Egyptian Processed Food Sector Development Strategy_EN

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					Egyptian Processed Food Sector
Review
Final Report




Client: Industrial Modernisation Centre - Egypt




ECORYS-NEI
Macro & Sector Policies




Rotterdam, April 2005




PB/MSo/GHi/AP10041K
ECORYS-NEI
P.O. Box 4175
3006 AD Rotterdam
Watermanweg 44
3067 GG Rotterdam
The Netherlands


T +31 10 453 88 00
F +31 10 453 07 68
E netherlands@ecorys.com
W www.ecorys.nl
Registration no. 24316726
Table of contents




Preface                                                                     25

List of Abbreviations                                                       27

1 Executive Summary                                                         29
  1.1 Egyptian Food Processing Industry in the New Global Setting           29
  1.2 Egypt’s Competitive Performance in Processed food industry            29
  1.3 Egypt’s Industrial Capabilities                                       30
      1.3.1 Raw Material                                                    30
      1.3.2 Labour productivity and wages                                   31
      1.3.3 SME development                                                 31
      1.3.4 Strategic alliance with academic and research and development
            institutes                                                      32
      1.3.5 Access to finance                                               32
      1.3.6 Foreign Direct Investment (FDI)                                 33
      1.3.7 Framework conditions                                            33
      1.3.8 Trade positioning                                               34
      1.3.9 Domestic retail market                                          34
  1.4 SWOT Analysis                                                         35
  1.5 Sub sector Performance                                                36
      1.5.1 Processed vegetables                                            36
      1.5.2 Fruit juices (exotic juices)                                    37
      1.5.3 Olive products                                                  38
      1.5.4 Cheese (white cheese)                                           38

II Global Assessment                                                        39

1 Introduction                                                              41

2 Demand-side factors influencing global development of the FPI             43
  2.1 Social and demographic change                                         43
      2.1.1 Increased income                                                43
      2.1.2 Per capita consumption                                          44
      2.1.3 Urbanization                                                    46
  2.2 Developments in technology                                            48
  2.3 Food safety and health concerns                                       49
  2.4 Convenience foods                                                     49
  2.5 Life-style and health foods                                           50
3 Supply-side factors influencing global development of the FPI               51
  3.1 Global sourcing of raw materials                                        51
  3.2 Globalisation and the food industry                                     52
      3.2.1 Food processing                                                   52
      3.2.2 Distribution and marketing                                        53

4 Global trade environment of the FPI                                         55
  4.1 Multilateral trade agreements                                           55
  4.2 Regional trade agreements                                               55
      4.2.1 Common Market of Eastern and Southern Africa - COMESA             55
      4.2.2 Euro-Mediterranean Partnership                                    56
      4.2.3 Mediterranean Arab Free Trade Area - MAFTA                        57
      4.2.4 Greater Arab Free Trade Area - GAFTA                              57

5 Global regulatory environment of the FPI                                    59
  5.1 The WTO Agreement and Technical Barriers to Trade (TBT)                 59
  5.2 International coordination bodies for international standards           59
      5.2.1 Office International des Epizooties - OIE                         60
      5.2.2 International Plant Protection Convention - IPPC                  60
      5.2.3 The Codex Alimentarius Commission - Codex                         60
  5.3 Hazard Analysis and Critical Control Point - HACCP                      61

III Local Assessment                                                          63

1 General economic context                                                    65
  1.1 Recent macroeconomic performance                                        65
  1.2 Structural policy reforms                                               66
  1.3 Current structural reform policy and their impact on the Egyptian FPI   66
  1.4 Policy reform issues under discussion by all stakeholders               68

2 Egyptian food processing industry - overview                                69
  2.1 Historical background                                                   69
  2.2 Industry structure                                                      70
  2.3 The informal sector                                                     77

3 Egyptian food processing industry – general performance                     79
  3.1 Production performance of the Egyptian FPI                              79
  3.2 Trade performance of the Egyptian FPI                                   83
      3.2.1 Egyptian processed food exports and imports by product type       83
      3.2.2 Egyptian processed food exports by region                         86
      3.2.3 Main Egyptian processed food export companies                     87
      3.2.4 Export Facilitation Programmes                                    88
  3.3 Investment performance of the Egyptian FPI                              89
      3.3.1 Foreign investments in FPI                                        89
      3.3.2 Foreign versus domestic investment in the Egyptian FPI            91
      3.3.3 Structure of Investments                                          92

4 Egyptian food processing sectors with export potential                      95
   4.1   Frozen vegetables                                                          95
   4.2   Tomato products                                                            99
   4.3   Fruit juices, pulp and puree                                              102
   4.4   Olive oil and table olives                                                106
   4.5   Cheese products                                                           108
   4.6   Dried vegetables, herbs and spices                                        112

5 Demand-side factors influencing development of the Egyptian FPI                  115
  5.1 Social and demographic change                                                115
  5.2 Migration and access to ‘western’ markets                                    115
  5.3 Organisation of distribution markets                                         116

6 Supply-side factors influencing the development of the Egyptian FPI              119
  6.1 Agricultural production                                                      119
  6.2 Subsidised food items                                                        121
  6.3 Imported food products                                                       121
  6.4 Imported materials for re-export                                             122
  6.5 Packaging supplies                                                           123
  6.6 Logistics                                                                    123
  6.7 Technology                                                                   125
  6.8 Technical support                                                            125
  6.9 Access to finance                                                            128

7 Egyptian trade environment of the FPI                                            129
  7.1 Multilateral trade agreements (WTO)                                          129
  7.2 Regional trade agreements                                                    129
  7.3 EU-Egypt Association Agreement                                               130
  7.4 Domestic market access                                                       132
  7.5 Initiatives to improve customs procedures                                    135

8 Egyptian legal and regulatory environment of the FPI                             137
  8.1 Legal standards                                                              137
  8.2 Regulatory conformity assessment                                             138
  8.3 Voluntary standards                                                          139

9 Industry opinions on key constraints faced by the Egyptian FPI                   141

10 “Competitiveness” opinion survey of Egyptian FPI enterprises                    145
   10.1 Introduction                                                               145
   10.2 Evaluation of current situation in Egypt                                   146
   10.3 Evaluation of current competitiveness factors                              148
   10.4 Evaluation of future competitiveness factors and comparison with current
        situation                                                                  150
   10.5 Conclusions                                                                152

IV Benchmarking Analysis                                                           153

1 Summery of Main Findings                                                         155
2 Basic Indicators                                                               159

3 General overview of FPI in benchmark countries                                 161
  3.1 Value-added and employment                                                 161
  3.2 Trade Performance Index                                                    167

4 Production and productivity performance                                        171
  4.1 Introduction                                                               171
  4.2 Processed meat, fish, fruit, vegetables, and fats                          171
  4.3 Dairy products                                                             174
      4.3.1 Consumption of dairy products in Mediterranean countries             175

5 Overview of FPI export situation                                               177

6 Export situation and position by product group                                 181
  6.1 Cheese & curd                                                              181
  6.2 Fruit Juices                                                               184
  6.3 Tomato Products                                                            188
  6.4 Frozen Vegetables                                                          192
  6.5 Olive Products                                                             193

V General Strategy                                                               195

1 Introduction                                                                   197
  1.1 Stages in the industrial strategy process                                  197
  1.2 Value chain of the Egyptian food processing industry                       199

2 SWOT Analysis                                                                  201
  2.1 Strengths                                                                  201
  2.2 Weaknesses                                                                 201
  2.3 Opportunities                                                              202
  2.4 Threats                                                                    203

3 Proposed strategic vision for Egyptian food processing industry                205

4 Overall Goal                                                                   207

5 Competitiveness and competitiveness drivers                                    209
  5.1 Path way to competitiveness                                                210
  5.2 The approach of the study team for development strategy proposal.          211

6 Proposal for Sector level strategy                                             213
  6.1 Supply of raw material at desired quantity, quality and price (Driver 1)   213
      6.1.1 Current status                                                       213
      6.1.2 Critical problem to be addressed:                                    214
      6.1.3 Proposed activities to improve the supply of raw materials           214
  6.2 Labour productivity and improved management (Driver 2)                     215
      6.2.1 Current situation                                                    215
        6.2.2 Critical problems to be addressed                                        215
        6.2.3 Activities to improve the situation                                      216
  6.3   Access to finance (Driver 3)                                                   217
        6.3.1 Current situation                                                        217
        6.3.2 Critical problem to be addressed                                         217
        6.3.3 Activities to improve the situation                                      217
  6.4   Increased supply of safe processed food to the domestic market (Driver 4)      218
        6.4.1 Integration of micro and cottage industries (mostly informal) into the
              formal sector (Driver 4a)                                                218
        6.4.2 Develop the domestic retail market system (driver 4b)                    219
        6.4.3 Increased role of the SME in the domestic and regional market
              (Driver 3)                                                               220
  6.5   Support institutions coordination (Driver 5)                                   222
        6.5.1 Current situation                                                        222
        6.5.2 Critical problems to be addressed                                        222
        6.5.3 Activities to improve the situation                                      222
  6.6   Strategic alliance between university-R&D and industry (Driver 6)              223
        6.6.1 Current situation                                                        223
        6.6.2 Critical problems to be addressed                                        224
        6.6.3 Activities to improve the situation                                      224
  6.7   FDI attraction (Driver 7)                                                      225
        6.7.1 Current situation                                                        225
        6.7.2 Critical problems to be addressed                                        226
        6.7.3 Activities to improve the situation                                      226
  6.8   Increased export performance (Driver 8)                                        227
        6.8.1 Current situation                                                        227
        6.8.2 Critical problem to be addressed                                         228
        6.8.3 Activities to improve the situation                                      228

7 Log-Frame for sector level proposed strategy                                         231

VI Product Group Strategies                                                            249

1 Processed Vegetables: strategy proposal for improved export performance              251
  1.1 Background                                                                       251
  1.2 Current situation                                                                252
      1.2.1 Frozen vegetables                                                          252
      1.2.2 Processed tomatoes                                                         253
      1.2.3 Strawberries                                                               254
  1.3 Processed Vegetables: SWOT Analysis                                              255
  1.4 Critical problems to be addressed                                                256
  1.5 Activities to improve the critical problems                                      256
  1.6 Goals and vision                                                                 257

2 Olive products: strategy proposal for the improved export performance                263
  2.1 Background                                                                       263
  2.2 Current situation                                                                263
  2.3 Olive products: SWOT analysis                                                    264
   2.4 Critical problems to be addressed                                        265
   2.5 Activities to improve the critical problems                              265
   2.6 Goals and vision                                                         266

3 Fruit juices: strategy proposal for the improved export performance           271
  3.1 Back ground                                                               271
  3.2 Current situation                                                         272
  3.3 Exotic fruit juices: SWOT analysis                                        272
  3.4 Critical problems to be addressed                                         273
  3.5 Activities to improve the critical problems                               273
  3.6 Goals and vision                                                          274

4 Cheese products: strategy proposal for improved performance                   277
  4.1 Back ground                                                               277
  4.2 Current situation                                                         277
  4.3 Cheese production and marketing: SWOT analysis                            278
  4.4 Critical problems to be addressed                                         279
  4.5 Activities to improve the critical problems                               280
  4.6 Goal and vision                                                           280

Egyptian Processed Food Sector Review-Annexes                                   283

VII-A         Global Assessment-Analysis of Main Sub-Sectors                    285

1 Global trends in the dairy industry                                           287
  1.1 Overview                                                                  287
  1.2 Global production                                                         287
  1.3 Geography of dairy production                                             288
  1.4 Trends in trade                                                           288
  1.5 The industrial structure of the dairy industry and supply chain           289
  1.6 Key corporate players                                                     290

2 Global trends in the edible oil industry                                      291
  2.1 Overview                                                                  291
  2.2 Global production                                                         291
  2.3 Geography of vegetable oil production                                     292
  2.4 Trends in trade                                                           292
  2.5 The industrial structure of the vegetable oil industry and supply chain   293

3 Global trends in the meat and poultry (processing) industry                   295
  3.1 Overview                                                                  295
  3.2 Global production                                                         295
  3.3 Economic geography of meat production                                     296
  3.4 Trends in trade                                                           296
  3.5 The industrial structure of the meat industry and supply chain            297

4 Global trends in the fruit and vegetables (processing) industry               299
  4.1 Overview                                                                  299
  4.2   Trends in global production and geography                                       299
  4.3   International trade                                                             300
  4.4   Processed fruit juices                                                          301
  4.5   Frozen vegetables                                                               301
  4.6   The industrial structure of the fruit and vegetable industry and supply chain   302

5 Supplementary Tables                                                                  303

VII-B         Sub-Sector Profiles                                                       309

1 Dairy Products                                                                        311
  1.1 Sector Overview                                                                   311
  1.2 Production                                                                        311
      1.2.1 Production and use of milk                                                  311
      1.2.2 Import situation for powdered milk                                          313
      1.2.3 The dairy processing sector                                                 313
  1.3 Domestic Market                                                                   315
  1.4 Export Market and performance                                                     316

2 Exotic fruit juices, pulp and puree                                                   319
  2.1 Sector Overview                                                                   319
  2.2 Production                                                                        320
      2.2.1 Supply of agricultural inputs                                               322
      2.2.2 Packaging range                                                             323
      2.2.3 Technological performance and quality                                       323
      2.2.4 Business capacity                                                           323
  2.3 Domestic Market                                                                   324
  2.4 Export Markets and performance                                                    324
      2.4.1 Distribution channels for exports                                           325
  2.5 Global Trends                                                                     325
      2.5.1 Global production and distribution                                          326
      2.5.2 Export market requirements                                                  327
      2.5.3 Global Trade                                                                327

3 Jams                                                                                  333
  3.1 Sector Overview                                                                   333
  3.2 Production                                                                        333
      3.2.1 Supply of agricultural inputs                                               335
      3.2.2 Packaging range                                                             335
      3.2.3 Technological performance and quality                                       335
      3.2.4 Business capacity                                                           336
  3.3 Domestic Market                                                                   336
  3.4 Export Markets and performance                                                    336
      3.4.1 Distribution channels for exports                                           337
  3.5 Global trends                                                                     337
      3.5.1 Global production and distribution                                          337
      3.5.2 Global trade                                                                337
4 Frozen vegetables                                 339
  4.1 Sector Overview                               339
  4.2 Production                                    340
      4.2.1 Supply of agricultural inputs           341
      4.2.2 Packaging range                         341
      4.2.3 Technological performance and quality   342
      4.2.4 Business capacity                       342
  4.3 Domestic Market                               342
  4.4 Export Markets and performance                343
      4.4.1 Distribution channels for exports       344
  4.5 Global trends                                 344
      4.5.1 Global production and distribution      344
      4.5.2 Export market requirements              345
      4.5.3 Global demand and trade                 345

5 Tomato products                                   349
  5.1 Sector Overview                               349
  5.2 Production                                    350
      5.2.1 Supply of agricultural inputs           351
      5.2.2 Packaging range                         351
      5.2.3 Technological performance and quality   352
      5.2.4 Business capacity                       352
  5.3 Domestic Market                               352
  5.4 Export Markets and performance                353
      5.4.1 Distribution channels for exports       353
  5.5 Global trends                                 353
      5.5.1 Global production and distribution      354
      5.5.2 Export market requirements              354

6 Dried onions and other dried vegetables           355
  6.1 Sector Overview                               355
  6.2 Production                                    355
      6.2.1 Supply of agricultural inputs           356
      6.2.2 Packaging range                         356
      6.2.3 Technological performance and quality   356
      6.2.4 Business capacity                       357
  6.3 Domestic Market                               357
  6.4 Export Markets and performance                357
      6.4.1 Distribution channels for exports       358

7 Olive oil and table olives                        359
  7.1 Sector Overview                               359
  7.2 Production                                    359
      7.2.1 Supply of agricultural inputs           360
      7.2.2 Packaging range                         361
      7.2.3 Technological performance and quality   361
      7.2.4 Business capacity                       361
  7.3 Domestic Market                               361
  7.4 Export Markets and performance                                      362
      7.4.1 Distribution channels for exports                             362
  7.5 Global trends                                                       362
      7.5.1 Global demand                                                 362
      7.5.2 Global production and distribution                            363
      7.5.3 Export market requirements                                    364
      7.5.4 Global trade                                                  365

8 Meat products                                                           367

9 Poultry                                                                 369

10 Seafood                                                                371

11 Soft drinks                                                            373

12 Bottled natural and mineral water                                      375

13 Confectionery and snacks                                               377
   13.1 Confectionary                                                     377
   13.2 Snack Foods                                                       377

14 Tobacco and cigarettes                                                 379

15 Sugar and molasses                                                     381

16 Edible Oils                                                            383

VII-C        Local Assessment - Supplementary Tables                      385

1 Supplementary Tables                                                    387

VII-D        Profile of interviewed Egyptian FPI Companies                399

VII-E        Overview of Food processing sectors in benchmark countries   403

1 Overview of food processing sectors in benchmark countries              405
  1.1 Morocco                                                             405
      1.1.1 Dairy products                                                405
      1.1.2 Fruit and vegetables                                          406
  1.2 Turkey                                                              408
      1.2.1 Dairy Products                                                409
      1.2.2 Fruits and vegetables                                         410
  1.3 South Africa                                                        413
  1.4 Spain                                                               415
      1.4.1 Dairy Products                                                415
      1.4.2 Fruit and vegetables                                          416
  1.5 China                                                               417
        1.5.1 Dairy products                                                     418
        1.5.2 Fruit and vegetables                                               419

VII-F         The ‘modern’ retail sector in benchmark countries                  423

1 The ‘modern’ retail sector in benchmark countries                              425
  1.1 Introduction                                                               425
      1.1.1 Morocco                                                              426
      1.1.2 Turkey                                                               427
      1.1.3 South Africa                                                         428
      1.1.4 Spain                                                                428
      1.1.5 China                                                                429
  1.2 Implications of development of the retail sector for the food processing
      industry                                                                   431

VII-G         Benchmarking Analysis-Supplementary Tables                         435
Index of tables




Table 1.1  Global processed food trade in billions of USD                         42
Table 2.1  Selected Middle East countries per capita GDP and forecast ($US)       44
Table 2.2  Average household budget shares for food as share (%) of total
           household budget by country income category                            45
Table 2.3 Population estimates and projections for Egypt                          47
Table 2.4 Population estimates and projections for the Near East                  48
Table 3.1 World leaders in processed food                                         53
Table 3.2 Major global retailers                                                  54
Table 2.1 Breakdown of manufactured value added (MVA) and average annual
           growth rate (volume)                                                   70
Table 2.2 Number of companies and employees in the Egyptian Food
           Processing Industry, 2002                                              72
Table 2.3 Number of establishments and employees in the Egyptian Food
           Processing Industry, December 2004                                     73
Table 2.4 Production and investment in the Egyptian Food Processing Industry,
           December 2004                                                          74
Table 2.5 Production and investment per employee in the Egyptian Food
           Processing Industry, December 2004                                     75
Table 2.6 Profile of food processing companies within the Food Commodity
           Council (FCC)                                                          76
Table 3.1 Evolution of private sector FPI companies, production, employment
           and costs (1997-2004)                                                  80
Table 3.2 Evolution of public sector FPI companies, production, employment
           and costs (1997-2004)                                                  80
Table 3.3 Evolution of total FPI companies, production, employment and costs
           (1997-2004)                                                            81
Table 3.4 Key indicators for the Egyptian food processing sector and
           market.(2003)                                                          82
Table 3.5 Leading Egyptian processed food exports by value ($US), 2002-2003       84
Table 3.6 Leading Egyptian processed food imports by value ($US), 2002-2003       84
Table 3.7 Egyptian exports and imports of processed food ranked by value of
           exports, 2003                                                          85
Table 3.8 Egyptian Exports of fresh fruits and vegetables, 2002-2003              86
Table 3.9 Egyptian Exports of selected food products, 2002-2003 (thousand
           tons)                                                                  86
Table 3.10 Egyptian Exports of leading Egyptian processed food companies,
           2002-2003                                                              86
Table 3.11 Egyptian exports of processed food by geographical region, 2002        87
Table 3.12 Value of exports of leading Egyptian processed food companies (Jan.-
           Sept. 2004)                                                            87



   Egyptian Processed Food Sector Review                                          15
Table 3.13 Examples of foreign involvement in Egyptian FPI                         90
Table 3.14 Investment profile of the Egyptian FPI                                  92
Table 3.15 Egypt’s imports of food processing machinery 2001-2003 ($US
           million).                                                              93
Table 4.1 Frozen vegetables - key figures, 2003                                   96
Table 4.2 Frozen vegetables: production, source and usage (2000-01)               96
Table 4.3 Frozen vegetables: evolution of production                              97
Table 4.4 Main Egyptian frozen vegetable companies                                97
Table 4.5 Egyptian frozen vegetable exports ranked by value (2002)                98
Table 4.6 Egyptian Frozen vegetables, main export destinations and destination
           share by product group, 2002                                            98
Table 4.7 Frozen vegetables: evolution of exports                                  98
Table 4.8 Distribution channels for Egyptian exports of frozen vegetables          99
Table 4.9 Tomato products – key figures 2003                                       99
Table 4.10 Tomato products: production, source and usage (2000-01)                100
Table 4.11 Tomato products: evolution of production                               100
Table 4.12 Main Egyptian producers of tomato paste (hot and cold break)           101
Table 4.13 Distribution channels for Egyptian exports of tomato products          102
Table 4.14 Fruit juices and concentrates - key figures, 2003                      103
Table 4.15 Juices & syrups: production, source and usage (2000-01)                103
Table 4.16 Evolution of production                                                104
Table 4.17 Egyptian exports of fruit and vegetable juices, unfermented (HS code
           2009), 2002                                                            105
Table 4.18 Distribution channels for Egyptian exports of fruit juices and
           concentrates                                                           105
Table 4.19 Key players in the fruit juice and concentrates sector                 106
Table 4.20 Olive oil and olive products - key figures, 2003                       107
Table 4.21 Main Egyptian producers of olive oil                                   107
Table 4.22 Olive oil and table olives: evolution of production                    107
Table 4.23 Olive oil and table olives: evolution of exports                       108
Table 4.24 Distribution channels for Egyptian exports of fruit juices and
           concentrates                                                           108
Table 4.25 Breakdown of licensed dairy processing units by number of workers      108
Table 4.26 Leading companies in the dairy product-processing sector               110
Table 4.27 Dehydrated vegetables - key figures, 2003                              112
Table 4.28 Dried onions: evolution of production                                  113
Table 4.29 Dried vegetables: evolution of exports                                 114
Table 4.30 Distribution channels for Egyptian exports of fruit juices and
           concentrates                                                           114
Table 5.1 Breakdown of ‘modern’ food retail outlets in Egypt                      117
Table 5.2 Number of retail outlets by type in Egypt                               117
Table 6.1 Output of main agricultural products (millions of tons)                 119
Table 6.2 Output of main animal products (millions of tons)                       119
Table 6.3 Egyptian production of agricultural products and share of world and
           regional production                                                    120
Table 6.4 Subsidised food items (2004)                                            121
Table 8.1 Egyptian food processors with existing HACCP (39 companies)             140
Table 10.1 Highest scoring factors for the current situation in Egypt             147



