Country Focus: Egypt

by Melissa Alexander
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Egypt enjoys an exceptional agricultural resource base, including fertile soils, a temperate climate, a comprehensive irrigation system, the absence of recurring natural disasters that could reduce productivity, and a location near expanding markets in Europe, Africa and the Middle East.

Over the past decade, the Egyptian government has worked to liberalize markets and privatize agriculture. The private sector now participates in grain trading and processing, but the government also plays an active role in its own marketing and processing of strategic commodities, including wheat.

The government's grain marketing activities are handled by several agencies, including the Ministry of Supply and Domestic Trade, which procures wheat from Egypt's farmers; the General Authority for Supply Commodities, which procures imported wheat; and the Food Industries Holding Company, which buys wheat for state-run flour mills.

Privatization of grain processing facilities has been implemented mostly through selling of shares, although the government retains a controlling interest in the majority of the country's mills. Some completely private mills also have begun operations since economic reforms began.

The government's agricultural policy continues to aim at moving Egypt closer to self-sufficiency in basic foodstuffs. To this end, the government in 1997 launched a massive 20-year, multi-billion dollar project to expand the total area of arable land available in the country through an extensive irrigation project, known as the New Valley project, in the southwestern desert.

Work on the first stage, including the construction of a large pumping station and a 72-km irrigation canal from Lake Nasser northwest into the western desert are progressing at a rapid rate. Agricultural development will be largely private sector driven, with parcels of land (4,000 to 50,000 ha) available for Egyptian and other investors with sufficient development capital.

Another project will draw on vast reserves of underground water in the western desert to irrigate another 100,000 ha. Similar to the New Valley project, this land will be developed by private sector investors, the first of whom already are irrigating about 1,000 ha in trials.

The Ministry of Agriculture also has embarked on a successful program of developing and distributing high-yielding white wheat varieties, which have attained yields of as high as 8 tonnes per ha. The government intends to encourage more area planted to this high-yielding wheat, especially in Upper Egypt, where the variety has a strong resistance to yellow rust and has performed well in the hot, dry climate there.

WHEAT AND FLOUR MILLING. Wheat production in Egypt consists mostly of soft white wheat varieties, apart from a small area devoted to durum wheat. More than two-thirds of domestic wheat production is used on-farm, either for direct consumption or for animal feed.

To encourage farmers to sell their wheat to the Supply Ministry, procurement prices generally are significantly higher than international prices. Even so, the Ministry typically fails to reach its procurement targets, as farmers tend to keep stocks for on-farm use and local marketing.

Egypt's primary flour type is 82% extraction flour that is mainly used for "baladi" bread and is subsidized at a cost of about 2.8 billion Egyptian pounds annually (about U.S.$728 million). The marketing of this flour is totally regulated through the Supply Ministry. The second type is 72% extraction wheat flour, which is mostly used for "fine" European-style bread, and is the only type of flour that may be produced by the private sector.

Egypt continues to have one of the highest wheat per capita consumption levels in the world, although domestic use has declined some in recent years. Per capita consumption in 1999 was 189 kg, compared with 200 kg in 1997.

One factor in this trend is an increase in the consumption of bread substitutes, such as rice and potatoes. Another is the government's decision in 1997 to launch an experimental wheat-maize flour blend for baladi bread, spurred in part by the soaring price of wheat and a desire to increase domestic white maize production.

Using a four-to-one wheat flour to maize flour ratio, the Supply Ministry hoped the blend would increase white maize production by an additional 1 million tonnes by 1999. But the experiment has suffered from high production costs, as well as a resulting product consumers consider low quality. Nonetheless, blending continues, and about 500,000 tonnes of locally produced white maize was used for baladi bread in 2000.

Demand for the higher quality, unsubsidized 72% extraction flour and its products is on the rise. Improved baking industry efficiencies in the past few years have expanded the number of bakers and bread types, offering consumers more choices. Rapid expansion of fast food franchises also has helped to boost demand.

