Economic Research Service/USDA farmers achieved yields that were substantially higher than the average, e.g., yields in the range of 5.0-5.75 mt/ha (Maletta and Favre, 2003).

FAO distributed improved seed as part of its Agricultural Emergency program for the 2002-03 agricultural year and the result was an average yield of 3.30 mt/ha among program benefi ciaries, who were mostly poor small farmers (Mollet, 2003).

Operating through nongovernmental organization (NGO) partners, the Inter-national Center for Soil Fertility and Agricultural Development (IFDC) and the International Center for Agricultural Research in the Dry Areas (ICARDA) provided fertilizer and improved seed to Afghan wheat farmers in an emer-gency distribution program. This program, which reached approximately 200,000 farmers in 13 provinces, entailed the distribution of about 15,700 mt of fertilizer for wheat in the spring and fall of 2002 and in the spring and summer of 2003. A combination of favorable weather conditions, the avail-ability of fertilizers (mainly urea and DAP), and improved seed resulted in average wheat yields of 4 mt/ha with a considerable degree of variability around the average.

Estimates of incremental yield indicate that 15,700 tons of fertilizers provided an additional yield of 78,500 tons of wheat, i.e., 1 kg of fertilizer was associated with an additional 5 kg of wheat (Gregory, 2006). A great deal of caution is warranted if the objective were to generalize this incremental yield estimate beyond the recipient farmers and beyond the window of time in which the program was implemented. The estimated relationship between additional fertilizer and yield gain is conditional upon factors such as soil quality, weather conditions, and farmers’ skill and knowledge. However, this fertilizer and seed distribution program did cover 13 agriculturally impor-tant provinces, and the average realized yield of 4 MT/HA is consistent with results noted earlier in this report (Gregory, 2006).

Oushy (2010) suggests that wheat yield can be increased by improving and diversifying crop rotations beyond the typical wheat/rice or wheat/corn cycle, thereby sustaining soil properties and productivity. These commonly used crop rotations have resulted in deteriorating soil condition and proprieties, including lower fertility, diminished organic matter, lower soil water-holding capacity, salinity, and weed and disease invasion (Oushy, 2010).

Moreover, since less than half of Afghanistan’s wheat area is sown to high-yielding varieties, the average yield for the country as a whole will trend higher as the use of superior seed becomes more widespread. This will entail exploiting the genetic potential of existing seeds that are already available for use, rather than developing different strains. When new seed varieties were used in 2002-03, average wheat yields for irrigated fi elds were about 3 mt/ ha (peaking at more than 6 mt/ha in some locations), while for rainfed areas the average was 1.1 mt/ha with peaks up to 3 mt/ha. These fi gures could understate yield potential—it is important to note that seeds classifi ed as higher yielding include older strains as well as improved seeds that exhibit declining yield as a consequence of having been genetically contaminated by inbreeding with other varieties.

Economic Research Service/USDA

Projections to 2020

In the longer term, domestic wheat production in Afghanistan could expand signifi cantly with greater use of improved inputs. However, even with dietary diversifi cation tempering demand growth, wheat consumption could also grow signifi cantly, propelled by strong growth in population, as well as improvements in marketing chains that connect consumers to domestic and external supplies of food.

It is not possible to project the prospects for Afghanistan’s wheat market with certainty, given the impossibility of accurately forecasting the future growth of income, population, and food prices, and the unpredictable pace of improvements in technology and irrigation. Accordingly, we develop a quantitative framework that is capable of analyzing a range of different time paths and/or growth rates of key drivers of supply and demand. Specifi cally, we evaluate the likely role of yield growth and area expansion in the future growth in supply, and in meeting Afghan wheat demand using a multiyear simulation model (see box, “Characteristics of the Simulation Model”).

Overview of Scenarios Based on different scenarios of future growth of Afghanistan’s wheat yields, we develop projections through 2020 of Afghanistan’s domestic wheat production, imports, and consumption. The three scenarios considered in the model are similar in a number of ways. In all scenarios, for the 2010-20 period, real GDP grows at an annual rate of 6.0 percent (table 2). (By way of comparison, IMF Country Report (2010) predicts that real GDP will grow in the range of 6 to 7 percent per year for 2009-15.) Afghanistan’s popula-tion grows at annual rate of 2.3 percent as in Maletta (2007). Stocks of wheat and fl our are assumed to be negligible. The Afghan-Pakistani border remains porous, and moreover, neither Afghan nor Pakistani trade policies hinder wheat trade, implying that trade is based on Afghan demand and relative prices. Throughout the projection period, the prices of wheat and fl our in Afghanistan track Pakistan’s release price, which in turn moves in