Egyptian Processed Food Sector Review
Table 10.2   Lowest scoring factors for the current situation in Egypt                 147
Table 10.3   Highest scoring factors for determining current competitiveness           149
Table 10.4   Lowest scoring factors for determining current competitiveness            149
Table 10.5   Highest scoring factors for future competitiveness and corresponding
             scores for current competitiveness and current situation in Egypt         151
Table 1.1    Processed food: trade position indicators for 2002                        155
Table 1.2    Exports as a share of output, %                                           155
Table 1.3    Food, beverages and tobacco, MVA per employee by sub-sector, $US          156
Table 1.4    Share of value added in the total value of output, %                      156
Table 1.5    Average unit values of selected processed food exports (index, Egypt
             =100)                                                                     157
Table 2.1    Basic economic indicators for benchmark countries                         159
Table 2.2    Basic agricultural indicators for benchmark countries                     160
Table 2.3    Urbanisation rates in selected Mediterranean countries                    160
Table 3.1    Food, beverages and tobacco, share in manufactured value added
             (MVA) and growth in value added                                           161
Table 3.2    Food, beverages and tobacco, breakdown of MVA by sub-sector, $US
             million                                                                   162
Table 3.3    Food, beverages and tobacco, breakdown of MVA by sub-sector,
             share of total MVA (%)                                                    162
Table 3.4    Food, beverages and tobacco, breakdown of employment by sub-
             sector, thousand employees                                                162
Table 3.5    Food, beverages and tobacco, breakdown of employment by sub-
             sector, share of total employment (%)                                     163
Table 3.6    Food, beverages and tobacco, MVA per employee by sub-sector, $US          163
Table 3.7    Overview of the agro-food industry (1999/2000)                            164
Table 3.8    Performance indicators for Egyptian agro-food industry                    165
Table 3.9    The agro-food industry in Mediterranean countries (1998)                  166
Table 3.10   Agro-food industry performance indicators in Mediterranean countries
             (1998)                                                                    166
Table 3.11   Processed food: general trade performance indicators (1998-2002)          167
Table 3.12   Processed food: trade position indicators for 2002                        168
Table 3.13   Processed food: trade position change indicators 1998 - 2002              169
Table 3.14   Openness of food systems of Mediterranean countries to international
             trade (%)                                                                 170
Table 4.1    Processed meat, fish fruit, vegetables and fats: estimates of value and
             composition of output, $US million                                        172
Table 4.2    Processed meat, fish fruit, vegetables and fats: output and value-added
             per employee, $US                                                         172
Table 4.3    Processed meat, fish fruit, vegetables and fats: ratio of output to
             apparent consumption                                                      173
Table 4.4    Processed meat, fish fruit, vegetables and fats: exports as a share of
             output (%)                                                                173
Table 4.5    Processed meat, fish fruit, vegetables and fats: imports as a share of
             apparent consumption (%)                                                  174
Table 4.6    Dairy products: estimates of value and composition of output, $US
             million                                                                   174
Table 4.7    Dairy products: output and value-added per employee, $US                  175



   Egyptian Processed Food Sector Review                                                17
Table 4.8     Dairy products: key indicators                                          175
Table 4.9     Evolution of apparent human consumption of dairy products (in
              equivalent raw milk)                                                    176
Table 5.1     Geographical composition of processed food exports, $US million
              2002.                                                                   178
Table 5.2     Main processed food exports by region: Egypt, Morocco, Turkey
              (2002)                                                                  179
Table 5.3     Main processed food exports by region: S. Africa, Spain, China
              (2002)                                                                  180
Table 6.1     Cheese and curd: value of exports and imports in 2002, $US million      182
Table 6.2     Cheese and curd: volume of exports and imports in 2002, thousand
              tons                                                                    182
Table 6.3     Cheese and curd: unit value of exports in 2002, $US per ton             182
Table 6.4     Saudi Arabia, imports of cheese & curd, 2002                            183
Table 6.5     Jordan, imports of cheese & curd, 2002                                  183
Table 6.6     Fruit and vegetable juices: value of exports and imports in 2002, $US
              million                                                                 185
Table 6.7     Fruit and vegetable juices: volume of exports and imports in 2002,
              thousand tonnes                                                         185
Table 6.8     Fruit Juice: unit value of exports in 2002, $US per ton                 186
Table 6.9     Geographical composition of exports of fruit and vegetable juice nes,
              $US million, 2002                                                       187
Table 6.10    United States, imports of fruit & vegetable juices nes, 2002            188
Table 6.11    Tomato products: value of exports and imports in 2002, $US million      189
Table 6.12    Tomato products: volume of exports and imports in 2002, thousand
              tonnes                                                                  189
Table 6.13    Tomato products: unit value of exports in 2002, $US per ton             189
Table 6.14    Frozen vegetables: value of exports and imports in 2002, $US million    192
Table 6.15    Frozen vegetables: volume of exports and imports in 2002, thousand
              tons                                                                    193
Table 6.16    Frozen vegetables: unit value of exports in 2002, $US per ton           193
Table 6.17    Olive products: value of exports and imports in 2003, $US million       194
Table 6.18    Olive products: volume of exports and imports in 2003, thousand tons    194
Table 6.19    Olive products: unit value of exports in 2003, $US per ton              194
Table 7.1     Overview of drivers and outputs covered by the log frame                231
Table 1.1     World production of milk and other dairy products (million metric
              tons)                                                                   287
Table 1.2     World cheese and curd exports (thousand metric tons)                    289
Table 1.3     Key players in the dairy products industry                              290
Table 2.1     World production of vegetable oil (million metric tons)                 292
Table 3.1     World production of poultry meat (1000 tons)                            295
Table 3.2     World production of beef and buffalo meat (1000 tons)                   296
Table 4.1     World production of fruit (million metric tons)                         300
Table 4.2     World production of vegetables (million metric tons)                    300
Table 5.1     20 largest exporters of cheese and curd by value ($US), 1998-2002       303
Table 5.2     20 largest exporters of vegetable oils by value ($US), 1998-2002        304
Table 5.3     20 largest exporters of non-beef and buffalo meat by value ($US),
              1998-2002                                                               305



Egyptian Processed Food Sector Review
Table 5.4    20 largest exporters of beef and buffalo meat by value ($US), 1998-
             2002                                                                        306
Table 5.5    20 largest exporters of fruit and vegetable juices by value ($US),
             1998-2002                                                                   307
Table 5.6    20 largest exporters of chilled and frozen vegetables by value ($US),
             1998-2002                                                                   308
Table 1.1    Key figure 2003: Dairy products (excl. fresh and pasteurised milk)          311
Table 1.2    Estimated milk production 1995-2001 (thousand tons)                         312
Table 1.3    Breakdown of dairy herds and milk production by farm type                   312
Table 1.4    Breakdown of use of raw milk (2001)                                         312
Table 1.5    Breakdown of use of milk by process/product                                 313
Table 1.6    Breakdown of licensed dairy processing units by number of workers           314
Table 1.7    Leading companies in the dairy product-processing sector                    317
Table 2.1    Key figures, 2003                                                           319
Table 2.2    Juices & syrups: production, source and usage (2000-01)                     320
Table 2.3    Evolution of production                                                     321
Table 2.4    Key players in the fruit juice and concentrates sector                      322
Table 2.5    Egyptian proximity to “state of the art” business capacity                  324
Table 2.6    Egyptian exports of fruit and vegetable juices, unfermented (HS code
             2009), 2002                                                                 325
Table 2.7    Distribution channels for Egyptian exports of fruit juices and
             concentrates                                                                325
Table 2.8    World imports of traditional fruit juices                                   328
Table 2.9    World imports of special flavour fruit juices (i.e. except citrus, apple,
             pineapple and grape)                                                        328
Table 2.10   Imports of special flavour fruit juices by region (tons thousand)           328
Table 2.11   Hibiscus powder imports                                                     329
Table 2.12   European Union Imports of special flavour fruit juices by country
             (thousand tons)                                                             330
Table 2.13   Consumption of fruit juice and nectars, 2002                                330
Table 2.14   Eastern Europe imports of special flavour fruit juices by country
             (thousand tons)                                                             331
Table 2.15   Middle East imports of special flavour fruit juices by country
             (thousand tons)                                                             331
Table 3.1    Key figures, 2003                                                           333
Table 3.2    Jams: production, source and usage (2000-01)                                333
Table 3.3    Evolution of production                                                     334
Table 3.4    Key players in the Egyptian Jam sector                                      334
Table 3.5    Egyptian proximity to “state of the art” business capacity                  336
Table 3.6    Egyptian exports of jam (HS code 2007), 2002                                337
Table 3.7    Distribution channels for Egyptian exports of fruit juices and
             concentrates                                                                337
Table 3.8    Main jam exporters, 2002                                                    338
Table 3.9    Main jam importers, 2002                                                    338
Table 4.1    Key figures, 2003                                                           339
Table 4.2    Frozen vegetables: production, source and usage (2000-01)                   340
Table 4.3    Frozen vegetables: evolution of production                                  340
Table 4.4    Main Egyptian frozen vegetable companies                                    341



   Egyptian Processed Food Sector Review                                                  19
Table 4.5     Egyptian proximity to “state of the art” business capacity             342
Table 4.6     Egyptian frozen vegetable exports ranked by value (2002)               343
Table 4.7     Egyptian Frozen vegetables, main export destinations and destination
              share by product group, 2002                                           343
Table 4.8     Frozen vegetables: evolution of exports                                344
Table 4.9     Distribution channels for Egyptian exports of frozen vegetables        344
Table 4.10    Per capita consumption of frozen vegetables                            345
Table 4.11    European Union (15): trade in frozen single vegetables                 346
Table 4.12    European Union (15): trade in frozen prepared vegetables               346
Table 4.13    Eastern Europe: trade in frozen single vegetables                      346
Table 4.14    Eastern Europe: trade in frozen prepared vegetables                    347
Table 4.15    Near East: trade in frozen single vegetables                           347
Table 4.16    Near East: trade in frozen prepared vegetables                         347
Table 5.1     Key figures, 2003                                                      349
Table 5.2     Tomato products: production, source and usage (2000-01)                350
Table 5.3     Tomato products: evolution of production                               350
Table 5.4     Main Egyptian producers of tomato paste (hot and cold break)           351
Table 5.5     Egyptian proximity to “state of the art” business capacity             352
Table 5.6     Distribution channels for Egyptian exports of fruit juices and
              concentrates                                                           353
Table 6.1     Key figures, 2003                                                      355
Table 6.2     Dried onions: evolution of production                                  356
Table 6.3     Egyptian proximity to “state of the art” business capacity             357
Table 6.4     Dried vegetables: evolution of exports                                 358
Table 6.5     Distribution channels for Egyptian exports of fruit juices and
              concentrates                                                           358
Table 7.1     Key figures, 2003                                                      359
Table 7.2     Main Egyptian producers of olive oil                                   360
Table 7.3     Olive oil and table olives: evolution of production                    360
Table 7.4     Egyptian proximity to “state of the art” business capacity             361
Table 7.5     Olive oil and table olives: evolution of consumption                   362
Table 7.6     Olive oil and table olives: evolution of exports                       362
Table 7.7     Distribution channels for Egyptian exports of fruit juices and
              concentrates                                                           362
Table 7.8     Olive oil: evolution of demand (consumption) by region/country
              (thousand tons)                                                        363
Table 7.9     Table olives: evolution of demand (consumption) by region/country
              (thousand tons)                                                        363
Table 7.10    Production of olive oil, 2000-2003                                     364
Table 7.11    Production of table olives, 2000-2003                                  364
Table 7.12    Olive oil: evolution of export by region/country (thousand tons)       365
Table 7.13    Table olives: evolution of exports by region/country (thousand tons)   365
Table 7.14    Olive oil: evolution of imports by region/country (thousand tons)      366
Table 7.15    Table olives: evolution of imports by region/country (thousand tons)   366
Table 12.1    Key players in the bottled water sector                                375
Table 13.1    Breakdown of the Egyptian confectionary market by product (2003)       377
Table 13.2    Key players in the confectionary sector                                377
Table 16.1    Key players in the oil sector                                          383



Egyptian Processed Food Sector Review
Table 1.1    Food and drinks forecast (Egypt)                                           387
Table 1.2    Available and actual capacity for the Public Sector – selected product
             groups, 2001-2002                                                          388
Table 1.3     Available and actual capacity for the Private Sector – selected
             product groups, 2001-2002                                                  389
Table 1.4    Egyptian trade in cheese & curd (HS code 0406)                             390
Table 1.5    Egyptian trade in vegetables (uncooked, steamed, boiled) frozen (HS
             code 0710)                                                                 390
Table 1.6    Egyptian trade in vegetables, dried, not further prepared (HS code
             0712)                                                                      391
Table 1.7    Egyptian trade in seed herbs and spices (HS code 0909)                     391
Table 1.8    Egyptian trade in other spices (HS code 0910)                              392
Table 1.9    Egyptian trade in sugar confectionary, non cocoa white chocolate (HS
             code 1704)                                                                 392
Table 1.10   Egyptian trade in Chocolate & other foods containing cocoa (HS code
             1806)                                                                      393
Table 1.11   Egyptian trade in pasta, couscous, etc. (HS code 1902)                     393
Table 1.12   Egyptian trade in baked bread, pastry, wafers, biscuits, etc. (HS code
             1905)                                                                      394
Table 1.13   Egyptian trade in tomato paste (HS code 2002)                              394
Table 1.14   Egyptian trade in pickled olives (HS code 200570)                          395
Table 1.15   Egyptian trade in jams, jellies, marmalades, fruits & nut pastes &
             purees (HS code 2007)                                                      395
Table 1.16   Egyptian trade in fruit and vegetable juices, not fermented or spirited
             (HS code 2009)                                                             396
Table 1.17   Egyptian trade in extracts, essences, concentrates of tea, coffee, malt.
             (HS code 2101)                                                             396
Table 1.18   Egyptian trade in tomato ketchup (HS code 210302)                          397
Table 1.19   Egyptian trade in soups, broths and homogenized food preparations
             (HS code 2104)                                                             397
Table 1.1    Production of main crops and livestock in Morocco (thousand tons)          405
Table 1.2    Production of fruits and vegetables in Morocco (thousand tons)             407
Table 1.3    Production of main crops and livestock in Turkey (thousand tons)           408
Table 1.4    Production of major food products (thousand tons)                          409
Table 1.5    Production of dairy products in Turkey (1000 tons)                         410
Table 1.6    Exports of Turkish dairy products (volume, value and unit values)          410
Table 1.7    Exports of Turkish fruit juices and concentrates (volume, value and
             unit values)                                                               411
Table 1.8    Exports of Turkish tomato paste by destination (volume, value and
             unit values)                                                               412
Table 1.9    Exports of Turkish frozen fruits and vegetables (volume, value and
             unit values)                                                               412
Table 1.10   Exports of Turkish olive oil (volume, value and unit values)               413
Table 1.11   Exports of Turkish olive oil by destination (volume, value and unit
             values)                                                                    413
Table 1.12   Spanish dairy product production (thousand tons)                           415
Table 1.13   Spanish production and consumption of fruit juices                         416
Table 1.14   The Food Processing Industry in China                                      418



   Egyptian Processed Food Sector Review                                                 21
Table 1.15 Sown area and output of vegetables in China                          420
Table 1.16 Comparison of vegetable yields of selected countries (tons per ha)   420
Table 1.1 Number of hypermarket and supermarkets in benchmark countries
           (2002)                                                               425
Table 1.2 A.T. Kearney’s Global Retail Development Index 2004                   426
Table 0.1 MOROCCO: Processed food exports, ranked by value ($US) in 2002        438
Table 0.2 TURKEY: Processed food exports, ranked by value ($US) in 2002         439
Table 0.3 SOUTH AFRICA: Processed food exports, ranked by value ($US) in
           2002                                                                 440
Table 0.4 SPAIN: Processed food exports, ranked by value ($US) in 2002          441
Table 0.5 CHINA: Processed food exports, ranked by value ($US) in 2002          442




Egyptian Processed Food Sector Review
Index of figures




Figure 2.1    Food expenditure per capita in Egypt as per family budget – LE per
              year (2000)                                                              46
Figure 3.1    Traditional Supply Chain                                                 51
Figure 3.2    Emergent Supply Chain                                                    52
Figure 8.1    Schematic representation of regulatory control of the Egyptian FPI      139
Figure 6.1    Curd & cheese: volume of exports (tons) and unit values ($ per ton)     183
Figure 6.2    Fruit & vegetable juice nes: volume of exports (tons) and unit values
              ($ per ton)                                                             186
Figure 6.3    Fruit & vegetable juice nes: volume of exports (share in %) and unit
              values ($ per ton)                                                      187
Figure 6.4    Prepared & preserved tomatoes: volume of exports (tons) and unit
              values ($ per ton)                                                      190
Figure 6.5    Prepared & preserved tomatoes: volume of exports (share in %) and
              unit values ($ per ton)                                                 190
Figure 6.6    Tomato ketchup and other tomato sauces: volume of exports (tons)
              and unit values ($ per ton)                                             191
Figure 6.7    Tomato ketchup and other tomato sauces: volume of exports (share in
              %) and unit values ($ per ton)                                          191
Figure 1.1    Stages in the industrial strategy process                               198
Figure 1.2    Schematic diagram of the Egyptian food processing value chain           199
Figure 1.3    Pressures faced by the Egyptian food industry from the changing
              international situation                                                 200
Figure 4.1    Summary of Vision and recommended measures to be taken.                 208
Figure 5.1    Competitiveness Drivers for the Egyptian FPI                            210
Figure 5.2    Pathway to international competitiveness                                210
Figure 6.1    Summary of the strategy for the improved supply of raw material both
              in Quality and quantity                                                 215
Figure 6.2    Summary of strategy for improved labour productivity and firm level
              management                                                              216
Figure 6.3    Summary of strategy for improved access to finance for SMEs             218
Figure 6.4    Summary of strategy for improved performance of Egyptian food
              processing industries in domestic market                                222
Figure 6.5    Summary of strategy for improved coordination of support institutions
              in the EGFPI                                                            223
Figure 6.6    Summary of strategy for improving the strategic relationship between
              EFPI the academic and research institutions                             225
Figure 6.7    Summary of strategy for the increased FDI in the Food processing and
              Marketing                                                               226
Figure 6.8    Summary of proposed strategy for increased export performance of
              the EFPI                                                                229

Egyptian Processed Food Sector Review                                                  23
     Figure 1.1:   Processed vegetables: SWOT                                            255
     Figure 1.2    Frozen vegetables: domestic and export market projections             258
     Figure 1.3    Tomato paste: export and import projections                           258
     Figure 1.4    Summary of proposed strategy for the improved export performance
                   of processed vegetables                                               259
     Figure 2.1    Olive products: SWOT                                                  265
     Figure 2.2    Olive products: export projections                                    267
     Figure 2.3    Summary of proposed strategy for improved performance of the Olive
                   products                                                              268
     Figure 3.1    Fruit juices: SWOT                                                    273
     Figure 3.2    Exotic fruit juices: export projections                               275
     Figure 3.3    Summary of proposed strategy for improved export performance of
                   the exotic fruit juices sector                                        275
     Figure 4.1    Cheese production: SWOT                                               279
     Figure 4.2    Cheese: export and import projections                                 281
     Figure 4.3    Summary of proposed strategy for the increased export performance
                   and improved domestic supply\for the Egyptian white cheese industry   281




24   Egyptian Processed Food Sector Review
Preface




This study had been prepared for the Policy Reform Unit (PRU) of the Industrial
Modernisation Centre (IMC) as one of its strategic sectoral studies in different sectors.

ECORYS was commissioned by the Industrial Modernisation Centre (IMC) to conduct an
extensive study of Egypt’s Food processing sector. ECORYS built a team of international
and national consultants (economist, food technologists and sector specialists) all with
extensive experience in their field of specialization.

The assignment commenced in March 2004, with a 90 days period for finalizing the
study. However the study took longer time than planned, due mostly to a change of team
leader and local consultants upon the request of IMC. Moreover, the diversity of the
sector, the existence of the cottage, informal, micro, small, medium, large and
multinational companies, the complicated linkages with agriculture and the retails market
system, the increasingly complicated global legal frame work and, above all, lack of
reliable data and information has made this study challenging.

Besides information from different international and national sources such as UNICTAD,
FAO, UNIDO, CAPMAS etc. together with enterprise within the Egyptian food
Processing Industry, the analysis also relied on obtaining first hand information through
interviewing more than 35 food processing companies, along with a range support
institutions and retailers.

A Project Steering Committee, whose members were all prominent representatives of the
Egyptian food processing industry besides the PRU Manager also provided valuable
insights and contributions to guiding the Project Team, oversaw the project. The
assessment in the study relies heavily on the information and insights obtained through
this process.

The team was guided by five overarching objectives:

•   To compile a global review of the sector such as worldwide trends in production,
    trade, legal and technical regulations governing the sector
•   Analysing the current situation of the Egyptian food processing industry identifying
    the constraints and opportunities.
•   Positioning of the selected Egyptian food processing sectors (product groups/ value
    chains) against carefully selected bench mark countries
•   Based on the analysis on the current situation, the bench marking analysis and the
    global trend propose a strategy to increase the competitiveness of the Egyptian food
    processing industry and prepare action plan.




Egyptian Processed Food Sector Review                                                       25
     This report contains the global assessment section, local assessment section;
     benchmarking analysis, sector level strategy and product group level strategy (for
     processed vegetables, cheese, olive products, and fruit juices fruit juices).

