Iraqi Public Investment Priorities to Accelerate Growth of Agriculture

Agricultural production decisions in Iraq are weakly linked to market signals and comparative advantage, with small farmers making decisions based on subsistence needs and commercial farmers seeking to minimize financial risks through rent-seeking. Public subsidies to agriculture expose little relationship to Iraqi comparative advantage and resource use efficiency criteria, thus exacerbating inefficient resource utilization by farmers. Appropriately targeted public sector infrastructure investments can reduce business uncertainties, encouraging farmers and other agribusinesses to make production investment decisions based on comparative advantages and market signals. This, in turn, improves resource use efficiency, competitiveness, and profit potential. Examples of such investments include irrigation system rehabilitation, which stabilizes an optimum reliable irrigation water supply to presently cultivated agricultural land. This investment needs to be accompanied by a long-term commitment between the public water authority and farmers to respect the economics of production. Investment in an irrigation system serving land not suffering from salinity problems can achieve an output response from one season to the next. Land reclamation investments to combat salinity have a longer-term payoff and are often more expensive per unit of land reclaimed. Other public sector investments to consider include electricity infrastructure to guarantee 24/7 grid electricity to agribusinesses at competitive prices. Public funds can also provide interim solutions, such as non-grid temporary supply, subsidized to equate to grid prices. Additionally, infrastructure necessary to supply reliable potable water to agro-industries that require it can be provided. The level of subsidies referred to above should be equated to similar subsidies of regional competitors in a way to approximate a "level playing field" for Iraqi agriculture. The public investment priorities specified above must be accompanied by appropriate operational policy changes to be effective. Such changes can be expected to lead to increased investments by private sector entrepreneurs in commercial farming operations and in other agribusiness enterprises throughout selected product value chains. As competitiveness improves, subsidy levels can be phased downward. Some of the more urgent complementary operational policy changes needed are summarized in other essays of the agricultural policy dialogue series.