Characteristics of the Simulation Model

The analytical framework incorporates behavioral relationships for consumption and area cultivated to wheat. Farm production of wheat in Afghanistan is an identity, computed as the product of area and yield. Similar to the USDA Baseline models, wheat area is specifi ed as an increasing function of the expected returns from its cultivation, where the lagged wheat price and lagged yield represent expected returns. Yield growth is driven by various trend terms that represent differing rates of improvements in technology and irrigation. Consumption of fl our (on a wheat-equivalent basis) is a function of income, population, and the own-price, i.e., the price of fl our. Stocks are assumed to be zero. Imports are computed by subtracting domestic production from consumption, where all variables are on a wheat-equivalent basis. Pakistan’s release price of wheat infl uences both wheat and fl our prices in Afghanistan.

A more complete description of the model, including the model parameters, is given in appendix 1 and the equations are provided in appendix 2.

Economic Research Service/USDA lockstep with projections of Pakistan’s government producer price generated by the USDA Baseline (USDA, 2011). Afghan wheat production does not rise rapidly enough to exert downward pressure on domestic fl our prices in any scenario, i.e., Afghan fl our prices do not fall below the margin-adjusted Pakistani release price. Since consumers face an identical price vector in all scenarios and income growth is the same in all cases, projected wheat consumption does not differ from scenario to scenario.

The critical distinctions among the three scenarios are that they incorporate different assumed rates of yield growth. In the Reference case (Scenario I), yield grows at an annual rate of 0.9 percent, which matches the projected yield growth for Other Asia & Oceania generated by the USDA Baseline (USDA, 2011).7 For perspective, this 0.9 percent rate of increase is above Afghanistan’s 1980-2009 annual yield growth of 0.4 percent shown in table 1, but less than half of the country’s more recent 1990-2009 annual yield growth of 1.97 percent. In Scenario II, yield continues to increase at its post-1990 rate of 1.97 percent per year to 1.91 mt/ha in 2020. Scenario III, for illustrative purposes, indicates the types of production and productivity advances that would likely be necessary for Afghanistan to eliminate its reli-ance on imports.

The model replicates the base year levels of Afghan wheat area, production, imports, consumption, and prices. The base year for the projections is 2010.

The prior year is not an appropriate choice for the base period because the 2009 fi gure for apparent per capita consumption of wheat is an outlier— apparent consumption per person spiked to 237 kgs per person in 2009 (fi g.

7). The consumption data are uncertain, as data on stocks are not available.

Nevertheless, an advantage of using a 2010 base is that consumption for that year is more consistent with the recent historical trend, whereas a 2009 base amounts to starting the projections from an extreme observation. However, in evaluating the projections, it is changes relative to the base year—as well as the relative differences between the various scenarios—that are relevant. Moreover, the scenarios presented herein are neither forecasts nor predictions.

Scenario I: Reference Afghan domestic prices of wheat and fl our, which are shaped by Pakistan’s government-determined release price, exhibit almost no growth in real terms from 2010-20 (table 3). On a wheat equivalent basis, per capita fl our demand (consumption per person) grows 1.2 percent per year over the same period, 7USDA’s Baseline includes Afghanistan in the Other Asia & Oceania region.

Table 2 Major Afghan wheat model analytical assumptions

Variable Reference High yield Self-suffi ciency

Percent

Population growth 2.25 2.25 2.25

Real Gross Domestic Product growth

6.00 6.00 6.00

Yield growth 0.90 1.97 5.50

Source: USDA, Economic Research Service.

Economic Research Service/USDA due to a combination of growth in per capita GDP of 3.7 percent per year and stability in fl our prices. Total demand, as distinct from per capita consump-tion, increases at an annual rate of 3.5 percent to 8.4 mmt in 2020. Hence, projected increases in consumption are not as rapid as in the past decade (fi g.

8). Nevertheless, this growth in demand still exceeds projected increases in output, as indicated below.

Table 4 shows the average yields on irrigated regions (2.36 mt/ha) and rainfed regions (0.92 mt/ha) for the base period. Yield on irrigated land is 2.6 times higher than on rainfed areas. This fi gure, which matches the irrigated-to-rainfed ratio computed from yield data provided by Maletta (2004) for 2002/03, is also similar to the yield ratio computed from fi gures recently provided by CIMMYT.8 Also in the base period, the proportion of irrigated (rainfed) area is 45 percent (55 percent). The ratios of irrigated-to-rainfed wheat areas and irrigated-to-rainfed wheat yields result in a national average yield of 1.57 mt/ha for Afghanistan as a whole, which matches the 2010 data from USDA (2011).