     The global assessment, local assessment, and benchmarking exercises (against five
     countries from Middle East, North Africa, South Africa, and Europe), enabled the
     Egyptian food processing industry to be positioned globally and regionally. In developing
     the sector level strategy, value chain analysis highlighted the constraints at each level of
     the chain in the sector. These are general issues cutting across the sector irrespective of
     which product group. The analysis of the constraints and opportunities (potentials) in the
     value chain lead the team to identification of 8 competitiveness drivers that have to be
     stimulated to mitigate the constraints and exploit the potential. The proposed
     activities/majors to be undertaken, the expected outputs and assumptions/risks associated
     to the activities and outputs are then presented.

     The relationship between the activities and outputs are then related to the objectives and
     goals and are summarised in a LOGFRAME (logical framework) for each of the eight
     identified competitiveness drivers.

     In the product group level strategy, value chain analysis was conducted for each product
     group by analysing the collected data and discussions with stakeholders and the
     constraints and potentials specific to the group were determined. Activities to be
     performed the outputs expected and the role of different stakeholders including the
     government is also summarized in LogFrame format for easy reference.

     Acknowledgements
     The Project Team would like to acknowledge the valuable contributions made to this
     study by the PRU team within IMC, the prominent private sector representatives in the
     Project Steering Committee and to all the representatives of the Egyptian Food
     Processing Sector that made them available to the project. We would also like to thank
     Ms. Djehan Lauwers for her unfailing backstopping support and to Mr. Francois-Xavier
     Pinard, the original Team Leader on the project. Thanks go also to the support of Fiani &
     Partners for collection of statistics and data preparation.

     The Project Team:
     Dejene Tezera – Team Leader
     Paul Baker – International Expert
     Morad S. Ahmed – Local Expert
     Yehia El Samargy – Local Expert




26   Egyptian Processed Food Sector Review
List of Abbreviations




Acronyms

ACC               Agricultural Commodity Council
ALEB              Agriculture-Led Export Businesses
BRC               British Retail Consortium
BSE               Bovine Spongiform Encephalothopy
Codex             FAO/WHO Joint Codex Alimentarius Commission
CCG               Chamber of Cereals and Grains (CCG)
CAPMAS            Central Authority for Mobilisation and Staistics
CFI               Chamber of Food Industries
COMESA:           Common Market for Eastern and Southern Africa
DRC               Domestic Resource Cost(s)
EFPI              Egyptian Food Processing Industry
EOS               Egyptian Organisation for Standards and Quality Control
EU                European Union
EurepGAP          Euro-Retailer Produce Working Group (Eurep) Good Agriculture
                  Practices (GAP)
FAO               Food and Agricultural Organisation (United Nations)
FCC               Food Commodity Council
FMD               Foot and Mouth Disease
FPI               Food Processing Industry
FTA               Free Trade Agreement
FTC               Food Technology Centre
GAFI              General Authority for Investment and Free Zones
GAFTA             Greater Arab Free Trade Area
GCC               Gulf Cooperation Council
GOEIC             General Organisation for Export and Import Control
GHP               Good Hygiene Practices
GMO               Genetically Modified Organisms
GMP               Good Manufacturing Practices
HACCP             Hazard analysis and Critical Control Point
HEIA              Horticultural Export Improvement Association
IMC               Industrial Modernisation Centre
IQF               Individually Quick Frozen
IPA               Investment Promotion Agency
IPPC              Secretariat of the International Plant Protection Convention
ISO               International Standards Organisation
ITC               International Trade Centre
MAFTA             Mediterranean Arab Free Trade Area
MALR              Ministry of Agriculture and Land Reclamation

Egyptian Processed Food Sector Review                                            27
     MENA              Middle East and North Africa
     MOFTI             Ministry of Foreign Trade and Industry
     MOH               Ministry of Health
     OIE               Office International des Epizooties
     PAG               Policy Advisory Group
     PET               Polythene Terephthalate
     QMS               Quality Management Systems
     SPS               Sanitary and Phytosanitary
     TBD               To Be Determined
     TBT               Technical Barriers to Trade
     TQM               Total Quality Management
     UHT               Ultra-High Temperature
     USAID             United States Agency for International Development
     WTO               World Trade Organisation




28   Egyptian Processed Food Sector Review
 1 Executive Summary




1.1   Egyptian Food Processing Industry in the New Global Setting

      The new international setting opens up many promising options for growth of food
      processing industries in developing countries. However, the pace of globalisation, world-
      wide liberalization and increased competitive pressures mean that the potential for the
      Egyptian food processing Industry (EFPI) can be realised only if the Egyptian
      government and the industry mount a coordinated strategy to tap markets and
      technologies, and enhance the capabilities and institutions involved in processed food
      manufacturing and trade.

      Global food processing and marketing value chains are now organised more tightly than
      before and entry into these chains has become an important sources of dynamic
      competitive advantage that is crucial for the Egyptian food processing industry. It is vital
      for Egypt to tap into these global value chains, both by building competitive domestic
      enterprises and by attracting international companies.

      Egyptian food processing industry has many potential advantages such as very good agro-
      climatic condition, low labour cost and increased availability of skilled labour, proximity
      to Europe and Gulf markets, and an improving business environment, which are reflected
      in its recent performance that has been very encouraging.

      Small, cottage and micro scale food processing sectors are, however, under-performing
      and little has been done to make them more competitive and their export performance is
      very low as a result. The private sector, encouraged by new developing policies, is
      showing-up its growth by improved export performance in the last three years. With
      Egypt opening up to global markets through various regional trade agreements, such as
      European Union and Arab and Gulf countries, there is a pressing need for a
      comprehensive and coherent food sector strategy.


1.2   Egypt’s Competitive Performance in Processed food industry

      Relative to its overall land area and population size, Egypt has a low availability of arable
      land. In turn, this lack of arable land is reflected in a substantial negative trade balance in
      processed food for Egypt. Whereas the other benchmark countries1 are all net exporters of
      processed food (with the exception of Morocco that has a small negative trade balance).


      1
          The countries used in the benchmarking exercise are Morocco, Turkey, South Africa, Spain and China.




      Egyptian Processed Food Sector Review                                                                     29
             Consequently, the share of Egyptian exports of processed food relative to output is the
             lowest among the benchmark countries for which comparable data is available.

             Furthermore, analysis of the main processed food segments indicates that Egypt achieves
             the lowest share of value added (below 20%) in the total value of output among the
             benchmark countries. From this breakdown, Egypt’s initial position on (geographical)
             markets with dynamic demand is found to largely account for its increase in world market
             share over recent years. By contrast, Egypt’s initial product specialisation has had a
             negative effect on export performance (i.e. specialisation in products with non-dynamic
             world demand). Further, the negative estimate for the adaptation component, suggests
             that Egypt has a poor performance in terms of shifting exports towards specific product-
             country markets characterised by dynamic demand.

             With regard to the urbanisation rate, identified as one of the key factors influencing the
             development of the food-processing sector, Egypt is noticeable both for the low level of
             urbanisation compared to other Mediterranean countries and also for the low rate of
             increase in the share of the population in urban areas. In 1960 the share of the population
             living in urban areas was lower in Turkey, Tunisia and Morocco than in Egypt. These
             countries have, however, seen substantial increases in the rate of urbanisation, most
             notably in Turkey where the share has more than doubled from 31% to 73%.


      1.3    Egypt’s Industrial Capabilities

     1.3.1   Raw Material

             Egypt has a reasonable endowment of high-quality, indigenous raw materials (such as
             exotic fruits and wide variety of vegetables), which forms the basis for the important food
             sector. The ability of the Egyptian agriculture to provide different varieties of fruits and
             vegetables in the “off-season” is an important comparative advantage at the national
             level.

             Egypt also has a potentially highly productive agricultural base as measured by
             computing the domestic resource cost of production (DRCs)2. According to a USAID
             study, the two horticulture crops, potato and tomato, undoubtedly are representative of a
             wide range of vegetables and fruits, reflecting extremely high comparative advantage.
             Egypt has also the highest olive yields in the region, which is 6.38 ton/ha compared to a
             world average of 1.67 and yields for Italy and Turkey of 2.39 and 2.63 respectively.

             For milk production, the DRC for Egypt indicates a comparative advantage in livestock
             development potential, but the levels of efficiency and productivity in the sub-sector are
             low. There is immense scope to reduce costs of production and increase competitiveness.
             However, organization of milk producers groups, increased involvement of the private
             sector in marketing and feed distribution channels and facilities including chilling plants,

             2
                 The ability to produce agricultural product at lower cost compared to another country: A country has a
                 comparative advantage if DRC is less than one.




30           Egyptian Processed Food Sector Review
        provision of credit and advisory services to smallholders are essential to achieve such an
        improvement.

        The Egyptian perishable products sector, mainly the fruit and vegetables and the dairy
        sector, is constrained by a transportation and storage system that is very damaging to
        product quality. It is estimated that up to 40 percent of total production of highly
        perishable products are damaged or lost in transit and handling. According to industry
        sources, estimates of tomato losses run as high as 60 percent. This is the result of poor
        packaging, lack of cold chain facilities, rough transport, and multiple handling. The
        impact of this on the food industries is inconsistent and poor quality supply. The impact
        on consumers is higher retail prices and lower quality than would be the case with proper
        post-harvest handling.


1.3.2   Labour productivity and wages

        Manufacturing wages in Egypt are among the lowest in the region and the second lowest
        average labour costs per worker and average value-added per worker in manufacturing
        from the bench marked countries. Combined with the basic skills and experience of the
        industrial labour force, this can be an important competitive advantage in the long term.
        However, exploiting this advantage requires high levels of labour productivity. Egypt
        appears to have one the lowest labour and firm productivity levels in the region. This
        reflects many factors: low capital to labour ratios and a lower level of technology, lower
        technical competence, insufficient training and weak marketing and management skills in
        many manufacturing firms. Strengthening and properly funding the training and human
        resources department of the MOFTI in order to coordinate the activities of training and
        improving labour productivity is crucial. This unit should conduct researches and
        assessment on the productivity of labour in the food sector and provide the outcomes of
        the studies to the policy makers and the industries periodically.


1.3.3   SME development

        A key feature of the Egyptian food industry is the existence of a dual market structure.
        The sector is characterised by a small number of “large” firms that operate over multiple
        products sectors for local and export market (examples are fruit juices, frozen vegetables,
        and pasteurised milk). Alongside these larger enterprises, there is a large number of
        SMEs (small and medium sized enterprises) that should focus on niche products for
        regional and local markets. It is estimated that more than 87% of the food processing
        industries in the formal sector are either small scale or medium scale. This figure is
        similar to that of European countries, where the SMEs contribute to the production of
        more than 80% of processed food. The focus of the strategy for the development of small
        and medium scale food processors should be to: build support industry services aligned to
        the production requirements of larger enterprises, increase the competitiveness of the
        domestic market, increase the diversification and specialization of the industrial base,
        take advantage of niche market, and accelerate adaptation to changing market demands
        through technical support and provision of long term finance.




        Egyptian Processed Food Sector Review                                                    31
     1.3.4   Strategic alliance with academic and research and development institutes

             Industrial competitiveness depends on the intensity and effectiveness of efforts to absorb,
             adapt and improve upon imported technology and research and development (R&D). The
             Egyptian food processing enterprises, with the exception of few multinational companies,
             give very little emphasis for product innovation and increasing productivity. The high
             failure rates of new food products make this form of innovation a very high risk activity
             for individual businesses. Overall, the academic institutions are not well linked to
             research and development efforts to support innovation and new product development in
             the food-processing sector. Exceptions to this general rule are the National Research
             Centre (Cairo), which started contract research and is serving 45 enterprises, and The
             Food Technology Centre (FTC), which is being linked to IMC to serve the EGFPI and
             provides training on HACCP, ISO, GMP and GAP.

             Building such linkages requires not only that government ensures that R&D institutes and
             universities have the resources available to provide such services but, also, that they are
             provided in a manner in which they can meet the needs of industry. A mechanism must be
             created whereby R&D breakthroughs can be rapidly filtered through the value chain of
             the Egyptian food-processing sector in areas such as: product innovation, process
             innovation, packaging innovation and transport and logistics innovation. This can be
             achieved by establish incentives system to research centres to pro-actively contribute and
             disseminate information and encourage and support contract research activities between
             the industry and the research centres and universities.


     1.3.5   Access to finance

             Long-term industrial finance for the private sector in Egypt needs to be improved. Credit
             to the industrial sector as a whole from the specialised banks is very low. Venture capital
             and similar facilities for technology promotion are at a rudimentary stage. These
             deficiencies constitute fundamental constraints to the growth and upgrading of the private
             food processing and marketing sector. A financial system that collects, allocates and
             supervises the use of investment resources is crucial. On the other side, there is lack of
             information and knowledge from the food industries side about how to access finance for
             technology improvement, expansion and for working capital.

             There is an encouraging development regarding the provision long-term finance to food
             processing industries. In January 2005 the government has announced the establishment
             of a € 50 million fund, mainly to support and upgrade agro-food processing operations in
             Egypt and increase exports of processed foods.

             A proper training and technical assistance for the food processing industry, especially
             SMEs, in the preparation of business plans as required by the banks, provision of long
             term grant/ long-term loan with moderate interest rate, and setting up a micro-finance
             scheme for the micro and cottage industries (which are mostly operating in the informal
             sector) are vital for the adoption and adaptation of appropriate technologies and, hence,
             raising competitiveness.




32           Egyptian Processed Food Sector Review
1.3.6   Foreign Direct Investment (FDI)

        The role of FDI in industrial growth and competitiveness is growing. Trans-national
        corporations (TNCs) account today for a large share of world trade, and tapping into their
        production and sourcing networks is increasingly important for promoting export activity.
        TNCs are the main source of innovation and technology transfer today, and many
        technologies are not available without direct participation by their affiliates. They also
        transfer the modern skills and organisational techniques that enterprises need to compete
        internationally.

        Egypt could take advantage of its highly trained manpower, relatively developed
        infrastructure, highly productive agriculture, and proximity to highly attractive processed
        food market of the Middle East and North African countries and to Europe, in order to
        attract big global players in the food processing and marketing business (including retail
        distribution) to locate their head quarters for their regional operations in Egypt.

        It is recommended that Egypt should strengthen GAFI to ‘Market Egypt’ as a most
        suitable place for investment in processed food and as a head quarter location of
        multinationals in the food sector for their regional office for Africa and Middle East.
        Among the activities that should be a focus for GAFI are: updating potential\investors
        about developments regarding the continuous improvement of the business environment
        in Egypt, assisting professional associations to organize workshops and study tours in
        Europe and North America to encourage the formation of partnerships with
        multinationals, creation of a web site for the food-processing sector promoting the
        potential of Egypt.


1.3.7   Framework conditions

        The recent macroeconomic performance of Egypt has generally been encouraging and, in
        particular, export revenues have been boosted due to the competitiveness enhancing
        effects of the depreciation of the Egyptian Pound after it was allowed to float in January
        2003. The EFPI was one sector that benefited from this effect, with exports rising sharply
        in 2003/2004, although there is already evidence that some of this effect is beginning to
        wear off.

        At the same time, the Egyptian government has initiated structural policy reforms,
        including reforms to customs duties, tariffs and procedures, measures to enhance
        flexibility of the labour market, income and corporate tax reforms, and unifying laws on
        SMEs. These structural reforms go hand-in-hand with policy initiatives to meet WTO
        agreements and greater trade openness through regional and bi-lateral trade agreements
        (including the Egypt-EU Association Agreement that came into effect in January 2004).

        In many respects, the above reforms together with proposed new government initiatives
        and legislations address several of the key constraints identified by the EFPI as handicaps
        to competitiveness. These included the high levels of corporate and income taxes, the
        imposition of sales taxes on food items and on machinery and equipment, the high levels
        of duties on imported ingredients to the food industry and the burdensome and inefficient


        Egyptian Processed Food Sector Review                                                      33
             customs procedures. Though it is perhaps too early to measure the impact of these
             reforms, the consensus view is that they represent positive changes for the development
             of the EFPI. Yet, at the same time, more liberalisation of the trade regime and domestic
             market reforms will raise competition and confront Egyptian enterprises with an even
             more urgent need to improve their competitiveness.


     1.3.8   Trade positioning

             As the benchmarking exercise undertaken for the study has demonstrated, the EPFI still
             has some way to go before it can catch up with both leading regional players and world
             leaders in the sector (see for example the sub-section ‘labour productivity and wages’,
             above) . The trade data analysis of the unit values of exports for key processed food
             product-groups indicate that Egypt is positioned very much as a low cost/quality supplier
             for cheese products, mixed frozen vegetables, olive oil, olive products and preserved
             tomatoes. By contrast, Egypt is a high cost/quality supplier of fruit juices, frozen
             vegetables (especially potatoes and ‘other vegetables), and tomato ketchup and other
             tomato sauces. Overall, Egypt’s strategy should be to seek to maintain its quality
             advantage in (relatively) high unit value exports, while seeking to raise the unit values
             (quality) of products for which Egypt is a low cost/quality supplier.


     1.3.9   Domestic retail market

             Development of the ‘modern’ retail sector plays a central role in determining the pattern
             of development of the food-processing sector. International experience shows that the
             shift towards ‘buyer-driven’ food supply chains, in which retailers retain a dominant
             position, is one of the key factors pushing greater concentration in the food sector. At the
             same time, expansion of international/modern food retailers provides the driving force for
             improving cost/price competitiveness and product quality and service in the food-
             processing sector. In many developing countries, the arrival and expansion of
             international retailers implies that the conditions that suppliers may already face in export
             markets become part and parcel of the domestic scene. Whereas local producers may
             have had some protection from competition in the local market, expansion of
             international retailing combined with liberalisation means that this protection can rapidly
             disappear. In short, the challenges of competition in the domestic market will become as
             acute as those faced in export markets.

             In terms of the number of super- and hypermarkets, the retail sector, in Egypt is lagging
             behind many of those in competitor countries and this is an impediment for development
             of the food-processing sector. On the one hand, it implies that food processors serving the
             domestic market must operate via inefficient traditional distribution channels. On the
             other hand, it reduces the pressure for improvements in the quality and safety of products
             that are required by ‘modern/international’ retailers (serving the domestic market) and, in
             turn, means that it is less likely that producers will be familiar with (and thus attain) the
             standards required in export markets.




34           Egyptian Processed Food Sector Review
1.4   SWOT Analysis

      The key elements of the SWOT (strengths, weaknesses, opportunities, threats) analysis
      are as follows:

      Strengths:
      •   Capability of Egyptian agriculture to produce different varieties of fruits and
          vegetables in different seasons all year round.
      •   Industry has had a proven track record of export performance, especially the fruit and
          vegetable sub-sector in the last three years
      •   Key geographical location; proximity to Gulf Arab countries and Europe; two to three
          days and less than a week to reach the Gulf and European sea ports respectively.
      •   Low labour cost compared to regional and developed counties, and increased
          availability of skilled labour.
      •   Direct sea and air shipping services to Europe for enhanced export performance.
      •   Improved quality and HACCP system in the food industries in the last four years;
      •   Increasingly improving business environment such as tax incentives to exporters and
          investors, improved customs regulations etc.
      •   Issuance of the new unified food law will facilitate and clarify the misunderstanding
          between traders, processors and food law enforcement agencies; also the
          establishment of a new National Food Authority.

      Weaknesses:
      •  Due to the inability of the majority of companies to invest in research there is a low
         level of innovation within the sector and, therefore, a lack of new products.
      •  The agriculture system is underdeveloped and fragmented, and the use of local raw
         materials on a commercial scale is hampered by an inconsistent supply of raw
         material to the industries due in part to the lack of contract farming and a very weak
         relation between growers and processors.
      •  Poor logistics such as cold store chains, refrigerated transport system, and air cargo
         space, combined with a lack of knowledge of the post harvest handling of perishable
         products from the farm to factory to ports, and consequently high post harvest losses.
      •  The majority of the companies operating in the sector are classified as micro, small
         and medium sized. These enterprises are not organized and therefore cannot benefit
         from economies of scale and export marketing.
      •  Weak domestic market and under developed distribution channels, such as
         supermarkets and hypermarkets.
      •  Administrative and bureaucratic burdens (especially lack of transparency in the
         customs regulations in imported items) and a very long clearing time required due to
         all the bureaucratic requirements placed on companies, which has made
         enterprises/industry segments relying on the imported inputs uncompetitive.

      Opportunities:
      •  High potential to attract foreign direct investments in food processing sector and to
         become a regional hub for multinationals for their regional offices in marketing,
         R&D and operation in the Middle East.




      Egyptian Processed Food Sector Review                                                      35
             •   Scope for the introduction of enabling structures, such as cooperatives and contract
                 farming, which could allow small-scale farmers to serve the European markets
                 (especially on the fruit and vegetable sector).
             •   Increased marketing opportunities through the new preferential access agreements
                 with the Arab countries and other regional markets.
             •   There is a considerable potential for increased product development by
                 complementing the range of products already established.
             •   In fruit and vegetable sector, there is an evident demand for frozen, pureed and
                 canned products.
             •   There is a huge and expanding market in Europe for organic products that creates
                 opportunities for Egyptian producers.
             •   A massive growth in supermarket “own” label market segment - estimated at present
                 to be 20% of the super market trade in Europe - provides an opportunity for the
                 Egyptian processors (especially those in fruit and vegetable sector).

             Threats:
             •  More globally, the competitive threat from other developing countries, especially
                China and India is increasing as they restructure their industries and institutions.
             •  Political instability in the region constitutes a serious threat, particularly for attracting
                FDI and tapping into global value chains.


      1.5    Sub sector Performance

     1.5.1   Processed vegetables

             Egypt’s export of processed vegetables has shown an average increase of 5.3 % (from 92
             to 145 million US$ between 1998 and 2003) and Egypt ranks 26th in global processed
             vegetable export. With respect to growth rate, it stands 17th in the world and 3rd in the
             region behind Jordan and Iran. The domestic market is also growing at more than 20% a
             year.

             The increased global supply of processed vegetables together with importers’ quality
             requirements will also raise the need to produce and deliver product that meets buyer
             specifications. Many of the quality and cost issues that are, and will be, important are
             affected by policies, regulations, and actions of the government of Egypt.

             A major quality constraint is the lack of adequate post-harvest facilities (including
             cooling and packing sheds, refrigerated transport, and cold storage). In this respect,
             improvements have been made: large growers and exporters are establishing their own
             facilities and acquiring refrigerated trucks, and the establishment of the new cold store at
             the Cairo airport terminal and outsourcing the management of this cold store to HEIA
             (Horticultural Export Improvement Association) provides a very good example of the
             facilitation role the government can play.