But despite the increase in higher quality flour and bread products, the situation in Egypt's wheat flour milling industry is problematic. The industry overall suffers from excess capacity, and the private sector faces additional obstacles.

The public milling sector consists of 126 mills, operated by 17 public companies affiliated with the Food Industries Holding Company, with a total capacity of about 7 million tonnes of grain per year. Of the total, 109 mills produce 82% extraction flour, while 17 produce 72% flour.

During the initial stages of economic reform, the private sector entered into contracts with public mills to produce flour. But excessive costs, including marketing fees for privately operated mills that were as much as four times higher than public mills were required to pay, led the private companies to cancel their contracts.

Consequently, the private sector began building new mills using modern milling technology. A total of eight large mills were in operation in 2000, and private capacity by the end of 2000 was expected to reach 2 million tonnes.

Egypt's private flour milling sector faces stiff competition from its public counterpart. Although the public mills often have older, less efficient technology, they also enjoy low or no finance charges or taxes compared with the private companies.

Consequently, nearly all private sector companies now produce at 50% capacity and have lowered prices. Given the current level of fierce competition, some new mills may have to cut back even further on production or cease operations altogether.

To deal with the flour surplus, private mills have looked toward markets in neighboring countries such as Yemen, Somalia, Sudan, Ethiopia and Libya, and one company has exported small amounts of 72% flour to Sudan. But observers say significant Egyptian exports to these countries are highly unlikely given the competition with subsidized E.U. flour exports.

MAIZE AND PROCESSING. Although Egypt's use of maize for food has increased some in recent years, more than 75% of consumption still goes for feed. Commercial end users and feed mills rely on imported maize to meet requirements, while the bulk of the domestic crop is used on farm.

The poultry sector consumes about 60% of the total maize use. In recent years, maize as a feed ingredient for cattle and as an industrial ingredient has become more popular.

Maize import prices, particularly from the U.S., have been "abnormally" low, especially compared with competing commodities. For example, lower maize prices relative to wheat bran — in some cases by as much as 17% lower — encouraged livestock breeders to increase the maize content in their animal feed rations.

Maize consumption by beef cattle farmers has increased along with domestic maize production. Also, a significant quantity of green maize is being used in the production of silage for dairy animal feed.

Finally, demand for snack foods containing maize, although small, continues to grow, and demand for corn oil also has jumped. A new starch company with a total capacity of 65,000 tonnes was scheduled to start operation in late 2000 and will require 80,000 tonnes to run at full capacity, company officials said.

INFRASTRUCTURE AND TRADE. Egypt typically has struggled with its grain infrastructure, particularly port handling capacity and storage. But in recent years, ports in particular have seen improvements, and more are on the horizon.

In January, the government announced it would spend U.S.$332 million to modernize the country's chief port of Alexandria in a bid to increase the flow of trade and tourism. The project, estimated to take up to three years, is expected to double the port's current handlings, which include about 842,000 tonnes of wheat imports annually.

Alexandria's port will be fitted with a new quay, a deeper draft to accommodate large ships, and a larger cargo deposit area. The move to develop Alexandria's port is the first step of a wider plan to modernize the country's main ports of Suez, Port Said and Damietta, officials said.

Regarding grain storage, shortages persist, despite some expansion projects.

The Supply Ministry has a policy of maintaining wheat strategic stocks of about five months of total annual consumption, which would total about 5.4 million tonnes based on recent five-year average annual use. But because of limited storage capacity that constrains the government's target, strategic stocks have been redefined to include wheat import purchases in the pipeline, usually in the range of three months of annual consumption.

At the present time, total covered storage capacity for wheat is estimated at 1 million tonnes, including about 350,000 in silos at three different ports, about 250,000 in inland silos and about 400,000 in open storage, mostly in metropolitan areas. In addition to the government storage facilities, several private sector traders and mills currently have their own receiving and storage facilities, estimated to be about 500,000 tonnes.