Country Focus: Egypt

by Intern Intern1
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A good climate, constant water supply from the Nile and productive soil foster some of the highest crop yields in the world. But agriculture is highly intensive, with about 3.5 million farmers each cultivating holdings that average slightly under 1 hectare.

Agricultural policy. In recent years, domestic agricultural policy has focused on liberalization: encouraging, rather than mandating, planted area and production; reducing or eliminating food subsidies; privatizing specific domestic processing activities; and opening some export, import and handling activities to the private sector. Despite the trend toward liberalization, the government still maintains control over grain output and markets through input subsidies, production support prices, stocks accumulation, direct processing and, in the case of wheat flour for basic bread, consumer price controls.

Wheat is considered the most strategically important of Egypt's field crops because of its dominance as a staple food. The government's official policy is self-sufficiency, which it supports by encouraging increased planted area, development of high-yielding certified wheat varieties and stabilization or even reduction of per capita consumption.

The Ministry of Supply and Trade maintains a strategic wheat reserve, an amount generally targeted at about five months' use. To encourage production and sales to the government, the ministry each year establishes procurement prices.

The 1995-crop price was set at the equivalent of U.S.$167 a tonne; because government purchases that season fell short of target by more than 300,000 tonnes, the price for the 1996 crop was increased to U.S.$177, which prompted a 170,000-ha increase in plantings. Domestic wheat that is not sold to the government is sold in local markets and to rural households or is consumed on farm.

The government also subsidizes consumption of basic bread, or baladi, the staple of the Egyptian diet. The subsidies lower the consumer price of baladi to about 1 U.S. cent per loaf, compared with actual production costs of about 5 U.S. cents per loaf.

Flour milling. The government generally controls Egypt's flour milling industry, although some small village mills are operated without government involvement. Although wheat importing and some milling activity was opened to the private sector in 1993, the government exerts control by establishing flour prices and continuing to mill wheat for the population's basic bread supplies.

Flour production in Egypt consists primarily of 82% extraction for basic baladi bread and 72% extraction for European-type bread, baked goods and pasta. As part of the reforms of the 1990s, the government a few years ago decided to privatize part of the milling industry by allowing the private sector to import wheat and produce 72% extraction flour.

Under this liberalization, private millers contracted with the state holding companies operating Egypt's large public sector industrial mills to grind flour for the private market. In addition to milling costs, private millers leasing public sector milling capacity are required to pay marketing fees, a percentage of profits and transportation and handling charges for wheat and flour.

Until August 1995, the private sector was free to set flour prices according to market forces. At that time, the ministry warned private flour millers to lower prices or face competition from government production of 72% extraction flour.

The millers argued that flour prices only reflected escalating international wheat prices. They also complained that while they were required to operate at fixed prices, bakery owners were allowed to produce bread of varying weights and types from 72% flour without any price restrictions.

Because the government had adequate wheat reserves to produce 72% flour at a comparably lower cost, it carried out its threat of directly competing with the private millers for a short time. The government price set for 72% extraction flour was U.S.$327 for public mills and U.S.$333 for private millers, who estimated their production costs at U.S.$352.

Although price control authority continues, enforcement has waned, especially with the depletion in government wheat stocks used to supply subsidized flour. In mid-1996, market prices for 72% flour were about U.S.$368.

Given the complications and higher costs of contracting with public sector grain handling and milling organizations, a number of private companies have begun building their own receiving, storage and processing facilities for wheat and other grains. The first privately built flour mill began operations in late 1996.

In addition to stimulating pricing disputes with private millers, the soaring wheat prices of the past two years pushed up the government's subsidy costs by 200%, to more than U.S.$800 million. In response, the government is examining ways to cut wheat usage.

A prime focus currently is on substituting maize flour for a portion of wheat flour used in baladi. The use of maize flour in bread is traditional in rural areas, although it has never been used by industrial millers and bakers.

Late in 1996, officials announced approval of construction on five new 100-tonne per day maize mills aligned with existing public sector industrial wheat mills. In addition, 15 smaller mills will be adapted for maize milling.

The substitution plan aims for an 80%-20% blend of wheat and maize in flour, representing a wheat consumption reduction of up to 2 million tonnes a year. Officials hope millers will use domestic white maize, currently consumed mostly in animal rations, in place of imported wheat.

Skeptics are uncertain about the substitution plan's chance of success, given urban consumers' discriminating tastes and wariness about quality. Changing wheat/maize price relationships also could minimize the hoped-for fiscal savings.

Feed and livestock. Poultry is a rapidly growing industry sector, and most production centers on moderately sized, relatively modern operations. The lack of quality feed is the major constraint to increased efficiency in poultry production.

Egypt's commercial feed industry is small; in fact, the number of feed mills has dropped drastically in the past 10 years as on-farm feed mixing provided greater economic returns. Maize used in commercial feed production is only 14% of total maize used for feed.






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1995-96 marketing year unless otherwise noted *all figures are milled basis.

Source: U.S. Department of Agriculture