             The private exporters and processors are asking for increased availability of desert land
             ear-marked for export horticultural products (fresh and processed). Provision of the land
             to exporters, together with integrating small holders into the supply chain through


36           Egyptian Processed Food Sector Review
        contract farming and development of the out-growers schemes, will be crucial to meet the
        challenges ahead.

        If the critical constraints listed in the report are addressed properly and coherently by
        industry, the government, and professional associations, with support from university and
        research & development centres, then the export performance of the Egyptian fruit and
        vegetable sector can reach more than 2.4 billion USD a year by 2020.

        Egypt grows more than 5 million tons of tomatoes, with yields and overall production
        volumes increasing due to the introduction of new varieties. Almost all domestic
        production of tomatoes is consumed fresh and Egypt imported more than 220 tons of
        processed tomatoes (mainly in the form of paste) in 2003.

        The production and processing of tomatoes has been considerably hampered by high post
        harvest losses amounting to 50 to 60 percent of production; these losses stem from
        damage or loss in transit and handling due to poor packaging, lack of cold chain facilities,
        rough transport, and multiple handling.

        Among the processed vegetables tomato processing was selected for focused study due to
        its untapped potential in export market and is considered suitable for attracting investors
        (both in agricultural production and processing for export). If the increase in agricultural
        production of tomato, and reduction in post harvest losses is achieved by implementing
        the recommended activities in the report, Egyptian tomato paste exports will be in a
        position to take over the place of its main regional competitor, Turkey, by 2012 and
        become regional leader in the tomato market in the Middle East.


1.5.2   Fruit juices (exotic juices)

        Exports of the category “fruit juices nes” (all fruit juices excluding apple, citrus juices,
        grape, lemon, orange, pineapple, plum, mango, tangerine, which mainly covers the exotic
        fruit juice sector) has grown from 713,000 USD in 1998 to 13.5 million USD in 2003.
        Similarly, mango juice exports from Egypt have more than tripled from 1.9 million US
        dollars to 6.5 million US dollars in 5 years. Success in the export of exotic fruit juice
        from Egypt started by exporting small-glass packed mango and guava juices to Egyptian
        expatriates in North America and Middle East. The US market now absorbs more than
        65% of Egyptian exotic fruit exports.

        With improvement in agricultural supply and development of new products (different
        kinds of fruit juices, fortification with minerals etc.) Egypt can expand its export market
        of exotic fruit juices to 730 million USD by 2020 and become the lead exporter in the
        region . Since Hibiscus tea is already becoming popular in Europe, there is high potential
        for new products such as Hibiscus ice tea. The industry in collaboration with the R&D
        centres and universities should explore this opportunity.




        Egyptian Processed Food Sector Review                                                     37
     1.5.3   Olive products

             Egypt is ranked number 8 in the top olive producers worldwide, with production of
             318,000 metric tons in 2002. The area harvested and the level of production showed a
             very rapid increase over the last five years and is expected to increase further in the next
             few years. Expansion of the harvested area is expected to position Egypt as the third most
             important olives producing country in the world by the year 2010.

             If the recommendations outlined in the report are addressed properly, the export
             performance of the Egyptian olive oil industry could reach 90 million USD and the table
             olives sector can increase to over 135 million dollars by 2020.


     1.5.4   Cheese (white cheese)

             Total milk production within Egypt is estimated to be 3.8 million tons in 2002, and the
             total cattle population at around. 7.3 million, and 8.2 million sheep and goats (SHOAT).
             Despite high number sheep and goats compared to cattle (cows and buffalos), the supply
             of milk comes exclusively from the cattle, indicating opportunities to use sheep and goat
             milk for specialized cheese production. The productivity of milk in Egypt is low; between
             300 and 500 kg per cow per annum.

             The few industrial segments involved in dairy processing are forced to import dried skim
             milk, and Egypt’s imports of dried skimmed milk (DSM) attained a value of more than 42
             million USD in 2003 and are not showing any decline. The main reason for limited
             supply of milk is small fragmented dairy farming and lack of organization of milk
             collecting units.

             Since the study of the dairy farming sector is beyond the scope of this study, the study
             team cannot enter deeply into the problems facing the sector; rather we will concentrate
             on the potential of the cheese processing and marketing sector.

             Despite the fact that it has the world’s largest cheese processing factory, Egypt is still a
             net importer of cheese. Egypt’s export of cheese (whole cow milk cheese) reached a
             record level of 11.6 million dollars in 2003, with imports of 15.6 million USD worth of
             similar cheese. However, there was a considerable decline in imported cheese in 2003
             (the lowest level in the last 8 years).

             By 1) improving the supply of milk in quality and in quantity through encouraging the
             establishment of milk producer groups; 2) clustering of small milk processors (cheese
             makers) to collectively use raw material, packaging facilities, and to assist them in
             finding assured market outlets through contracting with retailers and exporters; and 3) by
             developing a marketing strategy focused on maintaining the Egyptian share of the
             Arabian market and aggressively marketing to European and North American markets,
             then white cheese exports from Egypt could reach 450 million dollars while decreasing
             imports to 1.5 million dollars by 2020.




38           Egyptian Processed Food Sector Review
II            Global Assessment




     Egyptian Processed Food Sector Review   39
1 Introduction




  Agricultural commodities and processed food products have long been traded
  internationally. The trade takes three different forms: Bulk commodities agricultural
  products such as grains and oilseeds); processed intermediate products (such as skim milk
  powder, bulk cheese and boned meat), fresh horticultural products; Processed consumer
  goods (such as beverages, small goods, biscuits, and confectionery).

  The composition of the world trade however, has changed significantly in recent years.
  International trade in processed consumer goods has increased rapidly, while the
  proportion of bulk agricultural commodity trade has declined. Recent figures show that
  trade in processed food products has increased to 75 per cent of global agricultural trade
  in 2002, from 50 per cent in 1985 and is growing very fast (FAO-STAT). Due to this
  increase in demand for processed food, the food-processing sector has become one of the
  fastest growing manufacturing sectors in both developed and developing world.

  A number of forces in both developing and developed countries are driving these
  changes, particularly income growth. Wealthier consumers, especially in developed
  countries, seek out the variety of high-value food imports. High value food products are
  non-bulk commodities that either require special handling, such as fresh produce, or are
  processed, which adds substantial value beyond the farm level.

  This global assessment will deal only with the processed intermediate and consumer
  goods since the bulk trade will be agricultural commodities trade, which is out of the
  scope of this study.

  According to United Nations (UN) trade data, high-value food imports increased in the
  1990s not only in developed countries but also in developing countries. For example,
  from 1994 to 1999 the value of Egypt’s processed food imports increased 51 percent to
  $689 million. However, despite trade growth in developing countries, the much larger
  volume of processed food trade among developed countries has primarily accounted for
  the shift in world agricultural trade from grains to high-value food products.

  Semi processed products, such as vegetable oils, oilseed meals, and flours, has kept pace
  with world agricultural trade and maintained its share of world trade. The fresh
  horticultural products group represents the smallest of these aggregate categories and its
  12-percent share of world agricultural trade has remained almost unchanged during the
  past 20 years (FAO-STAT).

  The perishable nature of fresh horticultural products constrains trade, although
  technological advances to extend shelf life have enhanced the potential for increased
  produce trade.

  Egyptian Processed Food Sector Review                                                      41
                 Growth in two-way trade of high value food products – that is, the same country exports
                 and imports products within the same industry – has also helped increase in trade without
                 growth in consumption. For example, the United States exports higher valued beef to
                 Japan while at the same time it imports a greater volume of lower valued beef from New
                 Zealand or Brazil.

                 The major processed foods traded in world markets are meat products, vegetable oils,
                 dairy products and grain products.

                 Error! Reference source not found. shows world trade in processed food and beverages
                 totalled USD 492 billion in 2001, comprising USD 246 billion in imports and USD 246
                 billion in exports. This represents a decline compared to 1997, when world trade totalled
                 USD527 billion.

                 Egypt’s processed food export has increased from 223 million USD to 280 million USD
                 between 1998 and 2002. In contrary the processed food imports has decreased from 1.7
                 billion USD to 1.3 billion USD and as a result Egypt’s total processed food trade has
                 decreased steadily from 1998 until 2001 and has reached 1.56 billion in 2002.

                 An examination of Egypt’s share of global processed food shows that it is relatively small
                 player with around 0.3% of global trade in processed food.

     Table 1.1   Global processed food trade in billions of USD

                 Indicators                    1997        1998    1999    2000    2001    2002      2003
                 World imports                 259.1       258.9   252.8   239.9   246.1
                 World exports                 267.4       258.8   249.2   237.4   245.5
                 Total world trade             526.5       517.7   502     477.3   491.6
                 Egypt imports                 n.a.        1.7     1.7     1.4     1.2     1.3
                 Egypt exports                 n.a.        0.223   0.184   0.232   0.244   0.280
                 Total Egypt trade             n.a.        1.881   1.861   1.647   1.417   1.554
                 Egypt % total trade           0.36        0.37    0.34    0.29
                 UNCTAD, USDA-ERS and consultants calculation




42               Egyptian Processed Food Sector Review
  2 Demand-side factors influencing global
    development of the FPI



 2.1    Social and demographic change

        The size of a population and its distribution by age group are factors that affect food
        consumption patterns. Income and income distribution, however, are considered as
        leading factors in most economic analyses owing to their quantitative features. The ratio
        of male to female, the number of family members, female employment, and the Degree of
        urbanization are also important variables that may influence food consumption patterns.

        An increase in the ratio of female participation in economic activity is also an important
        factor. Although it is still low in developing countries, more and more women are
        participating in the labour market, which increases the demand for processed convenience
        food.


2.1.1   Increased income

        Rising incomes and their impact on levels of food consumption have been one of the most
        important determinants in explaining shifts in global food demand and trade. Real
        income, as measured by gross per capita national product (GNP), grew on average by
        almost 100 percent globally during the last four decades (World Bank report 2002). The
        rate of income growth among low-income countries (221 percent between 1960 and
        1998) has generally surpassed that for higher income countries.

        The World Bank defines low-income countries as those with 1998 GNP per capita below
        $760, middle-income countries as those with 1998 GNP per capita between $760 and
        $9,360, and high-income countries as those with 1998 GNP per capita above $9,360.
        Countries in the low- and middle-income groups are generally considered to be
        developing countries.




        Egyptian Processed Food Sector Review                                                   43
     Table 2.1   Selected Middle East countries per capita GDP and forecast ($US)

                 Country                                                              Year
                                           1997            2000                2001          2003          2008            2013
                 Syria                       890             950               1040           1078          1178            1288
                 Egypt                      1200            1490               1530           1671          2082            2595
                 Jordan                     1590            1720               1750           1900          2334            2867
                 Iraq                       1850            1850               1850           1944          2199            2488
                 Turkey                     3180            3080               2530           2658          3007            3403
                 Lebanon                    3360            4010               4010          41470          4512            4909
                 Saudi Arabia               8110            8120               8460           8923         10194           11647
                 Bahrain                    9890           10760           11130             11762         13504           15503
                 Israel                    16710           16710           16120             17173         19715           22634
                 Kuwait                    19600           17900           18270             18785         20137           21587
                 Source: World Bank national accounts data


                 Income growth in wealthier countries has less impact on expenditures for food and
                 agricultural products per se compared with less well-off countries. This leads to market
                 saturation and search for new markets by global manufacturers. The new developing
                 markets with rising incomes are future market places for processed food. However,
                 higher incomes can drive increased demand for food with certain characteristics: safer,
                 higher quality, more healthy, or produced in ways believed to be more beneficial to the
                 environment.

                 In developing countries, the rise in income as seen in the last 20 years will definitely
                 increase the processed food consumption, which in turn will increase demand for
                 processed food.

                           Implication of rising income for Egypt’s food processing industry
                           According to the World Bank forecast, per capita GDP of Egypt will increase by 25% between 2003 and
                           2008 (Table 2.1) and the population will reach 82 million. The combination (increase in income and
                           population) will increase the demand for processed food considerably. This opens opportunities and
                           challenges for Egyptian food processing and marketing industry, since the Egyptian food-processing
                           sector can increase the capacity without fear of market saturation in the near future, while the challenge
                           is facing competition from globalised food trade.


                           The increase in income in developed markets increases the demand for the functional (nutraceutical)
                           and organic (biological food). This also opens an opportunity for the Egyptian food-processing sector as
                           it can capitalize on its natural environment, cheaper labour and favourable agro-climatic situation to
                           produce functional and organic food for the European, regional and North American markets.




        2.1.2    Per capita consumption

                 Per capita food availability (measure of food consumption across countries is the supply,
                 or the availability, of food in a market) on a global basis has increased from about 2,300
                 calories per day in 1961 to almost 2,920 in 2001. In addition to changes in food




44               Egyptian Processed Food Sector Review
            availability, the basic sources of calories have changed, with animal and horticultural
            products accounting for a growing share of total calories consumed.
            Shifts in food consumption patterns tend to vary among countries based on the level of
            economic development. In high-income countries, per capita consumption (as indicated
            by food availability) of both cereals and roots and tubers decreased between 1961 and
            1998, while that of meat and poultry increased substantially. (FAO-STAT)

            Differences in food availability between developed and developing countries are also
            reflected in their respective household food budget shares. Households in low-income
            countries spend on average 47 percent of their total budget on food compared with
            households in high-income countries that on average spend only about 13 percent on
            food. Staple food products, such as cereals, fats and oils, and fruits and vegetables,
            account for larger share of the total food budget in low-income countries than in higher
            income countries. Meat and dairy budget shares are greater for high-income countries
            (see Table 2.2).

            How countries respond to rises and falls in income helps policymakers assess future food
            needs, trade, and demand for associated transportation and infrastructure facilities. The
            income elasticity for food, which is a measure of the responsiveness of the quantity of
            food demanded to a change in income, is higher for poorer countries. Thus, when
            incomes fall by 1 percent in both low- and high-income countries, poorer countries make
            bigger cutbacks (in percentage terms) in food expenditures than wealthier countries.
            These cutbacks, however, are not implemented evenly across the different food groups.
            To meet their basic food needs, low-income countries make smaller expenditure
            reductions in staple food consumption, such as cereals, and larger cuts in higher value
            food.

Table 2.2   Average household budget shares for food as share (%) of total household budget by country income category

                                                            Country category
            Consumption category                            low income         middle income          high income
            Food as share of household budget                      47                   29                   13
            Food groups as share of food budget
              Cereals                                              28                   20                   16
              Meat                                                 18                   22                   25
              Fish                                                  5                    5                    6
              Dairy                                                 9                   13                   14
              Oils and fats                                         7                    5                    4
              Fruit and vegetable                                  23                   21                   20
              Other foods                                          11                   13                   15
            Source: ERS/USDA 2001




            Egyptian Processed Food Sector Review                                                                    45
                             Implications for Egypt’s food processing industry of shifts in per capita income and resulting
                             changes in consumption patterns
                             Egypt with per capita GDP 1671 USD falls in the category of middle-income countries and spends an
                             average of 29 % of the household income on food. Per capita expenditure on food in Egypt is shown
                             below. As can be seen from Figure 2.1,as the family income increases, the increase in consumption of
                             soft drinks, fruit and vegetable and meat products is pronounced. The fruit and vegetable industry has to
                             coordinate with the farmers to satisfy the increasing demand in fruit and vegetable as the family income
                             increases. The development of poultry and livestock farms and the associated processing and
                             packaging industry has also an opportunity to capture this increase in demand.


     Figure 2.1   Food expenditure per capita in Egypt as per family budget – LE per year (2000)

                    10 000




                     1 000

                                                                                                                                                                                                               Food & D rinks
                                                                                                                                                                                                               C ereals & Starchy
                                                                                                                                                                                                               Processed V egetable & Fruits
                                                                                                                                                                                                               Milk & D airy Products
                      100
                                                                                                                                                                                                               O ils and O il B y-Products
                                                                                                                                                                                                               Sugar & C onfectionery Products:
                                                                                                                                                                                                               processedMeat & Fish
                                                                                                                                                                                                               Soft drinks

                       10




                         1
                              -1000

                                      1000-

                                              2000-

                                                      3000-

                                                              4000-

                                                                      5000-

                                                                              6000-

                                                                                      7000-

                                                                                              8000-

                                                                                                      10000-

                                                                                                               12000-

                                                                                                                        14000-

                                                                                                                                 16000-

                                                                                                                                          18000-

                                                                                                                                                   20000-

                                                                                                                                                            30000-

                                                                                                                                                                     40000-

                                                                                                                                                                              50000-

                                                                                                                                                                                       70000-

                                                                                                                                                                                                100000-




                                                                                                                                                                                                          Fam ily budget LE per year



                  Source: Study team based on Family Budget Survey




        2.1.3     Urbanization

                  Widespread growth in urbanization has also helped shape global food preferences in
                  recent decades. Urban areas have more effective marketing facilities and a greater supply
                  of products from domestic and foreign producers. Urban areas are also centres of
                  economic opportunity and have a greater percentage of women working outside of the
                  home. Increased opportunity cost of women’s time increases the demand for non-
                  traditional fast food in many countries.

                  With increases in income levels in urban areas, consumption of more expensive sources
                  of nutrients, such as meat, fruit, and vegetables, increases, while the consumption of
                  lower cost staples, such as roots and tubers, decreases. FAO reports significant increases
                  in meat and produce consumption among urban areas of several developing countries.




46                Egyptian Processed Food Sector Review
            Also, dual-income households (occurring mainly in urban areas) have less time for
            cooking, resulting in increased preferences for more highly processed, and convenience
            foods. In the future, urbanization will primarily affect developing countries.
            Assuming the 1990s’ rates of growth continue, the urban populations in developing
            countries will double to nearly 4 billion by 2020. Therefore, the effect of urbanization on
            future food consumption changes will be most evident among developing countries
            including Egypt.

                   Implications for Egypt’s food processing industry of urbanisation
                   According to the estimation of FAO the urban population in Egypt will reach 47 million by 2020, which
                   will be about 48% of the total population (Table 2.3). Urbanization over the next century will chiefly be a
                   phenomenon in the developing countries. So, at the outset, more and more food will be consumed as
                   income and population increases. But after the population arrived at the saturation point (due to
                   increase in income and food availability) consumption patterns will shift from quantity to food quality.
                   This requires a responsive processed food processing and marketing suited to the eating habit of the
                   Egyptian population.


                   The changes mentioned in the beginning of this section brought about by urbanization can significantly
                   affect the Egyptian food supply, markets, and trade. More and more super and hypermarkets will be
                   established which require supplies from industries specially packed and convenience foods among
                   others fresh fruit and vegetables and meat and poultry.


                   In the Near East region the urban population will be around 63 % of the total forecast population of 530
                   million by 2020 (Table 2.4). This population, with growth in income, will definitely shift to processed and
                   convenience food consumption. Thus, apart from satisfying the local demand, Egypt - as the largest
                   country in the Arab world and extensive trade with Middle East and North Africa countries - has great
                   potential for the export of convenience food.


Table 2.3   Population estimates and projections for Egypt

                                1995            2000               2005         2010            2015             2020
            Total (1000)        61,638          67,784             74,878       82,590          89,996           96,852
            Males (1000)        30,807          33,833             37,373       41,224          44,904           48,298
            Females (1000)      30,831          33,951             37,506       41,366          45,092           48,553
            Rural (1000)        35,057          38,856             42,706       46,254          48,817           50,144
            Urban (1000)        26,581          28,927             32,173       36,336          41,179           46,708
            Source FAO-STAT




            Egyptian Processed Food Sector Review                                                                          47
                                                                             3
     Table 2.4   Population estimates and projections for the Near East

                                       1995              2000             2005              2010              2015             2020
                 Total (1000)          326,350           361,942          402,263           445,036           487,775          529,503
                 Males (1000)          166,954           184,621          204,894           226,386           247,891          268,834
                 Females (1000)        159,397           177,316          197,371           218,649           239,883          260,667
                 Rural (1000)          150,242           159,709          170,598           181,192           189,487          195,726
                 Urban (1000)          176,106           202,232          231,668           263,846           298,283          333,775
                 Source FAO-STAT




         2.2     Developments in technology

                 Advances in transportation technology have helped increase global trade of high-value
                 food products. Packaging innovations, fruit and vegetable coatings, bioengineering, and
                 other techniques that reduce deterioration of food products have helped extend the
                 marketing reach of perishable products.

                 Perishable products can now be shipped thousands of miles at lower costs with no
                 substantial loss in freshness and quality. Lower transportation costs have a similar effect
                 on trade as tariff cuts: they reduce transaction costs, or the wedge between the product
                 price in the exporting and importing countries, thus stimulating trade. However, although
                 new developments in ocean shipping have reduced shipping costs and made it possible to
                 preserve the quality of perishable products, trans-ocean transportation costs are still
                 higher for many perishable products than for raw agricultural products, such as grain, or
                 non-perishable products, such as nuts and raisins

                 Innovation in technology is advancing at higher pace to meet increasing consumer
                 demands, while maintaining price competitiveness. Tens of thousands of packaged food
                 products that are currently in supermarket were the results of innovation in the last 10
                 years.

                 Technology in some instances has also negative impact in the development of processed
                 food technology. Events over genetically modified foods in US and outbreaks of Bovine
                 Spongiform Encephalothopy (BSE) and Foot and Mouth Disease, in Europe, have
                 demonstrated an emerging ‘crisis of confidence’ among global consumers due to
                 advances in technology and farming systems geared mainly in to increase farm outputs.
                 This generates a number of niche market opportunities for developing countries to
                 capitalise on their production of safe food from a clean environment and inputs.

                 Marketing this position through the use of eco-labelling, organic certification or GM-free
                 assurances requires the use of effective supply chain management systems. Egyptian food
                 processing sector has a great potential in this aspect if the sector invests in up-to-date
                 quality improvement, application of HACCP, certification for organic food and
                 traceability.


                 3   Cyprus, Egypt, Gaza Strip (Palestine), Iran, Jordan, Lebanon, Libyan Arab Jamahiriya, Palestine-Occupied Tr. Syrian Arab
                     Republic, Turkey, Yemen




48               Egyptian Processed Food Sector Review
2.3   Food safety and health concerns

      Along with growing urbanization and the associated increases in levels of information
      dissemination and education, health concerns have become an increasingly important
      factor in consumers’ food preferences in recent years. Due to the recognition that,
      awareness and attitudes toward health issues affect consumers’ consumption decisions,
      various world wide public and private campaigns seek to inform consumers of health
      benefits associated with different food products.

