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Egypt Agribusiness Report Q3 2011
Business Monitor International, June 2011, Pages: 57
Business Monitor International's Egypt Agribusiness service provides proprietary medium term price forecasts for key commodities, including corn, wheat, rice, sugar, cocoa, coffee, soy and milk; in addition to newly-researched competitive intelligence on leading agribusiness producers, traders and suppliers; in-depth analysis of latest industry developments; and essential industry context on Egypt's agribusiness service.
BMI View: The worst of Egypt's political unrest appears to be over, but the country continues to suffer from high food price inflation and a reliance on foreign imports. The government continues to subsidise key staples such as wheat, rice and vegetable oils in order to keep prices stable. Furthermore, Egypt is estimated to have had a record 2010/11 wheat crop. Nevertheless, the Arab world's most populous country should continue to see strong demand growth over the medium term. The government is creating initiatives to increase agricultural production over the long term. However, annual production deficits mean the country will remain vulnerable to global food price increases, particularly since food represents over 40% of the country's inflation basket.
Key Trends
- Wheat consumption growth to 2015: 12.4% to 20.1mn tonnes. Egyptians are some of the highest per capita consumers of wheat in the world. As such, the main growth driver should be population increases due to the saturation of the market.
- Milk production growth to 2014/15: 14.8% to 19.2mn tonnes. Egypt's dairy industry is still largely underdeveloped. However, a number of larger-scale farms are slowly starting to appear, and we expect that investment in the dairy sector and improving production will pick up in coming years Sugar production growth to 2014/15: 14.4% to 2.1mn tonnes. This will be mainly due to an increase in planted area for sugar beet. A key driver is that once it has grown on the soil for a few seasons, salinity declines markedly, thus allowing for the cultivation of alternative crops, making beet production even more attractive.
- 2011 Real GDP Growth: 3.2% (down from 5.1% in 2010; predicted to average 4.5% from 2010 until 2015).
Food And Beverage Price Inflation: 20.5% year-on-year in March 2011 (up from 19.9% y-o-y in March 2010).
Industry DevelopmentsIn a bid to counter rising prices of meat and poultry, the Egyptian government is trying to increase the supply of poultry in the market. This is being done by encouraging imports, ostensibly by exempting them from insurance premiums normally required for all imports. This follows a previous decrease in import premiums as a way of controlling rising food price inflation. After the planned six month exemption plan expires, the government will then allow banks to determine insurance premiums themselves. Although the decision to support importers should help in the short term, it does not address some of the underlying issues of the poultry sector. Poultry production historically has run a small deficit, but is generally sufficient to meet domestic demand.
Prior to June 2010, the Egyptian central bank had maintained a 100% cash cover requirement for banks on sugar imports. This means that the Egyptian central bank forced banks underwriting sugar imports to ensure that traders demonstrated sufficient collateral (100% of the cost of the import tender) when negotiating with exporters. In December, the central bank lowered the requirement to 50% on sugar imports, while allowing banks to maintain their own requirements for all meat imports. On February 21 2011, the central bank again changed the requirements so that banks negotiating sugar imports can now set their own cash cover requirements. Essentially, this means that banks are allowed to be more flexible with traders, which should encourage sugar imports.
Traditionally, Egypt has been a net rice exporter, with the majority of exports going to regional partners such as Syria, Turkey, Jordan and Saudi Arabia. As global food prices spiked, Egypt imposed a ban on rice exports in March 2008, in an attempt to keep a lid on domestic prices of staple foods. This aim has largely been achieved with the help of government subsidies. The government subsequently extended the ban on rice exports by another year to October 2010. The government's decision to maintain the ban on exports despite the initial aim of keeping domestic prices down is due to Egypt's chronic water shortages. Rice production in the country requires large volumes of water and Egypt is hoping to reduce rice output to free up water reserves to where they can be used more efficiently.
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