We remain positive about Morocco's agricultural sector and do not believe recent FTAs signed with the EU (and in signing with Canada) will discourage domestic production. In fact, domestic demand has encouraged farmers to plant more and to increase yields for grains, which decreased the country's reliance on imports. We expect this to continue to be the case in the coming years. In the dairy and livestock industries, we expect increased government support and investment - backed by strong domestic demand - to help these sectors to develop, even though competition from European and Canadian dairy giants could slow this process. Overall, we expect the FTA to help moderate domestic food prices.

Key Forecasts

- Wheat production growth to 2015/16: 56.1% to 7.6mn tonnes. This will come on the back of steady growth in the country's wheat demand, on the back of strong economic growth. Also, as a result of increased planting and productivity gains.

- Sugar consumption growth to 2015/16: 9.8% to 1.4mn tonnes. Sugar consumption growth will be restricted in the medium term. First, we predict that the government will gradually lift sugar subsidies over the next few years as part of a plan to cut spending. Second, Morocco's authorities have been encouraging the population to cut down on sugar consumption for public health reasons.

- Milk production growth to 2015/16: 15.9% to 2.4mn tonnes. Sustained growth will come from the commercialisation of the dairy sector and the move to large-scale mechanisation. These trends will be enforced by rising consumer demand for value-added marketed dairy products.

- Morocco real GDP growth 2012: 4.3%, up from 4.2% in 2011. Over the longer term, we forecast GDP growth to average 4.7% between 2011 and 2016.

- Morocco forecast annual average for consumer price inflation 2012: 2.0%, up from 0.9% in 2011. We forecast inflation to average 2.1% between 2011 and 2016.

Industry Developments

Morocco is currently under negotiation with Canada to sign a free trade agreement (FTA) covering the countries' agricultural trade. In fact, Morocco bought CAD267mn in Canadian agricultural products in 2009. This means that the vast majority of trade between the two countries is in the agricultural sector. In fact, Morocco sources most of its durum wheat from Canada as well as more regular types of wheat. Also, the country has already signed an FTA with Canada's neighbour and trade partner, the US, which will make the signing of the treaty straightforward.

The EU FTA is very controversial among European politicians as farmers in some European countries, such as Spain, are afraid they will not be competitive compared to their Moroccan counterparts, especially for fruits and vegetable exports. We do not expect the same controversies to exist for Moroccan dairy exports. In fact, even if the country has a growing milk surplus to export in dairy products such as butter and cheese, we do not see the country's dairy production to be efficient enough to compete with major European brands. In fact, dairy production in Morocco is still very fragmented, milk quality needs to be improved and transportation is often uncertain. Therefore, we do not see Moroccan dairy farmers as likely to endanger their European counterparts. However, EU dairy product exports could prevent future production growth in the sector in the medium term.

Moroccan main sugar producer, Cosumar, is seeking to buy sugar assets in Brazil and Africa in order to boost further its production capacity. This is part of the company's objective to increase productivity and efficiency at its plants in order to increase domestic sugar self-sufficiency. Thus, the acquisition of assets in Brazil and Africa could serve two purposes. First, it would enable the company to increase the amount of sugar it can produce, bypassing domestic resource constraints, such as water and land shortages. Second, it would enable the company to integrate some of its main competitors' practices, improving management and efficiency. In fact, costs for sugar producers in Morocco are two times higher than in Europe, and even more than in Brazil.

Click for Report details:Morocco Agribusiness Report Q2 2012