      Their recommendations include: reducing the intake of fats and increasing consumption
      of fruits and vegetables intake. Accordingly, demand for functional and health food has
      changed considerably in recent years. For example, in developed countries, due to health
      concerns, red meat’s share has decreased while poultry’s share increased. Similarly, per
      capita fruit and vegetable consumption is increasing.

      Major food safety incidents in recent years have resulted in lasting changes in consumer
      perceptions and food purchasing patterns in certain developed countries. For example, the
      1996 announcement in Great Britain of a possible link between bovine spongiform
      encephalopathy (BSE), or mad cow disease, in cattle and a new strain of Creutzfeldt-
      Jakob Disease in humans led to dramatic declines in beef consumption in Europe,
      particularly in the United Kingdom. This incident also resulted in import bans on British
      beef and products by trading partners, leading to significant economic losses for
      associated industries.

      Concerns over food quality and safety and increased international trade have led to the
      growth of quality assurance schemes that provide technical requirements for production
      and processing and provide inspection and monitoring to assure compliance.

      Consumers in wealthier countries with more information about food safety risks tend to
      demand more stringent food safety standards on both domestically produced and
      imported food and are also willing to pay more for these standards.

      In developing countries the cost of the quality assurance system, the non-functional food
      laws, the lack of training in the food law enforcement agencies and lack of technology for
      testing food quality attributes has made the implementation of quality control and food
      safety measures for local consumption difficult.

      The increased international processed food trade (at the expense of the bulk export) poses
      developing and emerging economies with the challenge of complying with the safety
      requirements and demand of the consumers in another part of the world. Countries with
      export potential have started changing very fast in the way they process produce,
      transport and trade by applying effective quality, safety and labelling and tracing systems.


2.4   Convenience foods

      In developed and developing economies, consumers are demanding convenience at nearly
      any cost. An increase in urbanisation, availability of refrigerators and heating appliances,


      Egyptian Processed Food Sector Review                                                     49
           and the lack of women’s’ time for food preparation is leading to increased demand for
           and trade in convenience foods. The trend toward more highly finished products is
           continuing. This benefits the food processing industry. Changing consumption patterns
           are reflected, for instance, in frozen food sales, which are increasing faster than overall
           food sales. The most significant increase was for processed chicken pieces, which became
           the largest single frozen product in the consumer market. The sharp rise in consumption
           of poultry pieces, ready-to-heat meals, French fries, bakery products, meat balls,
           hamburgers, and snacks is an example of how convenience and availability are factors
           that play a major role in consumers’ food choices.


     2.5   Life-style and health foods

           The rise of organic foods is another example of heightened consumer interest in particular
           food attributes due to mainly the awareness of the health risks associated to food
           consumption and increased income in developed economies. Consequently, worldwide
           markets for organic foods are expanding, with annual growth rates of 15-30 percent in
           Europe, the United States, and Japan for more than 5 years.




50         Egyptian Processed Food Sector Review
       3 Supply-side factors influencing global
         development of the FPI



             The global food product system has undergone significant and accelerating change in
             recent years, fuelled by the removal of barriers to the flow of information, capital services
             and goods, driven by rapid technological advancements in transport, financial services,
             telecommunications and computer technology. As urbanisation and industrialisation
             progresses, food consumption is increasingly divorced from the source of production of
             the raw material or the transformation to a consumer product. These developments imply
             that historical comparative advantages such as cheap labour, favourable climate, large
             consumer market alone will not be sufficient to sustain competitiveness onshore in
             meeting import competition, or offshore in capturing new opportunities in export markets.
             While global economic and trade developments present opportunities for the Egyptian
             food industry, they will increasingly test its competitiveness.


     3.1     Global sourcing of raw materials

             The tendency in sourcing raw material has shifted from the traditional supply chain, in
             which the wholesalers have played an important role in the trade (see Figure 3.1), to one
             dominated by large supermarkets and large food processors. The traditional wholesale
             system, where farmers sell their products to intermediaries and they in turn supply to the
             processors, is found to be inadequate due to inconsistent quality, poor sanitation and
             unreliable quantities.

Figure 3.1   Traditional Supply Chain



                    Farmers                                Wholesale
                                                               Self-        Retail Store
                                                           distribution

                                           Food
                First line handler                                                             Consumer
                                        Manufacturers

                                                           Wholesale
                                                            Service-       Food Service
                Ingredient flavour                         distribution
                   companies



                                                          Demand Chain     Supply Chain




             Egyptian Processed Food Sector Review                                                     51
                  The new supply chain is based in building new links between distribution centres, large
                  food processors and farmers (dairy and fruit and vegetable). The latter link is established
                  in contract buying and farming to meet quality equivalent to export standards (see Figure
                  3.2). The new developing supply chain organization guarantees the safety & and quality
                  of raw materials and products. It also provides consistent and homogeneous raw material
                  source globally and continuous supply of raw materials and processed food through all
                  seasons.

     Figure 3.2   Emergent Supply Chain




                                                                          Retail Store



                        Agricultural              Food
                                                                                                        Consumer
                        Production             Manufacturers


                                                                         Food Service




                                                               Capture Value             Create Value




                  In this developing system the losers are mainly regional wholesalers, small farmers and
                  small-scale food processors. The winners are the consumers who will eventually get
                  lower prices, different variety, safer food and convenience food. The multi-national
                  companies cut costs, get access to foreign market and to remote areas and are the ultimate
                  winners.


          3.2     Globalisation and the food industry

        3.2.1     Food processing

                  Globalisation allows firms to treat whole regions, or the whole world, as one market. This
                  supports the global sourcing of inputs and the manufacturing and marketing of products at
                  very large scale and highly competitive cost. In addition to these cost reductions,
                  international expansion through Greenfield investments, mergers or acquisitions provides
                  new growth opportunities for processors faced with mature and low growth domestic
                  markets in developed countries.

                  International businesses are restructuring and extending their operations on global lines,
                  and shifting their operations globally to centralise elements of the organisation (e.g.
                  marketing, R&D or procurement) in locations that demonstrate some competitive
                  advantage. As a result the trend now is rationalizing and restructuring to reduce costs, to
                  improve economies of scale and to innovate in product, processes and packaging and
                  marketing to compete with the very large global players.



52                Egyptian Processed Food Sector Review
Table 3.1   World leaders in processed food

            Company                                                         Home country
            Nestle                                                          Switzerland
            Philip Morris                                                   United States
            conAgra Foods                                                   United States
            Pepsi co                                                        United States
            Unilever                                                        UK/NL
            Coca Cola                                                       United States
            Cargill                                                         United States
            Diageo                                                          UK
            Mars                                                            United States
            Archer Daniel Midland                                           United States
            Source: National Gradate School of Management, Innovation in the Global Food Industry, 2001


            A large part of rationalization and restructuring is achieved through foreign direct
            investment by big trans-national companies in own facilities or joint ventures with local
            companies. This direct investment facilitates the flow of management expertise and
            technology transfers that generate positive spillovers for the local small and medium scale
            food processing industry. It is for these reasons that national governments around the
            world are competing for a share of this investment.

            Egypt could take advantage of its highly trained manpower, relatively developed
            infrastructure and proximity to highly attractive processed food market of the middle east,
            north African countries to attract big global players in food processing and marketing
            business as their head quarters for their regional operations.


   3.2.2    Distribution and marketing

            The share of the super and hypermarkets in the retail trade is increasing radically. This
            can be clearly seen in the developing economies such as South America where the
            supermarket share of the retail sales has gone up from 20% in 1990 to 60% in 2002 (this
            figure is about 72% in the U.S.4) (USDA)

            This growth of retail sales in food products is a result of Direct Foreign Investment by
            Multinational supermarket giants such as Ahold, Wal-Mart and Carrefour. The
            determinants of the rise of supermarkets and supply chain as mentioned before are
            urbanization, rising incomes, increase in number of women working outside home,
            increase in home refrigeration facilities, relaxing trade regulations and cheaper imports.

            Like the multinational processors, the major international retailers are building long term
            global supply chain relationships with a select number of suppliers. This gaining
            exclusive supply agreements, is a form of vertical integration that allows retailers to
            maximise their returns from efficiency improvements along the chain.


            4
                Source: USDA




            Egyptian Processed Food Sector Review                                                         53
     Table 3.2    Major global retailers

                 Retailer         Home           % of sales      Number of stores   Number of countries   Sales in 2001
                                             outside home base                       in which present     (Million Euro)
                 WAL MART         US                  14              3989                  10               208,533
                 CARREFOUR        France              38              9600                  28               64,802
                 CASINO           France              19              5423                  11               65,345
                 AHOLD            NL                  75              7853                  27               52,471
                 METRO            Germany             39              2114                  21               43,804
                 COSTCO           US                  22               313                  7                34,644
                 ALDI             Germany             33              5556                  11               30,013
                 TESCO            UK                  10               821                  10               29,752
                 TENGELMAN        Germany             51              6689                  11               27,300
                 DEHAIZE          Belgium             80              2360                  11               18,206
                  Source: IDG Global Retail Index, IDG Online


                  The continuous increase in concentration of capital in food processing and trade has led
                  to increasing mergers and acquisitions between global giants. The mergers of Carrefour
                  and Promodes, and Wal-Mart and Asda, have created the two largest global retailers. If
                  the current trend continues, it is likely that within the near future a handful of global
                  retailers will control the majority of global retail food sales. The trend is clearer when we
                  look at the globalisation of food retail in the developing economies such as China and
                  Latin America.




54                Egyptian Processed Food Sector Review
  4 Global trade environment of the FPI



 4.1    Multilateral trade agreements

        The basic principles of the WTO agreements are:
        •   Trade without discrimination: This implies that the a country should neither
            discriminate between its trading partners (giving them equally “most favoured-
            nation” or MFN status), nor should it discriminate between its own and foreign
            products, services or nationals (the so called “national treatment” principle);
        •   Trade barriers among nations should be agreed to through negotiations: Foreign
            companies, investors and governments should be confident that trade barriers
            (including tariffs and non-tariff barriers) should not be raised arbitrarily; tariff rates
            and market-opening commitments are “bound” in the WTO;
        •   More competitive trade; discouraging “unfair” practices such as export subsidies and
            dumping products at below cost to gain market share.

        Less developed countries are generally permitted greater flexibility in the implementation
        of WTO rules: longer time to adjust, greater flexibility, and special privileges. The
        flexibility of these agreements is demonstrated by the possibility of countries to set up a
        free trade agreement that applies only to goods traded within the group - discriminating
        against goods from outside. A country can raise barriers against products that are
        considered to be traded unfairly from specific countries. And in services, countries are
        allowed, in limited circumstances, to discriminate. But the agreements only permit these
        exceptions under strict conditions.

        147 countries have joined the WTO at this point. Egypt is one of these countries and is
        implementing its commitments under the WTO. Egypt actively participated in the
        Uruguay Round negotiations and is a founding member of the WTO. Since then, Egypt
        has followed a steady plan to meet its WTO commitments. It has removed most non-tariff
        barriers, decreased tariffs, liberalized foreign investment policies, and privatised public
        sector companies. Egypt has also liberalized the foreign exchange market, which has
        helped to boost its exports in the processed food sector.


 4.2    Regional trade agreements

4.2.1   Common Market of Eastern and Southern Africa - COMESA

        COMESA was established in 1980, and Egypt joined in 1988. COMESA has membership
        of 21 countries in eastern and central and southern Africa market with target population
        390 million people (48% of the total African population of 813 million). COMESA’s


        Egyptian Processed Food Sector Review                                                            55
             approach towards a more integrated economy is based on the removal of physical,
             technical, fiscal and monetary barriers to intra-regional trade and all commercial
             exchanges in a progressive fashion through the following stages of integration:
             •   A Preferential Trade Area (PTA) with lower tariffs applied to intra-regional trade
                 originating in member countries than to extra-regional trade.
             •   A Free Trade Area (FTA) in which no tariffs are levied on goods from other member
                 States while each member nation applies its own regime of tariffs to goods imported
                 from outside the region.
             •   A Customs Union (CU) involving free trade among the member nation but with a
                 Common External Tariff (CET) by which every member nation applies the same
                 tariffs on goods from outside the region.
             •   A Common Market (CM) with free movement of capital and labour and greater
                 harmonisation of trade, exchange rate, fiscal and monetary policies and internal
                 exchange rate stability and full internal convertibility.

             Egypt, the largest economy in the agreement, has the advantage of possessing the
             strategic location, human capital and infrastructure necessary to allow trans-national firms
             access to the COMESA market through a variety of joint ventures.

             The enormous potential of the COMESA market should prove highly attractive to trans-
             national corporations. By establishing branches in Egypt, they will be able to benefit from
             the customs exemptions granted to COMESA member nations. Thus, for example, it
             would be possible to use foreign direct investments in Egypt as an advanced industrial
             centre within COMESA so as to establish a manufacturing centre that targets the
             COMESA countries. Egypt can also be the centre of trade for products for re-exports to
             other countries in the association.


     4.2.2   Euro-Mediterranean Partnership

             One of the region’s key free trade agreements (FTAs) is the Euro-Mediterranean
             Partnership, the pact between the EU and Morocco, Algeria, Tunisia Egypt, Israel,
             Jordan, the Palestinian Authority, Lebanon, Syria, Turkey, and the new EU Member
             States of Cyprus and Malta. Under objectives defined at the 1995 Barcelona Conference,
             this agreement targets the establishment of the Euro-Mediterranean Free Trade Area by
             2010. At the same time, tariff barriers are being progressively dismantled. These two
             actions will have a direct impact on the private sector in the Mediterranean region, and
             modernisation and economic reforms will be needed at all levels in order to meet the
             challenges of a more open and more competitive business environment.

             This free-trade area will link together the EU Member States and the 12 Mediterranean
             Partners. Eventually the free trade zone should include some 40 States and 600-800
             million consumers.
             The Egypt-European Union Association Agreement has come into effect on 1st of
             January 2004. This agreement specifies the tariffs import duties from Egypt to European
             Union and the other way around. According to this protocol import duties for processed
             food items originating from Egypt such as dairy products, sweet corn products, further
             processed edible oils and fats, pure fructose, prepared potato products etc will be


56           Egyptian Processed Food Sector Review
        imported into EU without duty payment. Some other products can be imported with
        reduced tariff and specified quota.

        With this agreement, Egypt has gone a step forward in joining one of the biggest trading
        areas in the world with some privileges and challenges. All the technical trade rules will
        be according to the WTO agreements, to which Egypt is a signatory.


4.2.3   Mediterranean Arab Free Trade Area - MAFTA

        Four countries in the Euro-Med Partnership, Jordan, Egypt, Morocco and Tunisia, have
        also set up the Mediterranean Arab Free Trade Area (MAFTA). The four MAFTA
        members will introduce and apply rules on trade competition and the prevention of
        monopolies and have agreed on the formation of a ministerial committee to ensure
        implementation of the MAFTA agreement. It is assumed that MAFTA’s moves towards
        establishing a free trade bloc are a side benefit of the Barcelona process and will further
        reinforce the Euro-Mediterranean FTA.


4.2.4   Greater Arab Free Trade Area - GAFTA

        Aside from the EU and WTO free trade pacts, FTAs within the Arab region are also
        gathering momentum. The Greater Arab Free Trade Area (GAFTA) is an Arab League
        initiative that aims to revive previously unsuccessful attempts at regional integration. The
        establishment of free trade area (GAFTA) is set for 2005-2006.

        The GAFTA agreement is to reduce customs on trade among members by 50%, 60% and
        finally to 80% in 2004, with zero tariffs by 2005. This agreement will benefits Egyptian
        food processing sector if the comparative advantages of Egypt such as low labour cost,
        developed agricultural production systems and skilled manpower compared to oil rich
        Arab countries with limited agricultural and food processing industries.




        Egyptian Processed Food Sector Review                                                         57
 5 Global regulatory environment of the FPI



5.1   The WTO Agreement and Technical Barriers to Trade (TBT)

      The 1978 Tokyo Round GATT negotiations recognized the following technical barriers
      for trade:
      •    Sanitary and Phytosanitary (SPS) regulation to protect human, animal and plant life
           and health, specific regulations which address microbial contamination of food, or set
           allowable levels of pesticide or veterinary drug residues, or identify permitted food
           additives. Some packaging and labelling requirements, if directly related to the safety
           of the food.
      •    Consumer measures: regulations that impact labelling and packaging, rules pertaining
           to pesticide residues, nutritional content and contamination.
      •    Trade measures Shipping and financial documents, standards of product identity and
           standards of measurements.

      The agreement covered technical requirements among others, affecting food safety and
      animal and plant health measures, including pesticide residue limits, inspection
      requirements and labelling. However, due to the possibility that food safety and animal
      and plant health measures could potentially be easily manipulated to restrict trade, the
      1994 Uruguay Round separated these measures from TBT and placed them under the
      Agreement on SPS Measures. Separating SPS from TBT allowed the WTO to make
      guidelines clearer and regulations more transparent for both TBT and SPS. Therefore, the
      role of TBT has been reduced to cover specifically Consumer Measures and Trade
      Measures.


5.2   International coordination bodies for international standards

      The trade in processed food is subject to both the TBT and the SPS agreements. The SPS
      Agreement encourages but does not require countries to harmonize their SPS measures, to
      the greatest extent possible, by basing their health measures on relevant international
      standards.

      Harmonization is intended to reduce unnecessary variances between countries' technical
      standards; differences which can often be the source of trade friction. The SPS
      Agreement recognizes three international standard setting bodies as the official entities
      for developing health- related standards, guidelines and recommendations:
      •   OIE: The Office International des Epizooties;
      •   IPPC: The Secretariat of the International Plant Protection Convention;
      •   Codex: The FAO/WHO Joint Codex Alimentarius Commission.



      Egyptian Processed Food Sector Review                                                       59
     5.2.1   Office International des Epizooties - OIE

             The Office International des Epizooties (OIE), also known as the World Animal Health
             Organization, has as its mission to facilitate intergovernmental cooperation to prevent the
             spread of contagious diseases in animals between countries. The OIE is now comprised of
             127 member countries and its membership is expected to increase in the future. The OIE
             maintains a worldwide animal disease reporting system and recommends sanitary
             regulations, testing, quarantine, and health certification procedures to encourage world
             trade while minimizing the risk of spreading livestock and poultry diseases.


     5.2.2   International Plant Protection Convention - IPPC

             The Secretariat of the International Plant Protection Convention (IPPC) is based in the
             headquarters of the United Nations' Food and Agriculture Organization (FAO). The
             purpose of the IPPC is to secure common and effective action to prevent the spread and
             introduction of pests and diseases in plants and plant products and to promote measures
             for their control.


     5.2.3   The Codex Alimentarius Commission - Codex

             The FAO and the United Nations’ World Health Organization (WHO) created the
             FAO/WHO Joint Codex Alimentarius Commission in 1962. Codex is the major
             international mechanism for encouraging fair trade in food while promoting the health
             and economic interests of consumers, through the development of food standards, codes
             of practice and other guidelines.

             Member countries are invited to accept Codex standards and to embody them in national
             law. Member countries can review and provide comments at several stages of the
             development process of a Codex standard. Codex Codes of Practice and Guidelines are
             advisory instruments and are sent to governments as recommendations.

             Apart from SPS requirements, increased global and domestic trade in processed food and
             consumer demand for improved food quality has also led public and private sectors to
             develop and implement mandatory and voluntary quality control, management, and
             assurance schemes. Quality assurance schemes develop standards for the production,
             processing, and transport of food and may include standards for environmental
             management practices.

             Western European countries employ certification systems that guarantee the traceability
             of fresh and processed food back to the originating animal and farm. Companies around
             the world are responding by implementing food safety management systems to ensure the
             production of safe food and reduce the risk of loosing their trading partners.




60           Egyptian Processed Food Sector Review
5.3   Hazard Analysis and Critical Control Point - HACCP

      Major food safety incidents in recent years are such as FMD, BSE and dioxin in
      beverages (Belgium) has led to changes in consumer perception of food safety and has
      increased the need for more stringent quality control and food safety measures by both
      government agencies and manufacturers. This has strengthened the requirement for
      implementation of HACCP measures in almost all consumer food-processing companies
      in Europe and as much as possible work on traceability of the products.

      Food safety risks, defined as they relate to human health5, covering well-established and
      perceived impacts from sources including: (1) microbial pathogens; (2) residues from
      pesticides, food additives, livestock drugs, and growth hormones; (3) environmental
      toxins such as heavy metals; (4) persistent organic pollutants; (5) unconventional agents
      such as prions associated with bovine spongiform encephalopathy (BSE) or “mad cow
      disease” in cattle; (6) zoonotic diseases that can be transmitted through food from animals
      to humans ; and (7) foods produced or processed with practices perceived to involve
      risks, such as irradiation need to be given extreme attention and products must be tested
      before they are marketed.

      Multinational companies have been effectively forced to implement HACCP, not only in
      their manufacturing system but also in the supply, transport storage and distribution
      centres. This implies that most food industries involved in the supply chain of the food
      processing and marketing chain need to adopt the system if they want to remain in the
      global food trading system.

      The implementation of HACCP requires laboratories and trained personnel to test the
      above-mentioned risks in the raw material and processed food. Consumers in the
      developed world are willing to pay for the costs associated with the implementation of the
      HACCP system. The domestic industries are mostly disadvantaged since they can not
      bear extra costs for the food safety measures and mostly are not supported by the
      governments.




      5   Among food safety hazards, human health risks are highest from food borne pathogens such as Campylobacter and
          Salmonella’, originating from meat, fish and poultry products. The export of meat products requires the most stringent
          control system followed by the milk and milk products.




      Egyptian Processed Food Sector Review                                                                                        61
III Local Assessment




Egyptian Processed Food Sector Review   63
 1 General economic context




1.1   Recent macroeconomic performance

      In fiscal year 2004, the Egyptian economy grew faster than in the previous years. The
      most recent data show a real GDP growth rate of 4.2 percent for the first half of fiscal
      year 2004 (July-December 2003) compared to a growth rate of 3.1 percent in the same
      period of the previous year. This faster growth was mainly the result of a more favourable
      external environment. A pick up in global economic growth helped raise demand for
      Egypt’s exports and sent more tourists to Egypt. After a decline in arrivals during the
      build up to the Iraq war and the war itself, there was a sharp recovery in tourism arrivals,
      which reached record levels in the first half of fiscal year 2004. Egyptian tourism may
      have benefited from a reluctance of many Westerners to travel to Asia because of the
      SARS outbreak and a larger inflow of Gulf Arabs who have become reluctant to travel to
      the West after the terrorist attack of September 11th. Export revenues were further raised
      as a result of an increase in international oil prices.