Farmers rely on functioning seed and fertilizer markets to expand the share of land cultivated with improved seed varieties and to increase nutrient appli-cation. In the Reference scenario, the yield in Afghanistan, i.e., the national average, grows at an annual rate of 0.9 percent, from 1.57 mt/ha in the base period to 1.72 mt/ha in the terminal year (fi g. 9). The yield increases obtained in the Reference scenario do not require that Afghanistan increase the propor-tion of its irrigated wheat area or that the country improve its yields on rainfed areas. By assumption, the rainfed yield remains constant at 0.9 mt/ ha throughout the projection period, while in contrast the irrigated yield rises from 2.36 mt/ha in 2010 to 2.7 mt/ha in 2020 (see table 4). If the proportion

8Personal communication January 9, 2011.

Kilograms per person

Sources: 1990-2010 data are from USDA, Foreign Agricultural Service, Production, Supply and Distribution (PSD) online database.

ERS model replicates 2010 data; 2011-20 figures are results of ERS model.

Figure 7 Projected per capita consumption of wheat (all scenarios)

1990 1995 2000 2005 2010 2015 2020

Actual

Projected

Economic Research Service/USDA of irrigated wheat area remains at 45 percent throughout the projection period and the ratio of irrigated-to-rainfed yields climbs to 2.9-to-1.0 in 2020, the average yield for the country as a whole rises to 1.72 mt/ha in the terminal year. This 2020 fi gure is above the 2002-09 average yields for Kazakhstan and Turkmenistan but below all other countries in the region (see fi gure 3).

Area cultivated to wheat in Afghanistan is higher in 2020 than in the base period (see table 3 and fi gure 10)—returns from planting wheat improve, entirely as a result of the upward trend in yield. Area and yield grow at annual rates of 1.3 percent and 0.9 percent, respectively, and wheat output rises to 4.6 mmt in 2020 (fi g. 11). Nevertheless, at 2.2 percent per annum, growth in domestic wheat production does not keep pace with demand, and imports continue to increase (fi g. 12) 5.2 percent per year. By 2020, approxi-mately 46 percent of Afghanistan’s wheat demand is met by imports, versus 38 percent in the base period.

Scenario II: High Yield Growth Prices, income, and hence consumption remain the same as in the Reference scenario. Afghanistan’s wheat yield increased rapidly from 1990-2009, and

Table 3 Results of Afghanistan wheat model

Scenario I Scenario II Scenario III

Reference High yield Self-suffi ciency

Base year

Terminal year

Annual growth

Terminal year

Annual growth

Terminal year

Annual growth

Percent Percent Percent

Area (1,000 ha) 2,350 2,666 1.3 2,774 1.7 3,147 3.0

Yield (mt/ha) 1.57 1.72 0.9 1.91 1.97 2.68 5.5

Production (1,000 mt) 3,700 4,591 2.2 5,308 3.7 8,427 8.6

Consumption (1,000 mt) 6,000 8,427 3.5 8,427 3.5 8,427 3.5

Per capita consumption (kgs/person) 199 224 1.2 224 1.2 224 1.2

Wheat imports (1,000 mt) 2,300 3,836 5.2 3,119 3.1 0 --

Afghan wheat price ($/mt) 341 340 0.0 340 0.0 340 0.0

Afghan fl our price ($/mt) 498 497 0.0 497 0.0 497 0.0

GDP ($ millions) 15,608 27,952 6.0 27,952 6.0 27,952 6.0

Population (millions) 30.2 37.7 2.3 37.7 2.3 37.7 2.3 mt = metric ton.

ha = hectare.

kg = kilogram.

GDP = Gross Domestic Product.

Sources: Area, yield, production, consumption, and imports are from USDA, Foreign Agricultural Service, Production, Supply and Distribution online database. Population and GDP are from International Monetary Fund (2011). Prices of wheat and fl our are from the U.N. World Food Programme’s Price Analysis in Afghanistan (World Food Programme, 2011).

Economic Research Service/USDA

Scenario II analyzes the impacts of sustaining this strong growth through 2020. Thus, yield grows at an annual rate of 1.97 percent, from 1.57 mt/ha in the base period to 1.91 mt/ha in the terminal year (see fi gure 9). Just as in the Reference case, the yield increases obtained in Scenario II do not require that Afghanistan increase the proportion of its irrigated wheat area or that the country improve its yields on rainfed areas. The yield on irrigated fi elds does however rise from 2.36 mt/ha in 2010 to 3.13 mt/ha in 2020 (see table 4). Note that the yield improvement considered in this scenario is within the genetic potential of existing wheat cultivars discussed earlier in this report.