      Export revenues were furthermore boosted by an increase in competitiveness due to the
      depreciation of the currency after it was allowed to float in January 2003. This floatation
      of the currency had resulted in a depreciation of 30 percent. After the floatation of the
      currency, it has been fully liberalised. At least, this is the case since Decree 506, which
      introduced a surrender requirement on foreign exchange earnings (75 percent of export
      revenues) was challenged in the Courts and subsequently cancelled at the end of 2004.
      Since the beginning of 2004, the government has been pursuing a more active monetary
      policy, raising interest rates on government paper in order to mop up excess liquidity and
      to reduce the pressure on the exchange rate. Earlier the government was reluctant to do so
      out of fear that higher interest rates would stifle investment. As a consequence of the
      tighter monetary policy, the monetary target (10 percent M2 growth in fiscal year 2003)
      set by the government in agreement with the IMF could actually be achieved.

      The depreciation had, however, an adverse effect on inflation. The CPI increased by 5.5
      percent in fiscal year 2003. This measure captures only part of the actual increases in
      prices as the basket of goods included in the CPI includes a large share of price-controlled
      goods. Over the same period, the wholesale price index (WPI) increased by 16 percent.

      The acceleration in growth has also been insufficient to create employment for all of the
      new labour force entrants. The unemployment rate increased from 9 to 9.9 percent by the
      end of 2003. A major challenge for the Egyptian economy remains the creation of jobs
      for 600,000 new job seekers every year.




      Egyptian Processed Food Sector Review                                                     65
     1.2   Structural policy reforms

           The policy initiatives seeking to achieve structural reforms have remained modest.
           Positive initiatives include a tariff reform for apparel to meet WTO requirements,
           eliminating specific tariffs and reducing tariff rates on a range of items. As import tariffs
           on inputs were reduced simultaneously, the measures did not affect the effective
           protection of the sector significantly. However, further reforms in customs duties,
           involving a reduction and narrowing of the range of tariffs are planned. Losses in
           revenues are planned to be compensated by a small increase in the general sales (GST) by
           one or two percent.

           In the area of trade the government has concluded bilateral trade agreements with several
           countries (Syria, Jordan, Morocco, Tunisia, Lebanon, Libya)6. The trade provisions of the
           Egypt-EU Association Agreement have come into effect from January 2004.

           A new labour law (No. 12) issued in April 2003 introduced greater flexibility in the
           operation of the labour market.

           Planned structural policy reforms include reducing income taxes, and the introduction of
           a law on SMEs unifying all SME related legislation and facilitating the issuing of
           business licenses to SMEs. It is also planned to extend credit to SMEs, including start-ups
           by university graduates, at subsidized interest rates. International experience with
           subsidized interest shows, however, that these are not always very effective and often
           characterised by a high incidence of non-performing loans, which would add to the
           already high burden of non-performing loans of Egyptian banks. The government is also
           seeking to revive the stalled privatisation programme offering additional companies for
           privatisation and facilitating the process of privatisation. A scheme is being developed to
           restructure the debt of public enterprises by creating a holding company, which would
           issue bonds in exchange for the loans of public enterprises


     1.3   Current structural reform policy and their impact on the Egyptian FPI

           Egypt's present government team is launching an extensive structural policy reform
           program, long awaited by the industrial and business community at large in the country.
           Among the key reforms impacting on the EFPI, are:

           Tax and investment incentives
           •   A new income and corporate tax structure, with a maximum rate of 20%, combined
               with the cancellation of all other tax incentives, a factor that will influence the
               geographical spread of factories. The new Tax Law currently being debated in the
               Parliament is expected to have a positive effect on EFPI with 2 main aspects:
                   •   Reduction of income tax, allowing more spending by individuals and families
                       benefiting from rise in income.



           6
               Bilateral trade agreements with Italy, Brazil and China are yet to be ratified and made operational.




66         Egyptian Processed Food Sector Review
          •     Reduction of corporate tax to a maximum of 20% will allow new investments
                to go into EFPI which is more profitable now.
          Existing investors are worried though from some articles in the new Tax Law that
          will have a negative effect on their investments in New Industrial Zones since it
          cancels the Tax exemptions / holidays of 5 to 10 years under the new law7.
          It is not yet clear now how the Tax Law will be after the parliament debate in
          April 2005, but many new investors would rethink about establishing their
          factories in new industrial areas if it looses tax holidays and advantages in the
          new law as they will be faced with the cost of transporting raw materials,
          packaging, labour and finished products, specially with new price increase of
          Diesel fuel (50%). Therefore, the Ministry of Housing and New Land has reduced
          the land cost in New industrial Cities by 30% for housing building sites and by
          40% for Industrial and Services sites – also a reduction of 5% in administration
          fees. This is supposed to offset the expected decline in moving to New Industrial
          Cities if it looses the 10 years Tax holiday if the new Tax Law is ratified by the
          parliament, in its existing draft.

•    Amendments to Sales Tax Law are being prepared which when ratified by the
     parliament will entail the following:
         •  Cancel Sales Tax of 10% on all types of bread (not the subsidized type only).
         •  Reduce Sales Tax on sale of used equipment to 30%.
         •  Cancelling of Sales Tax on production Machinery, equipment & its parts and
            deduction of previously charged Sales Tax from the general Tax file of the
            establishment.

•    Simplification of customs duties with a reduction to only 6 categories, and reducing
     duties on imported food industry supplies to 5%.

•    Egyptian food-processing companies have voiced objections to the introduction of a
     new fund for training and rehabilitation of labour to be financed from a 2% tax on net
     corporate income.

Trade agreements
•  The signature of the "QIZ / Qualified Industrial Zones" with the USA, based on a
   minimum 11.7% Israeli origin component is expected to boost the exports and
   foreign investments in 5 major industries, of which the food processing is one.

•    The coming into force of the free customs area in the whole Arab region from
     January 1st, 2005, together with the EU free trade agreement in operation since
     January 2004 in addition to the "COMESA" (Common Market for Eastern and
     Southern Africa) free zone trade.

•    The MAFTA AGADIR agreement which will go into effect on January 1st, 2005 is a
     free trade agreement between Egypt, Tunisia, Morocco and Jordan, which are all

7
    Tax exemption holidays are available for 20 years but apply only to remote areas that, due to logistical problems, are not of
    interest to the food processing sector.




Egyptian Processed Food Sector Review                                                                                         67
               connected with partnership agreements with EU which allows free movement of
               ingredients, raw materials and semi finished products between these 4 countries to go
               into further processing of finished products acceptable for export to EU with
               Certificates of Origin from any of the 4 members.


     1.4   Policy reform issues under discussion by all stakeholders

           Shortcomings of Arab trade agreements: The food processors and exporters complain that
           Egypt is the only country that has respected Arab Free Trade agreement, imposing Zero
           tariff on imported of foods from Arab countries, while food exported from Egypt to
           countries of Arab Free trade agreement face higher import tariffs.

           Allocation of Land for export crops farming: Due to the fragmented agricultural system
           and supply of raw quality raw material, and lack of traceability in the food chain.
           Egyptian export oriented food industries face extensive competition from the region.
           They believe that increased availability of land for commercial farming, will improve the
           quality, traceability and consistency of their raw material supply and hence their
           competitiveness by meeting the international regulations such as Eure-Gap, HACCP and
           traceability. They are persistently asking policy reform on the provision of land for export
           oriented food industries

           Increasing of funds for export subsidy: The food processors and exporters think that the
           projected export subsidy fund to be made available by the government 800 LE is to small
           and are asking an increase to 150 LE

           Establishing of a unified Food control authority: The other major issue raised by the food
           processors, exporters and importers is the existence more than 12 public institutes
           involved in the food quality control and import and export activities. The different
           government bodies have different working guidelines and some times contradictory
           regulations have greatly affected the export and import performance of the industries. The
           EFPI is asking for a unified one stop public office to deal with the government
           regulations. Training of personnel of this public office on the regulations and clarifying
           the laws and regulations is considered as top priority.

           Setting up of an Export Crisis bureau at the Minister's Cabinet: The Egyptian food
           processing industries are also asking for the establishment of an export crisis office in the
           Ministry of Foreign Trade and Industry to solve urgent export problems that need the
           involvement of the government.

           Setting up an updated and accurate Data base for Egyptian Food exports/imports: lack
           of reliable trade data on the performance of the Egyptian food processing industry in
           domestic, regional and global markets has hampered efforts of strategic planning of the
           EFPI. There is little historical and current data on the performance of the EFPI and if
           available is inconsistent with the data collected by international organizations such as
           UNCTAD, FAO, UNIDO etc.. The EFPI representatives feel that though, this study has
           compiled a huge amount of data, effort must be made to update collected data at least
           every two years and the performance of EFPI in relation to the bench marking countries
           and its main competitors.

68         Egyptian Processed Food Sector Review
 2 Egyptian food processing industry - overview



2.1   Historical background

      Food processing is among the oldest industries in the Egyptian economy. The FPI – as
      well as many other industries – suffered from the impact of nationalization that, since the
      beginning of the seventies, led to a dramatic deterioration not only in terms of
      profitability and management structure but in the (poor) quality of their end product as
      well. Government protection of the sector, through reducing food imports and sometimes
      even banning certain food products often appeared only to boost the problem.

      Twenty years ago, with the introduction of Egypt’s reform policy, many international
      players entered the market, whether through direct investments or through partnerships
      with local investors tempted by reasonable investment incentives as well as a growing
      local market. Among the key players that entered the Egyptian market were, Nestle,
      Cadbury, Kraft, Hero and many more.

      Today, with the globalisation of the world economy, there is an even bigger challenge,
      the need to expand to foreign market has been a necessity for the industry’s survival.
      Consumers – on the other hand – are now increasingly aware of quality, safety and
      packaging of the product, nevertheless, with the social development that we have been
      witnessing in the world, people now rely more and more on processed food, rather then
      fresh agricultural products.

      Key historical policy initiatives influencing development of the Egyptian Food Processing
      Industry
       1960    Nasser's Nationalisation of Private food plants, consolidation into major Public sector holding
               companies (Kaha, Edfina, Misr Milk, Bisco Misr, El Nasr Dehydration)
       1974    Sadat's Economic Open Door Policy
       1979    New Investment Law: tax exemption, free zones, no confiscation of assets, repatriating profits
               overseas
                                                        th
       1980    New Industrial Cities (10th Ramadan,6 October, Sadat City, Borg El Arab)
       1988    Amendment to Investment Law
       1989    Privatisation Program launched
       1990    Export Drive
       1999    ALEB-USAID project providing technical support to the food-processing sector
       2000    Industry Modernisation Programme Launched (IMC, BRC's)
       2002    EOS (Egyptain Standards authority) role is strengthened, standards connected to CODEX
       2003    GAFI’s facilities further strengthened




      Egyptian Processed Food Sector Review                                                                69
         2.2     Industry structure

                 While Egypt is home to the first food processing activities in history with the production
                 of beer and baked products since the time of the Pharaohs; it is today a net importer of
                 food commodities. However, the Egyptian food processing industry (EFPI) accounts for
                 17.1% of manufactured value added (MVA) in 2002, up from 12.6 percent in 1992 (Table
                 2.1). The average annual growth of value added during this period was 7%, making food
                 processing one of the leading growth sectors in Egypt. Compared to the average for the
                 Middle East region, the share of the food process sector in MVA in Egypt was below the
                 regional average of 20.2%, but its rate of growth in Egypt exceeded the regional average
                 of 4.2%

     Table 2.1   Breakdown of manufactured value added (MVA) and average annual growth rate (volume)

                                                                                         Egypt                             N. Africa Region
                                                                                         Share of             Growth       Share of MVA          Growth
                                                                                         MVA                  92-02                              92-02
                     ISIC      Sector                                                    1992       2002      %            1992       2002       %
                     31        Food, beverages and tobacco                               12.6       17.1      7.0          19.2       20.2       4.2
                               Textiles,     wearing     apparel,     leather    and
                     32        footwear                                                  10.4       7.5       0.6          14.5       13.6       1.7
                     33        Wood products including furniture                         0.6        0.4       0.1          3.4        3.0        -0.3
                     34        Paper, printing and publishing                            6.9        4.7       2.8          4.4        4.1        3.3
                               Chemicals, petroleum, rubber and plastic
                     35        products                                                  29.6       23.1      1.2          24.2       21.4       1.2
                     36        Non-metallic mineral products                             15.9       17.1      5.1          13.6       14.3      2.7
                     37        Basic metals                                              6.3        8.4       7.5          4.3        5.6        5.4
                               Metal       products,    incl.    machinery       and
                     38        equipment                                                 17.5       21.5      6.9          16.1       17.6       3.8
                     39        Other manufacturing industries                            0.2        0.3       11.0         0.3        0.3        6.2
                               Total of above                                            100.0      100.0                  100.0      100.0
                     North Africa Region: Algeria, Egypt, Libya, Morocco, Sudan, Tunisia.
                     Source: UNIDO


                 In developing an overall profile of Egyptian FPI companies, the picture varies according
                 to the sources used and, in particular, depending on the various organisations representing
                 the sector.

                 The latest economic census published by CAPMAS in October 2002 (see Table 2.2),
                 indicates a total number of 37,772 EFPI companies representing 296 state owned
                 companies, 4,602 in the private sector with more than 10 employees, and 32,874 in the
                 private sector below 10 employees. These represent a total of 313,269 labour force.

                 More recent data, from the Ministry of Foreign Trade and Industry – General
                 Organisation for Industry (GOFI), for December 20048 indicate a total number of 5,277

                 8
                          According to the General Organisation for Industry, these data covers all registered food processing companies; it is a
                          requirement to provide information in order for firms to obtain their industrial registration. Thus, differences between these




70               Egyptian Processed Food Sector Review
establishments, with a total employment of 231,580 (see Table 2.3). The same data
source, also indicates that the total value of production of the Egyptian FPI amounts to
L.E. 46.8 billion, and investments of L.E. 28.7 billion (see Table 2.4).

Based on the same data, Table 2.5, provides estimates of the value of production and
investment per employee. Looking across product sub-sectors, relative average
production per employee and investment per employee correspond to a priori
expectations given differences in typical capital intensities (i.e. high
production/investment per employee in more capital intensive activities such as grain
milling, sugar refining, oil and fats). It is noticeable, also, when comparing across
ownership types that within a product sub-sector average production per employee and
investment per employee is typically lowest in the public sector. Overall, this would
suggest that, for a given sub-sector, public sector enterprises have lower labour
productivity than their private (and investment) sector counterparts and engage in
significantly less investment.




   data and those from the economic census are accounted for by micro and very small companies that may not be registered
   with GOFI, some traders that may include themselves in the sector for the census but not under GOFI, and the informal
   sector (see Section 2.3).




Egyptian Processed Food Sector Review                                                                                 71
     Table 2.2   Number of companies and employees in the Egyptian Food Processing Industry, 2002

                                          Number of companies                            Number of Employees

                                          State    Private Sector               Total    State    Private Sector               Total

                                          Owned    >10              < 10                 Owned    >10              < 10
                                                   employees        employees                     employees        employees

                 Meat products            3        36               100         139      182      5,686            308         6,176

                 Fish products            2        10               38          50       345      1,256            113         1,714

                 Fruits               &

                 vegetables
                 canned,      frozen,
                 dehydrated               5        61               494         560      671      9,762            1,543       11,976

                 Edible oils & fats       21       19               123         163      16,574   6,094            412         23,080

                 Dairy products           6        51               2,469       2,526    1,006    5,905            5,481       12,392

                 Cereals & grains
                 processed                90       120              13,321      13,531   15,554   10,377           26,131      52,062

                 Starch      &      its
                 products                 *        2                37          39       *        1,390            110         1,500

                 Animal feed              8        47               326         381      723      4,069            806         5,598

                 Bakery products          125      3,827            14,355      18,307   3,224    59,351           61,049      123,624

                 Sugar refineries         9        2                18          29       13,101   1,844            55          15,000

                 Cocoa, chocolate
                 & confectionary          1        98               901         1,000    277      7,294            3,164       10,735

                 Pasta                    7        75               68          150      844      2,941            345         4,130

                 Other             food
                 products                 11       209              574         794      1,763    10,113           1,980       13,856

                 Alcoholic drinks         2        2                2           6        629      79               6           714

                 Malt & beer drinks       *        1                2           3        *        545              4           549

                 Soft     drinks      &
                 bottled water            *        18               17          35       *        13,751           51          13,802

                 Tobacco products         6        24               29          59       12,511   3,739            111         16,361

                 TOTAL                    296      4,602            32,874      37,772   67,404   144,196          101,669     313,269

                 Source: CAPMAS (October 2002)




72               Egyptian Processed Food Sector Review
Table 2.3   Number of establishments and employees in the Egyptian Food Processing Industry, December 2004

                                           Number of establishments                 Number of Employees

                                           Public    Private   Investment   Total   Public   Private      Investment   Total

                                           Sector    Sector    Sector               Sector   Sector       Sector

            Slaughter      and meat
            processing                     -         199       9            208     -        11,123       629          11,752

            Packing, preservation
            & processing of fish           8         66        1            75      520      1,298        150          1,968

            Packing                   &
            preservation              of
            vegetables,      fruits   &
            cereals                        14        225       16           255     3,170    16,916       1,981        22,067

            Oil and fats                   22        84        5            111     13,605   5,735        1,246        20,586

            Dairy products                 4         321       14           339     944      10,395       2,156        13,495

            Milling      and     grain
            processing                     134       553       7            694     10,215   13,303       670          24,188

            Animal feed                    10        193       5            208     1,386    9,742        841          11,969

            Bakery products                182       1,937     21           2,140   4,831    35,794       1,458        42,083

            Sugar                          10        33        1            44      11,986   3,365        14           15,365

            Confectionary,
            chocolate and cacao            2         485       9            496     1,653    13,922       1,075        16,650

            Food        processing     -
            n.e.s.                         -         537       18           555     -        14,310       1,734        16,044

            Alcoholic beverage -
            distilled                      1         2         -            3       528      28           -            556

            Wine production                -         4         -            4       -        170          -            170

            Brewery       and    other
            alcoholic beverages            -         12        1            13      -        2,843        1,000        3,843

            Beverages            (non-
            alcoholic)     and   soda
            water                          -         34        18           52      -        9,308        5,896        15,204

            Tobacco                        6         74        -            80      11,768   3,872        -            15,640

            TOTAL                          393       4,759     125          5,277   60,606   152,124      18,850       231,580

            Source: Ministry of Foreign Trade and Industry – General Organisation for Industry




            Egyptian Processed Food Sector Review                                                                            73
     Table 2.4   Production and investment in the Egyptian Food Processing Industry, December 2004

                                                Value of production (L.E. million)            Investment cost (L.E. million)

                                                Public     Private     Investment    Total    Public     Private     Investment   Total

                                                Sector     Sector      Sector                 Sector     Sector      Sector

                 Slaughter      and   meat
                 processing                     -          2,461       110           2,571    -          1,527       90           1,617

                 Packing, preservation
                 & processing of fish           49         333         4             386      39         107         10           156

                 Packing                   &
                 preservation              of
                 vegetables,      fruits   &
                 cereals                        437        2,671       437           3,545    401        1,559       300          2,260

                 Oil and fats                   1,715      3,101       604           5,420    1,697      1,364       342          3,403

                 Dairy products                 73         1,813       611           2,497    37         1,190       367          1,594

                 Milling      and     grain
                 processing                     2,132      5,412       815           8,359    711        2,906       547          4,164

                 Animal feed                    131        3,693       171           3,995    85         1,545       61           1,691

                 Bakery products                418        2,193       71            2,682    227        1,840       175          2,242

                 Sugar                          1,274      1,605       8             2,887    1,477      1,510       3            2,990

                 Confectionary,
                 chocolate and cacao            32         660         143           835      29         752         106          887

                 Food        processing     -
                 n.e.s.                         -          5,337       591           5,928    -          1,476       670          2,146

                 Alcoholic beverage -
                 distilled                      33         4           -             37       24         5           -            29

                 Wine production                -          24          -             24       -          120         -            120

                 Brewery       and    other
                 alcoholic beverages            0          667         144           811      0          378         99           477

                 Beverages            (non-
                 alcoholic)     and    soda
                 water                          0          1,744       614           2,358    0          1,377       414          1,791

                 Tobacco                        4,383      129         -             4,512    3,077      58          -            3,135

                 TOTAL                          10,677     31,847      4,323         46,847   7,804      17,714      3,184        28,702

                 Source: Ministry of Foreign Trade and Industry – General Organisation for Industry




74               Egyptian Processed Food Sector Review
Table 2.5   Production and investment per employee in the Egyptian Food Processing Industry, December 2004

                                          Value of production (L.E. thousand per           Investment cost (L.E. thousand per
                                          employee)                                        employee)

                                          Public      Private    Investment        Total   Public      Private   Investment     Total
                                          Sector      Sector     Sector                    Sector      Sector    Sector

            Slaughter      and   meat
            processing                    -           221        175               219     -           137       143            138

            Packing, preservation &
            processing of fish            94          257        27                196     75          82        67             79

            Packing & preservation
            of vegetables, fruits &
            cereals                       138         158        221               161     126         92        151            102

            Oil and fats                  126         541        485               263     125         238       274            165

            Dairy products                77          174        283               185     39          114       170            118

            Milling      and     grain
            processing                    209         407        1216              346     70          218       816            172

            Animal feed                   95          379        203               334     61          159       73             141

            Bakery products               87          61         49                64      47          51        120            53

            Sugar                         106         477        571               188     123         449       214            195

            Confectionary,
            chocolate and cacao           19          47         133               50      18          54        99             53

            Food processing - n.e.s.      -           373        341               369     -           103       386            134

            Alcoholic      beverage   -

            distilled                     63          143        -                 67      45          179       -              52

            Wine production               -           141        -                 141     -           706       -              706

            Brewery        and   other
            alcoholic beverages           -           235        144               211     -           133       99             124

            Beverages            (non-
            alcoholic)     and   soda
            water                         -           187        104               155     -           148       70             118

            Tobacco                       372         33         -                 288     261         15        -              200

            TOTAL                         176         209        229               202     129         116       169            124

            Source: Authors calculations based on Ministry of Foreign Trade and Industry – General Organisation for
            Industry


            However, the professional organizations representing the sector shed a different light on
            its structure. These are:
                 1. The Chamber of Food Industries (CFI);
                 2. The Chamber of Cereals and Grains (CCG);
                 3. The Food Commodity Council (FCC).

            The 3 organizations report to the Ministry of Foreign Trade and Industry, although such
            relation may evolve in the coming future.

            It should be noted that the present multiplicity of professional organizations in the EFPI
            as well as the other sectors of the economy is due to historical reasons, and the present



            Egyptian Processed Food Sector Review                                                                                    75
                 government is keen on streamlining these organizations to allow the development of the
                 industry.

                 The Chamber of Food Industries represents, according to data provided by the Chamber
                 (2003), 1970 licensed processors, providing 5% of GNP and representing L.E. 30 billion
                 investments. The members are grouped into 9 sections as follows:
                 •   Milk and Dairy Products;
                 •   Edible Oil and by-products;
                 •   Drinks and bottled water and fruit juices;
                 •   Fruit and Vegetables products;
                 •   Sugar, Confectionary and Chocolates;
                 •   Meat, Poultry and Fish products;
                 •   Specialty Food and Food Additives;
                 •   Packaging and other food products;
                 •   Tobacco products.

                 It should be noted that by-law, all industrial companies are supposed to register at their
                 respective chamber, if having a capital of L.E.5000 or a number of employees of 25 or
                 more.

                 The Chamber of Cereals and Grains was created as a separate structure in the fifties to
                 allow the coordination of flour subsidies. It represents 13000 companies spread over 3
                 sections as follows:
                 •   Wheat Milling and Bakeries;
                 •   Rice Hulling;
                 •   Pasta Producers.

                 The Food Commodity Council (FCC) was formed in 1995 as a semi-public / semi-private
                 body (within 17 different commodity councils) to regroup all EFPI exporting companies
                 and sectors. It represents to date 206 companies distributed over 9 sections as shown in
                 Table 2.6.

     Table 2.6   Profile of food processing companies within the Food Commodity Council (FCC)

                  Sections                                                               No. of Companies
                  A. Processors and Exporters                                                        136
                  Frozen Vegetables and Fruits                                                        20
                  Chocolate and Confectionary                                                         17
                  Dairy products                                                                      14
                  Fruits and Concentrates                                                             16
                  Food preparations                                                                   18
                  Essential Oils                                                                      15
                  Olive products and Oil                                                              12
                  Dehydrated products (including spices)                                              9
                  Multiple products                                                                   15
                  B. Exporters only                                                                   70
                  Grand Total                                                                        206
                  Source: FCC, November 2004




76               Egyptian Processed Food Sector Review
      Within the Egyptian FPI, the number of companies that can be considered internationally
      competitive in the sense of being effectively engaged in export activities and/or attaining
      international standards of production is, according to the assessment of the study team, in
      the region of 100. This international segment of the FPI accounts for around 45 thousand
      employees.


2.3   The informal sector

      The informal food manufacturing and packaging sector in Egypt is sometimes put at 80%
      of total food production in Egypt. However, interviewees from the EFPI are of the
      opinion that the informal food sector is of little effect on export markets of EFPI (which
      is the main concern of this study) but does pose unfair competition on legitimate FP in the
      local market.

      When the study team interviewed EOS (Dr. Mahmoud Eisa) they stated that EOS has
      surveyed this informal sector in 5 areas in Egypt and that it has been found to have very
      little effect on the export business of the food processing sector as it mostly concentrated
      on street vendor selling prepared meal and that it created a lot of jobs and purchase of raw
      materials / ingredients / packaging also provided low cost meals to workers and students
      early in the morning (going to school and work) due to absence of low cost catering. The
      main worries concerning this sector are related to low health and hygiene aspects as well
      as loss of tax income.

      Many interviewed confectionery (specially Halawa), snacks and dairy processors have,
      however, complained bitterly of the unfair competition of the informal food preparation
      outlets and drew our attention to the negative effect of bad publicity on Egyptian foods in
      general due to frequent food poisoning cases; the Ministry of Health estimates that the
      number of such case reached 50 000 in Egypt in 2003.


      Attempts to lure the informal sector to new industrial areas where they can enjoy a 10
      year tax holiday has failed as they mostly work with unregistered labour (to avoid the
      26% social security tax) and with substandard food preparation and ingredients, which
      will not pass legislations, as well as frequent infringements on brands/trade names and
      recipes copied from legitimate food processors.

      One factor that may encourage informal food preparations plants to emerge into the open
      and to operate legitimately may be the lure of the increase in consumer spending being
      directed towards modern retail outlets and supermarkets. It has been suggested that this
      development may convince some of the informal processors to turn legitimate in order to
      gain access into supermarkets and hence earn higher profits.

      The effect of the new Food Law, currently being drafted on Informal sector, remains to be
      seen.




      Egyptian Processed Food Sector Review                                                     77
 3 Egyptian food processing industry – general
   performance



3.1   Production performance of the Egyptian FPI

      During the 1990’s the FPI in Egypt underwent a period of privatisation. At the same time,
      the first major investments by multinationals started; for example, Heinz (USA) in tomato
      products, and Farm Frites (Netherlands) in frozen potatoes.

      The period of the 1990s was marked by a period of apparent instability in production
      trends, with some product groups suffering from declining production levels and rising
      imports (e.g. canned vegetables, jams), while others saw regularly increasing production
      levels (e.g. fruit juices, dried onions, frozen vegetables).

      Since 1999/2000, most product groups have seen production volumes increasing (4-10%
      p.a.), a strengthening of export performance and, for those segments for which Egypt
      possesses a domestic production capacity, declining imports.

      Table 3.1 to Table 3.3, provide an indication of the evolution of the number of
      companies, employment, production, and labour costs in the Egyptian food-processing
      sector, by private sector, public sector and combined total9.

      Between 1997 and 2004, the number of private sector FPI companies increased by 16
      percent to 4,759, and employment by 28 percent to 152 thousand. At the same time, the
      number of public sector companies and employment fell steadily between 1997 and 2001,
      by –27% and –38% respectively. The data, however, indicate an increase in the number
      of public sector companies and employment between 2001 and 2004; it is unclear if this
      is due to a change in classification but, at the same time, may reflect the separation of
      public sector enterprises into smaller companies to facilitate privatisation10 and
      government policies that raised employment in public sector companies11. Overall, the
      data indicate that employment in the food-processing sector (public plus private sector)
      increase by 6 percent to 212.7 thousand between 1997 and 2004, while the number of
      companies increased by 629 to 5,152.

      The data on values of production is somewhat difficult to interpret due to the fact that
      values are in current prices and do not allow for changes in inflation. In particular, it is
      striking that between 2001 and 2004 the data indicate a dramatic increase in the value of

      9
           Data for the private sector are by calendar year, while data for the public sector are by fiscal year. For the combined total
           the data are added without taking this difference into account.
      10
           An example is Kaha, which has been separated into 6 separate companies.
      11
           The Government is committed to hire a number of recent graduates into the public sector.




      Egyptian Processed Food Sector Review                                                                                                79
                 production; production in the public sector doubled, while that of private sector
                 companies increase by 220%.

                 Comparing between the private and public sector, it is also noticeable that production per
                 employee has risen more sharply in the private sector than in the public sector and,
                 moreover, that by 2004 average production per employee in the private sector exceeded
                 that in the public sector. At the same time, for the years for which data are available,
                 average labour costs per employee in the public sector were substantially higher than in
                 the private sector. Correspondingly, employment costs relative to the value of production
                 were also higher in the public sector than in the private sector.

     Table 3.1   Evolution of private sector FPI companies, production, employment and costs (1997-2004)

                                                           1997         1998         1999         2000         2001         2004
                 Number of companies                         4,106        4,380        4,496        4,579        4,604        4,759
                 Number of employees                       119,125      141,810      149,343      140,388      142,632      152,124
                 Value of production (L.E. million)          9,351       11,836       15,479       13,435       14,522       31,847
                 Annual labour cost (L.E. million)             555         694          881          918          867
                 Production per employee
                 (L.E. thousand)                              78.5         83.5        103.6         95.7        101.8        209.3
                 Labour cost per employee
                 (L.E. thousand)                              4.66         4.89         5.90         6.54         6.08
                 Labour cost as a share of production
                 (%)                                          5.9%        5.9%         5.7%         6.8%         6.0%
                 Source: CAPMAS and Author’s calculations


     Table 3.2   Evolution of public sector FPI companies, production, employment and costs (1997-2004)

                                                           1997/98      1998/99      1999/00      2000/01      2001/02      2004
                 Number of companies                           389         331          303          290          285          393
                 Number of employees                        81,414       64,403       60,094       54,893       50,785      60,606
                 Value of production (L.E. million)          7,513        6,527        5,303        5,217        5,314      10,677
                 Annual labour cost (L.E. million)             559         472          467          461          454
                 Production per employee
                 (L.E. thousand)                              92.3        101.3         88.2         95.0        104.6       176.2
                 Labour cost per employee
                 (L.E. thousand)                                  6.9          7.3          7.8          8.4          8.9
                 Labour cost as a share of production
                 (%)                                          7.4%        7.2%         8.8%         8.8%         8.5%
                 Source: CAPMAS and Author’s calculations




80               Egyptian Processed Food Sector Review
Table 3.3   Evolution of total FPI companies, production, employment and costs (1997-2004)

                                                      1997         1998         1999         2000         2001         2004
             Number of companies                        4,495        4,711        4,799        4,869        4,889        5,152
             Number of employees                      200,539      206,213      209,437      195,281      193,417      212,730
             Value of production (L.E. million)        16,864       18,363       20,782       18,652       19,836       42,524
             Annual labour cost (L.E. million)          1,114        1,166        1,348        1,379        1,321
             Production per employee
             (L.E. thousand)                             84.1         89.0         99.2         95.5        102.6        199.9
             Labour cost per employee
             (L.E. thousand)                                 5.6          5.7          6.4          7.1          6.8
             Labour cost as a share of production
             (%)                                         6.6%        6.3%         6.5%         7.4%         6.7%
             Source: CAPMAS and Author’s calculations


            Table 3.4 provides an overview of the study team’s estimates of the domestic market,
            production and export size of main sub-sectors of the Egyptian food-processing sector.
            The underlying information is drawn from a range of sources, including official statistics
            and information from interviews with food processing companies. It is intended to give a
            ‘snap-shot’ of the current situation (largely drawn from data for 2003) of the food-
            processing sector. Estimates may differ from ‘official’ data due to information obtained
            from the sector (companies and industry bodies).




            Egyptian Processed Food Sector Review                                                                             81
     Table 3.4   Key indicators for the Egyptian food processing sector and market.(2003)

                                                                                        Domestic
                                                                       Units            Market        Production        Exports
                  Dairy Products (excl. liquid milk)                   thousand tons                    500-800
                  - Cheese                                             thousand tons        430              425                    13.5
                                                                       L.E. (million)                                                  80
                                                                       $US (million)                                                   13
                  Edible Oil & Ghee                                    thousand tons      1100               150                        7
                                                                       L.E. (million)                                                  24
                                                                       $US                                                              4
                  Olive Oil                                            thousand tons           3                8                       5
                                                                       L.E. (million)                                                  90
                                                                       $US (million)                                                   15
                  Soft Drinks                                          million litres                       1600
                                                                       L.E. (million)                       1700                       20
                                                                       $US                                   283                        3
                  Bottled water                                        million litres                        200
                                                                       L.E. (million)                        200                        6
                                                                       $US                                     33                       1
                  Fruit Juice & Concentrates                           thousand tons         61                80                      22
                                                                       L.E. (million)       180              255                       88
                                                                       $US (million)         31                43                      13
                  Jams                                                 thousand tons      18-20                38                      20
                                                                       L.E. (million)        90              195                     110
                                                                       $US (million)         15                33                      18
                  Frozen Vegetables                                    thousand tons         24                49                      25
                                                                       L.E. (million)        85              170                       90
                                                                       $US (million)         14                28                      15
                  Dehydrated Vegetables                                thousand tons         0.5            13.5                       12
                                                                       L.E. (million)                        120                     125
                                                                       $US (million)                           20                      20
                  Tomato products                                      thousand tons         20                18                  3-3.5
                                                                       L.E. (million)       105              105                       35
                                                                       $US (million)         18                18                       6
                  Table Olives                                         thousand tons        190              160                       80
                  Herbs & spices                                       thousand tons        150                                        45
                                                                       L.E. (million)                                                216
                                                                       $US (million)                                                   36
                  Confectionary                                        L.E. (million)     2200                                       126
                  Exports: sugar conf., chocolate, biscuits, halawa,

                  tehin                                                $US                  367                                        21
                  Potato Chips                                         L.E. (million)       360                                        14
                                                                       $US                   60                                         2
                  Extruded corn puffs                                  L.E. (million)       150                         Included with
                                                                       $US                   25                         potato chips
                                                        12
                  Source: Study team estimates




                 12
                      A variety of sources have been used to develop this overview table. These include CAPMAS, MOFTI, international
                      organisations (e.g. FAO and sector specific organisations), together with estimates provided during interviews with
                      representatives of Egyptian food-processing companies, and ALEB project (USAID) representatives.




82               Egyptian Processed Food Sector Review
 3.2    Trade performance of the Egyptian FPI

3.2.1   Egyptian processed food exports and imports by product type

        Data from the MOFTI database permit an analysis of the structure of Egyptian processed
        food exports. The data (see Table 3.5 and Table 3.7) show that the current strengths of
        Egyptian FPI exports are in:
        •   Dried vegetables, which is known to be mainly dried onions;
        •   Frozen vegetables;
        •   Fruit juices;
        •   Herbs & spices;
        •   Cheese and curd.

        Major import categories (see Table 3.6 and Table 3.7) include edible oils, dairy products
        and prepared fish.

        In 2003, due in a large part to the devaluation of the Egyptian pound, it is estimated that
        exports of key processed food sectors increased by 25% (in $US terms) compared to
        2002. Export growth is currently thought to be running at 15-20%. It appears that the
        devaluation permitted Egyptian food processing countries to capitalise on the investments
        made in promoting their exports. Furthermore, for products that are essentially traded as
        ‘commodities’ on world markets (e.g. fruit concentrates, tomato concentrates), the
        devaluation has had the immediate effect of making Egyptian products competitive at
        world market prices. Available data, together with interviews with food processing
        companies have indicated that among these categories, exports of cheese, fruit juices, and
        herbs & spices have benefited strongly from the effects of the devaluation of the Egyptian
        Pound. By contrast, products that are more highly associated with ‘Egyptian ethnic
        origin’ (e.g. halawa, tehina, pickles, domiaty cheese, date jam) have seen little increase in
        activity; this may be attributed to the fact that the market for these types of (higher value-
        added) products is more structured and less sensitive to price changes.

        At the same time, the devaluation has revealed constraints on the domestic supply side,
        both in terms of agricultural produce (the competitiveness of Egyptian ‘fresh’ food
        exports has also been enhanced by devaluation) and in other inputs such as glass
        packaging, for example.




        Egyptian Processed Food Sector Review                                                       83
     Table 3.5   Leading Egyptian processed food exports by value ($US), 2002-2003

                                                                                      $US thousand
                     Rank    HS Code    Product Description                            2002      2003    % change
                     1       712        Dried vegetables                              17,551    21,049      19.9
                     2       710        Frozen vegetables                             20,006    15,902      -20.5
                     3       2009       Fruit juices                                   7,823    13,442      71.8
                     4       406        Cheese and curd                                8,000    11,821      47.8
                     5       904-910    Herbs and spices                               5,751    12,714     121.1
                     6       2005       Prepared or preserved veg. nes - not frozen    7,316     8,701      18.9
                     7       1704       Sugar confectionary                            4,906     4,505       -8.2
                     8       2104       Soups etc.                                     1,296     3,451     166.3
                     9       1905       Biscuits etc.                                  2,179     2,073       -4.9
                     10      2106       Food preparations nes                          2,281     1,819      -20.3
                     11      2202       Beverages (non-alcoholic)                       818      3,356     310.5
                     12      811        Frozen fruit and nuts                          1,594     1,964      23.2
                     13      2001       Pickles                                        1,900     1,791       -5.8
                     14      1512       Sunflower, safflower and cotton-seed oil       1,139     1,389      21.9
                     15      1509       Olive oil                                       322      2,327     622.9
                     Source: Author’s calculations based on MOFTI data


     Table 3.6   Leading Egyptian processed food imports by value ($US), 2002-2003

                                                                                      $US thousand
                 Rank        HS Code      Product Description                          2002      2003    % change
                 1           1507         Soya-bean oil                                77,382   56,914      -26.5
                 2           405          Butter etc.                                  65,801   57,764      -12.2
                 3           402          Milk and cream                               35,102   43,080       22.7
                 4           1512         Sunflower, safflower and cotton-seed oil     18,142   69,828      284.9
                 5           1604         Prepared or preserved fish                   28,578   29,749        4.1
                 6           406          Cheese and curd                              22,944   17,981      -21.6
                 7           1511         Palm oil                                     63,353    6,106      -90.4
                 8           2106         Food preparations nes                        28,339   11,359      -59.9
                 9           904-910      Herbs and spices                             16,147   11,848      -26.6
                 10          1806         Chocolate etc.                                7,778    7,430       -4.5
                 11          2007         Jams etc.                                     6,309    5,461      -13.4
                 12          1602         Prepared or preserved meat                    4,845    2,750      -43.2
                 13          2008         Preserved fruits                              2,437    2,758       13.2
                 14          1704         Sugar confectionary                           2,500    2,004      -19.8
                 15          813          Dried fruit                                   2,737    1,906      -30.4
                 Source: Author’s calculations based on MOFTI data




84               Egyptian Processed Food Sector Review
Table 3.7   Egyptian exports and imports of processed food ranked by value of exports, 2003

                                                                                $US thousand
             Rank    HS Code     Product Description                            Exports           Imports   Balance
             1       712         Dried vegetables                                    21,049          154     20,895
             2       710         Frozen vegetables                                   15,902            4     15,898
             3       2009        Fruit juices                                        13,442         1,216    12,226
             4       904-910     Herbs and spices                                    12,714        11,848       866
             5       406         Cheese and curd                                     11,821        17,981     -6,160
             6       2005        Prepared or preserved veg. nes - not frozen           8,701         638      8,063
             7       1704        Sugar confectionary                                   4,505        2,004     2,501
             8       2104        Soups etc.                                            3,451         109      3,342
             9       2202        Beverages (non-alcoholic)                             3,356         269      3,086
             10      1507        Soya-bean oil                                         2,541       56,914    -54,373
             11      1509        Olive oil                                             2,327         354      1,973
             12      1905        Biscuits etc.                                         2,073        1,133       940
             13      811         Frozen fruit and nuts                                 1,964          84      1,880
             14      2106        Food preparations nes                                 1,819       11,359     -9,540
             15      2001        Pickles                                               1,791         413      1,378
             16      1512        Sunflower, safflower and cotton-seed oil              1,389       69,828    -68,439
             17      2201        Mineral Water                                         1,331          87      1,244
             18      2004        Prepared or preserved veg nes - incl. frozen          1,291         123      1,168
             19      402         Milk and cream                                        1,090       43,080    -41,990
             20      2101        Coffee & tea extracts                                    989        729        260
             21      2007        Jams etc.                                                763       5,461     -4,697
             22      812         Other preserved fruit and nuts                           572        337        235
             23      1902        Pasta and couscous                                       515        619       -105
             24      1806        Chocolate etc.                                           407       7,430     -7,024
             25      1602        Prepared or preserved meat                               290       2,750     -2,460
             26      1604        Prepared or preserved fish                               196      29,749    -29,553
             27      1513        Coconut and palm-seed oil                                139        595       -455
             28      405         Butter etc.                                              114      57,764    -57,650
             29      1511        Palm oil                                                 103       6,106     -6,003
             30      2008        Preserved fruits nes                                      59       2,758     -2,699
             31      2103        Sauces etc.                                               55        600       -545
             32      2105        Ice cream                                                 49        756       -707
             33      1904        Breakfast cereals                                         36        745       -708
             34      2002        Prepared or preserved tomatoes                            28        206       -178
             35      813         Dried fruit                                               26       1,906     -1,880
             36      1601        Sausages etc.                                             15          0         15
             37      2006        Sugar preserved fruit & nuts                                 3       39         -36
             38      403         Buttermilk and yoghurt                                       2       47         -45
             39      1605        Prepared or preserved seafood                                0        6          -6
                     Total       Total (of the above)                               116,917       336,199   -219,283
             Source: Author’s calculations based on MOFTI data




            Egyptian Processed Food Sector Review                                                                      85
                  Effect of the devaluation on Egyptian food exports
                          Table 3.8 illustrates the impact of the devaluation of the Egyptian Pound on
                  exports of fresh fruits and vegetables. Similarly, MOFTI data from a survey of main food
                  exporting companies (see          Table 3.10) indicates that exports rose by 25% in dollar
                  terms (66% in LE).

      Table 3.8   Egyptian Exports of fresh fruits and vegetables, 2002-2003

                                                                 2002                             2003                       Variation (%)
                       Volume (tons)                         1 508 541                        1 809 040                          19.9
                       Value, LE                             2 852 325                        4 638 243                          62.6
                       Value, $US                             631 046                          776 528                           23.1
                       Source: CAPMAS


      Table 3.9   Egyptian Exports of selected food products, 2002-2003 (thousand tons)

                                                                 2002                             2003                       Variation (%)
                       Dairy products                            6.8                             13.4                             97
                       Fresh potatoes                           229                               296                             29
                       Fresh citrus                             128                               166                             30
                       Fresh onions                             293                               320                              9
                       Source: Ministry of Agriculture


     Table 3.10   Egyptian Exports of leading Egyptian processed food companies, 2002-2003

                                                                 2002                             2003                       Variation (%)
                   Value, LE million                           767.7                            1275.1                           66.1
                   Value, $US million                          170.6                             213.4                           25.1
                   Source: MOFTI




         3.2.2    Egyptian processed food exports by region

                  Table 3.11 provides a breakdown of Egyptian processed food exports by geographical
                  region. The data used for this analysis are drawn from the ITC COMTRADE database,
                  which reveals some important differences from the MOFTI data described above13. The
                  data reveal that the Gulf region14 is the main market for Egyptian FPI exports, accounting
                  for 45% of total FPI exports. The European Union (EU15) is the second largest market,
                  followed by Northern Africa and the Americas (essentially the USA).




                  13
                         Egypt does not report trade data to the COMTRADE database and, accordingly, data for Egypt are ‘mirror estimates’ from
                         information on exports to / imports from Egypt provided by reporting countries. In addition to discrepancies arising from
                         different methodologies used in calculating trade flows, the practice of non-transparent reporting followed by many
                         exporters in Egypt (in a preventative effort towards customs and tax bureaucracy) raises questions as to the reliability of
                         available trade data. It is hoped that new economic reforms should help to reduce such practices by Egyptian exporters.
                  14
                         Together with the countries of south eastern rim of the Mediterranean.