1,000 metric tons

Sources: 1990-2010 data are from USDA, Foreign Agricultural Service, Production, Supply and Distribution (PSD) online database.

ERS model replicates 2010 data; 2011-20 figures are results of ERS model.

Figure 8 Projected wheat consumption (all scenarios)

Actual

Projected

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

1990 1995 2000 2005 2010 2015 2020

Table 4 Yield assumptions for Afghan wheat model

Variable Base period

Reference terminal year

High-yield growth terminal year

Self-suffi ciency terminal year

Percent

Irrigated wheat area 45 45 45 64

Rainfed wheat area 55 55 55 36

Metric ton/hectare

Average yield on irrigated land 2.36 2.70 3.13 3.50

Average yield on rainfed land 0.92 0.92 0.92 1.20

National average yield 1.57 1.72 1.91 2.68

Economic Research Service/USDA

Metric tons per hectare

Sources: 1990-2010 data are from USDA, Foreign Agricultural Service, Production, Supply and Distribution (PSD) online database.

ERS model replicates 2010 data; 2011-20 figures are results of ERS model.

Figure 9 Wheat yield under alternative scenarios

Actual

0.50

1.00

1.50

2.00

2.50

3.00

1990 1995 2000 2005 2010 2015 2020

High yield

Self-sufficiency

Reference

1,000 hectares

Sources: 1990-2010 data are from USDA, Foreign Agricultural Service, Production, Supply and Distribution (PSD) online database.

ERS model replicates 2010 data; 2011-20 figures are results of ERS model.

Figure 10 Wheat area under alternative scenarios alternative scenarios

Actual

High yield

Self-sufficiency

Reference

1,500

1,700

1,900

2,100

2,300

2,500

2,700

2,900

3,100

3,300

1990 1995 2000 2005 2010 2015 2020

Economic Research Service/USDA

1,000 metric tons

Sources: 1990-2010 data are from USDA, Foreign Agricultural Service, Production, Supply and Distribution (PSD) online database.

ERS model replicates 2010 data; 2011-20 figures are results of ERS model.

Figure 11 Wheat production under alternative scenarios

Actual

High yield

Self-sufficiency

Reference

1,400

2,400

3,400

4,400

5,400

6,400

7,400

8,400

9,400

1990 1995 2000 2005 2010 2015 2020

1,000 metric tons

Sources: 1990-2010 data are from USDA, Foreign Agricultural Service, Production, Supply and Distribution (PSD) online database.

ERS model replicates 2010 data; 2011-20 figures are results of ERS model.

Figure 12 Wheat imports under alternative scenarios

Actual

High yield

Self-sufficiency

Reference

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1990 1995 2000 2005 2010 2015 2020

Economic Research Service/USDA

For the country as a whole, national average yield rises to 1.91 mt/ha in the terminal year. This 2020 fi gure, which is in line with the 2002-09 average yields for Tajikistan and Russia, is well below those of Pakistan and Uzbeki-stan (see fi gure 3).

Area cultivated to wheat now expands more rapidly than in the previous scenario (see table 3 and fi gure 10), as faster improvements in yield (see fi gure 9) accelerate the growth in returns from producing wheat. Area, yield, and production increase at annual rates of 1.7 percent, 1.97 percent, and 3.7 percent, respectively. At 5.3 mmt in the terminal year, wheat production in Scenario II is 15.6 percent higher than the 2020 level from Scenario I (4.6 mmt). Nevertheless, with consumption outpacing domestic output, imports continue to trend higher (see fi gure 12), growing 3.1 percent per annum (see table 3).

Scenario III: Self-Suffi ciency The productivity advances considered in the previous scenario may be some-what optimistic. Scenario III illustrates, as a hypothetical case, what would be required for Afghanistan to achieve self-suffi ciency. Accordingly, this scenario models the impacts of even faster rates of technological change on irrigated fi elds. Unlike the previous two experiments, yield on rainfed land now grows as a result of adopting higher quality seed. In addition, the proportion of Afghanistan’s wheat area that is irrigated now rises as a conse-quence of improving water availability/management.

Prices, income, and hence consumption remain the same as in the previous two experiments. To achieve self-suffi ciency in the next decade, more wide-spread use of improved seed and fertilizer on irrigated and rain fed wheat fi elds would have to be combined with improbably sharp increases in irri-gated wheat area. In line with the feasible 2020 targets indicated by Maletta (2007), rainfed (irrigated) yields rise to 1.2 mt/ha (3.5 mt/ha), as farmers rapidly adopt improved inputs.