86                Egyptian Processed Food Sector Review
Table 3.11   Egyptian exports of processed food by geographical region, 2002

                                                                   Value
              Region                                               $US thousand                    Share
              Gulf & S.E. Mediterranean                                          68,572                    45.0%
              N. & N.E Africa                                                    19,907                    13.1%
              W., Central & S Africa                                                 1,841                  1.2%
              European Union (15+)                                               26,536                    17.4%
              Other Europe                                                            187                   0.1%
              Cent. & E. Europe                                                      4,205                  2.8%
              Former Soviet Union                                                    1,977                  1.3%
              Central Asia                                                              0                   0.0%
              America                                                            19,610                    12.9%
              Far East & Oceania                                                     9,230                  6.1%
              Not allocated                                                           226                   0.1%
              Total (of the above)                                             152,291                 100.0%
              Source: Author’s calculations based on Comtrade




    3.2.3    Main Egyptian processed food export companies

             As indicated from companies and professional organizations sources, the number of
             Egyptian food processing companies exporting sizeable quantities does not exceed 100;
             these companies are generally members of both "Chamber of Food Industries" and "Food
             Commodity Council / FCC". For the first 3 quarters of 2004 (January to September), the
             FCC reported that 75 companies had total exports of US$ 185.4 million, of which the 11
             companies shown in Table 3.12 totalled 61.61% of this value.

Table 3.12   Value of exports of leading Egyptian processed food companies (Jan.-Sept. 2004)

                                    Company                         Sector                                 Exports
                                                                                                           ($US million)
              1                     Farm Frites                     Frozen vegetables                              18.68
              2                     Faragalla                       Frozen vegetables and juices                   14.96
              3                     Juhayna                         Juices and dairy                               14.75
              4                     Bel Egypt                       Cheese                                         13.74
              5                     Cadbury                         Confectionary                                   9.45
              6                     Enjoy                           Juices and dairy                                9.35
              7                     Greenland                       Cheese                                          9.31
              8                     Nestlé Egypt                    Multiple products                               8.77
              9                     Montana / United Food Ind.                                                      5.65
              10                    Spice Land                      Dehydrated products                             4.81
              11                    Misr Café                       Instant drinks                                  4.74
              Total of above                                                                                    114.21
              Total                                                                                                185.4
              Source: FCC




             Egyptian Processed Food Sector Review                                                                         87
             Several senior managers interviewed from these companies have indicated that they have
             recently implemented sizable additional investments in their operations, to meet the
             export markets requirements, such as L.E. 70 million at Farm Frites, and L.E. 40 million
             at Enjoy.


     3.2.4   Export Facilitation Programmes

             In June 2002, a new export promotion regulation was issued (Export Promotion No. 155).
             It primarily includes establishing an Export Promotion and Development Fund (EDFP);
             although it is not clear what are the specific functions of the Fund and how it will
             promote exports. It aimed at streamlining administrative procedures and to provide credit
             facilities to export orientated industries. It has been criticised by business groups as not
             going far enough; it did not contain the expected tax-breaks for exporters, and they point
             to the fact that the creation of another government agency and more legislation may not
             be the solutions to overcoming Egypt’s trade problems15.

             The Export Guarantee Company of Egypt provided guarantees for 80-85% of the value of
             exports against the risk of un-secure payment terms at a cost of 4% of the transaction
             value. Some exporters, however, have complained that the services of the company are
             insufficient.

             A further initiative has been to expand the existing duty drawback system16 to domestic
             suppliers who sell their products domestically to local exporters to an increased number
             of products. It is not clear to what extent companies are aware of the expansion and the
             degree of usage. Reduction of import duties should, however, reduce the importance of
             the drawback system.

             Several institutional initiatives should be mentioned :
             •  The Egyptian Exporters Association (Expolink) provides assistance to private
                Egyptian firms to expand their exports activities through direct marketing assistance,
                including the provision of market information and materials and advocacy for export
                policy and regulatory improvements. In addition to export marketing, Expolink
                provides firm-level and industry-level technical assistance and development
                assistance.

             •     The USAID's program "Aleb" completed in 2004, and the EU initiative with the
                   MOFTI, through the IMC program providing on one hand a fund for the export
                   oriented companies, as well as technical and promotion assistance.




             15
                  Source: US Department of Trade.
             16
                  See Section 6.4.




88           Egyptian Processed Food Sector Review
 3.3    Investment performance of the Egyptian FPI

3.3.1   Foreign investments in FPI17

        Total foreign direct investment in 2003 in Egypt amounted to US$ 320 million versus
        US$ 647 million in 2002 and US$ 1235 million in 2000 according to the General
        Authority for Free zones and Investment (GAFI)18. The reduction can be partially
        attributed to the 9/11 effect, although the share of Egypt in attracting FDI has also fallen
        (6th position behind Saudi Arabia, Sudan, Algeria, Lebanon and the UAE). At a recently
        held Investment Conference, the Ministry of Investment -which supervises GAFI - has
        committed itself to increase the level of FDI in 2005 to twice the average value of FDI's
        to Egypt during the past 4 years.

        High volumes and growth of demand in the domestic market have attracted multinational
        investments in the Egyptian food-processing sector. Since 1999 the value of the top 20
        alliances, mergers and acquisitions between Egyptian and foreign multinationals
        amounted to LE 1760 million.

        The analysis of the main multinationals and non-Egyptian investment pattern in the EFPI,
        indicate that Arab investors tend to invest in green field operations (e.g. "Kharafi Group"
        (Americana), Ajwaa S.A.) whereas non-Arab investors and especially multinationals tend
        to favour acquisitions thus securing market shares at the outset (e.g. Kraft Foods,
        Heineken, Cadbury, Nestle).

        In many cases, the approach of multinational companies has been to buy into existing
        Egyptian ‘success stories’; often these are companies that have already ‘mimicked’ the
        products and/or production methods of multinationals19. For companies from the Gulf
        region, investments have often been made in businesses that are complimentary to their
        existing portfolio. This conglomerate building provides a mechanism to secure increased
        volumes for the conglomerate as the whole so as to offset investments and make savings
        through more efficient logistics and commercial costs. In some cases, investments in the
        FPI are also indirectly linked to investments in the tourism sector (hotels) that provide a
        market for processed food products.




        17
             It should be noted that a major effort is being made to streamline the national accounting procedures for monitoring foreign
             investments. Actual investment figures are thought to be above the figures stated.
        18
             In 2003, under a Prime Minister’s decree (Decree No. 611 amending the Investment Guarantees and Incentives Law No
             8/1997), the General Authority for Free zones and Investment (GAFI) was made the one authority responsible for investor
             incentives and guarantees. The same amendment granted tax exemptions for R&D, and exemption of capital equipment
             from sales tax and notarisation fees.
        19
             For example .the Rachid Group’s success with mimicking Dr.Oetker (Germany) and Palsgaard (Denmark) in dry mixed
             desserts. Three Rachid Group factories (Lipton Tea packing, tomato paste, and dry blends/mix for poultry bouillon soup
             cubes and coatings) were taken over by Lever Group, and are still marketed under the Fine Foods brand name of Rachid.
             Further Rachid maintains joint ventures to produce Dreem (dry mix deserts), Meshreq (Milkana processed cheese, in
             association with Bonne Grain – France) and Prince Biscuits (in association with Danone).




        Egyptian Processed Food Sector Review                                                                                          89
     Table 3.13   Examples of foreign involvement in Egyptian FPI

                       International Company         Egyptian Company           Sector                       Date         Comments
                       Cadbury                       Bim Bim                    Confectionary                1997
                       Best foods / Unilever         El Rasheedy                Confectionary                2000         Majority stake sold
                                                                                                                          back to Rasheedy
                       Bongrain                      Rachid/Meshreq             Processed Cheese             2000
                       Migob / Ajwaa                 Safola Oil                 Edible oil                   2001
                       Tasty Foods (PepsiCo)         Chipsy                     Potato chips                 2001
                       Ajwaa                         Basmah                     Frozen veg. & value-         2002
                                                                                added chicken parts
                       Heineken                      Alahram beverages          Alcoholic beverages          2002
                       Hero                          Vitrac                     Jams                         2002
                       Kraft Foods                   Family Nutrition           Biscuits                     2003
                                     20
                       (Altria Group )
                       Unilever / Lever              Fine Foods                 Dry foods, tea               2003
                       Mashreq Co.
                       Danone                        Rachid/Meshreq             Biscuits                     2003
                       Cadbury Schweppes             SONUT                      Beverages                    2003
                       Americana                     Greenland                  Dairy & juices               2004


                  Several leading international companies have set-up or bought operations in Egypt:
                  •  In the early 1990’s, Heinz (tomato products) and Farm Frites (potato products) were
                     among the first wave of investments21; these investment were linked closely to
                     Egypt’s advantages for agricultural production of their key inputs.
                  •  The operations of Nestle in Egypt reflect a policy of external growth via the
                     development of new markets. It is now able to exercise considerable control over the
                     ice-cream business, has a strong commitment in the (fresh) dairy sector, and
                     involvement in pet food and baby food.
                  •  Americana (Kuwait Food Co.), with a strong presence in the Gulf region, is closely
                     involved with the food service sector22. Within Egypt it has built up a network of
                     powerful processing units: frozen potatoes (Farm Frites), tomato products etc.
                     (Heinz), canned vegetables (California Garden), canned meats (Beefy), and poultry
                     processing (Cairo Poultry-KoKi).
                  •  Cadbury brand was introduced into Egypt in 1991 and has established its presence
                     through the takeover of the long established Bimbim company.
                  •  Kraft Foods purchased the domestic snack food manufacturer Family Nutrition,
                     extending its range of products beyond fruit juices (Tang brand) and chocolate.
                     Family Nutrition has a 30% share of the Egyptian biscuit market and a 40% share of
                     the cake market23.




                  20
                         Formerly Philip Morris Group
                  21
                         Both of these investments were undertaken in association with Americana (Kuwait Food Co.)
                  22
                         Leading international brands in which Americana has investments/franchises include: Kentucky Fried Chicken, Hardee’s,
                         PizzaHut and Baskin Robbins. In addition, the company launched its own brand “Chicken Tikka”.
                  23
                         The company also exports to, among others, Libya, Saudi Arabia, Israel, USA, Australia and Hungary.




90                Egyptian Processed Food Sector Review
                   Foreign FPI companies attitudes to investing in Egypt
                   On the basis of interviews with foreign FPI companies operating in the country, Egypt is seen as an
                   attractive location since it has a relatively stable environment with low labour costs. As such, not only
                   are there opportunities in the domestic market but also Egypt can serve as a platform for exports to
                   the immediate geographical region. Some companies also point to the fact that entry into the domestic
                   market can be achieved with a relatively limited range of products, provided that (mass) production is
                   efficiently managed. With regard to the domestic market, many companies pursue a strategy aimed at
                   sales growth and achieving market share: securing healthy profit margins – particularly in the current
                   economic climate - is less important in the short-run than achieving sales volumes. In the longer run,
                   with its rapidly growing population, Egypt is seen as having immense market potential. Moreover,
                   currency devaluation has reduced the costs of acquiring Egyptian companies and further reduced (in
                   international terms) the cost of production facilities.


                   At the same time, companies consider that it is a difficult market in which to operate:
                         •     The domestic market is extremely price sensitive. Introduction of improved technology that
                               may increase costs (and hence prices) is risky since any price increase can result in sharp
                               falls in sales volumes. As a consequence, new technologies may not be introduced. It also
                               provides an additional reason for (major) companies to seek to ensure 15-20% of
                               production goes to export in order to provide a buffer against domestic market sales
                                        24
                               volatility .
                         •     The under-development of the retail distribution sector and, with a few exceptions, the
                               wholesale sector creates inefficiencies that raise costs and hinder marketing efforts.
                         •     Firms encounter numerous difficulties (administrative, logistics etc.) in the supply of
                               imported materials and equipment, alongside the high costs of import taxes and duties.
                         •     Adoption of new (internationally accepted) standards can be problematic in the face of
                               opposition from local companies wishing to maintain existing local standards.
                         •     The working of the judicial system, under which managers can be personally (and rapidly)
                               sanctioned, is also sometimes seen to be a dissuasive factor for direct investment and
                               management by foreign companies. This has resulted in companies being pushed towards
                               strategic alliances with Egyptian firms and/or pursuing licensing and franchising
                               arrangements.




3.3.2   Foreign versus domestic investment in the Egyptian FPI

        Based on the analysis of GAFI figures, the overall share of foreign (including Arab)
        investments in the EFPI amounted to 28.29% over the last 10 years (based on capital
        issued value), as seen in Table 3.14.




        24
             The devaluation of the Egyptian pound has raised the cost of imported raw materials, including packaging. For small snack
             items that are frequently priced at 50 piastres, for example, and for which there is virtually no scope to alter prices,
             companies are unable to pass on to consumers the increase in costs of imported materials – with the exception of reducing
             the size/weight of their products.




        Egyptian Processed Food Sector Review                                                                                      91
     Table 3.14   Investment profile of the Egyptian FPI

                                  Companies          Issued         Investments           Employees             Share of issued capital
                                  (number)           Capital        (L.E. million)        (number)              Egypt      Arab       Other
                                                     (L.E.
                                                     million)
                   1994                      7           14.4                 23.4                 715          98.6%       0.0%          1.4%
                   1995                     15         234.1                 535.5               1968           50.7%      31.2%      18.1%
                   1996                     25         156.8                 234.6               6896           94.6%       0.0%          5.5%
                   1997                     51         428.3                 675.1               4572           72.7%      24.3%          3.0%
                   1998                     49            522                886.8               2416           19.2%      80.1%          0.7%
                   1999                     54         214.9                 316.9               3297           98.6%       1.4%          0.0%
                   2000                     43         107.3                 191.4               2388           50.3%      40.4%          9.2%
                   2001                     37         359.8                 632.7               2358           96.6%       2.2%          1.2%
                   2002                     35           54.2                104.1               2707           91.9%       3.7%          4.4%
                   2003                     47         144.9                 215.9               2387           90.2%       7.3%          2.5%
                   Up to
                                            84         569.3               1209.6                5476           92.3%       6.3%          1.4%
                   30/11/04
                   Total                   447          2806                  5026              35180           71.7%      24.9%          3.4%
                   Source: GAFI (December 2004)




         3.3.3    Structure of Investments

                  Table 3.15 shows the value of Egyptian imports of food processing equipment. The data
                  indicate a downward trend in the overall value of imports over the last three years of
                  available data, a continuation of a trend observed since the mid-1990’s25.




                  25
                       Egyptian imports peaked in 1996 at a total of $US 49 million for the categories shown.




92                Egyptian Processed Food Sector Review
Table 3.15   Egypt’s imports of food processing machinery 2001-2003 ($US million).

              HS                                                                      2001    2002    2003    Average
              code                                                                                            2001-2003
              84150     Refrigerators, freezers chests, cabinets, show cases.          4.16    3.25    1.18    2.86     11%
                        Presses, crushers, etc. for wine, fruit juices            &
              8435      beverages.                                                     0.75    0.29    0.29    0.44       2%
              843860    Machinery to prepare fruits, nuts & vegetables.                0.29    0.13    0.13    0.18       1%
              850940    Domestic food grinders, mixers, juice extractors.              3.15    3.85    2.74    3.25     12%
              842122    Filtering, purifying machinery for beverages..                 0.22    0.01    0.09    0.11       0%
              842230    Machinery to fill, close, aerates bottles & containers.       11.83    6.28    6.99    8.37     31%
              843810    Bakery & pasta making machinery.                               3.36    1.98    4.91    3.42     13%
              843820    Machinery for confectionery & chocolates manufacture.          0.86    0.77    1.72    1.12       4%
              841720    Bakery ovens etc. non-electric.                                3.41    2.39    1.55    2.45       9%
              840410    Auxiliary plant for steam / vapour generating boilers.         0.01    0.02    0.01    0.01       0%
              841940    Machinery for distilling or rectifying plants.                 0.28    0.20    0.17    0.22       1%
              843710    Machines to clean, grade seeds, grains & dry legume.           3.64    7.05    2.46    4.38     16%
                        Total of above                                                31.96   26.23   22.24   26.81   100%
              Source: CAPMAS




             Egyptian Processed Food Sector Review                                                                        93
 4 Egyptian food processing sectors with export
   potential



      The previous sections examined the general production and trade performance of the
      Egyptian FPI. In this section, we examine 6 main sub-segments of the Egyptian FPI
      considered to have the highest export potential; these sectors, with the exception of
      dehydrated vegetables, are also the subject of the international benchmarking exercise
      undertaken as part of this study. Additional details on these groups, together with other
      key sectors are provide in the Supplementary Report: sub-sector profiles. The 6 sectors
      covered are:
      •   Frozen Vegetables;
      •   Tomato products;
      •   Juices and Concentrates;
      •   Olive oil and products;
      •   Cheeses;
      •   Dehydrated vegetables and herbs.


4.1   Frozen vegetables

      Overview
      The origins of the frozen vegetables sector goes back some 15 years, when the Egyptian
      Armed Forces constructed freezing lines set in reclaimed land. These production facilities
      stimulated the development of frozen vegetables exports and still play a role today, as
      there are still companies marketing their production26.

      Egypt is not yet fully at the stage of specialisation and industrialisation of horticultural
      production processing. In most countries, the development of this processing has been
      organised around a nucleus of specialised farms, something that has started in Egypt but
      the development of which needs to continue to be favoured. Currently, the range of
      Egyptian products is not structured in such away that it corresponds to the demands of
      many foreign markets. Nonetheless, it has succeeded for some ‘ethnic’ markets and for
      customised/specialised labour intensive vegetables (e.g. turned vegetables – légumes
      tournées).

      Though a rather strong characterisation, the traditional approach has been to run freezing
      lines to process whatever vegetable, fruit and meats are available so as to maintain
      capacity utilisation rather than to seek specialisation. Increased specialisation should

      26
           Also about 15 years ago, Sonac was the first citrus and potato packing station to move into freezing vegetables and for
           export to Saudi Arabia (Abbar & Zaini)




      Egyptian Processed Food Sector Review                                                                                          95
                 move the industry towards a position in which it can develop a clear market strategy and
                 in turn for the processing industry to pull agricultural production rather than the opposite
                 way round, which is the current ‘norm’.

     Table 4.1   Frozen vegetables - key figures, 2003

                  Indicator                                  Unit                            Value
                  Domestic                                   Tons (1000)                               24
                  Consumption                                $ US million                              14
                  Production                                 Tons (1000)                               49
                                                             $US million                               29
                  Exports                                    Tons (1000)                               25
                                                             $US million                               15
                  Employment                                 Persons (1000)                             4
                  Enterprises (key players)                  Number                                    10
                  Source: Study Team estimates


     Table 4.2   Frozen vegetables: production, source and usage (2000-01)

                                                                              Units          Value
                  Production (actual)                                         L.E. million           131.7
                  Production (actual)                                         1000 tons               39.9
                  Production (available capacity)                             1000 tons               44.0
                  Capacity Utilisation rate                                   %                        91
                  Private sector share of production (actual)                 %                        94
                  Private sector share of production (available capacity)     %                        85
                  Exports                                                     1000 tons               23.4
                  Imports                                                     1000 tons                0.4
                  Change in stocks                                            1000 tons               -1.9
                  Domestic consumption                                        1000 tons               18.9
                  Production (output) to consumption ratio                    %                       211
                  Imports to consumption ratio                                %                         2
                  Exports to production (output) ratio                        %                        58
                  Source: CAPMAS and author’s calculations


                 Production
                 Around ten main private companies largely undertake production of frozen vegetables
                 (see Table 4.4). In addition, army run factories commonly process frozen vegetables for
                 private brands. Of the private companies some are specialised vegetables producers
                 whilst others (mainly jam/fruit processors) process small quantities (a few hundred tons)
                 of vegetables to increase capacity utilisations of their freeing lines. Among specialised
                 producers, a number of companies (e.g. Givrex) have developed higher value-added
                 products through additional processing before freezing (e.g. turned vegetables, artichoke
                 parts etc.).

                 FarmFrites, specialised in French fries (85% of production), has aggressively entered the
                 frozen vegetables sector. As part of the Americana Group it has access to a relatively
                 secure captive market of food service operations, which is an advantage for planning its
                 production strategies. Faragalla is enlarging its freezing capacity, together with

96               Egyptian Processed Food Sector Review
            investment in marketing capacities and diversification of product range, in order to
            increase exports. El Aguizy, a leading fresh vegetable exporter, is also investing in
            Individually Quick Frozen (IQF) freezing.

Table 4.3   Frozen vegetables: evolution of production

                          Units         1992     2000    2001   2002   2003      2004       92-00              00-03
                                                                                 forecast   a.a.g.r. (%)       a.a.g.r. (%)
             Volume       1000 tons     26.0     43.8    40.0   -      49.0      52.0       7                  4
             Total        L.E. mil.     98       143     131    -      170       184        5                  6
             Value
             Source: Study team estimates based on CAPMAS and industry sources


Table 4.4   Main Egyptian frozen vegetable companies

              Company                                                                   Production (2002-2003)
                                                                                        Thousand tons
              Montana                                                                                12-17
              FarmFrites (Americana)                                                                       9
              Basmah                                                                                       6
              Faragalla                                                                                    5
              Sonac                                                                                        4
              AGA                                                                                          4
              Cold Alex                                                                                    3
              Givrex                                                                                       2


            Export performance
            A breakdown of Egyptian frozen vegetables exports by type is shown in Table 4.5,
            together with the main export destinations for each product in Table 4.6. The dominance
            of the category ‘frozen vegetables nes’ complicates the analysis of the main markets by
            product type, although this may also correspond to the dynamic development of
            ‘customised’ frozen vegetables: prepared artichokes for Greece and France, and okra for
            the USA. The main markets are Saudi Arabia (a third of total exports of frozen
            vegetables), USA, Greece and France. To the extent that the data reveals a complete
            picture of Egyptian exports, it is noticeable that with the exception of ‘frozen vegetables
            nes’, exports are highly concentrated in a few markets.




            Egyptian Processed Food Sector Review                                                                      97
     Table 4.5   Egyptian frozen vegetable exports ranked by value (2002)

                 HS Code             Product Group                                    Value                       Share of total
                                                                                      $US thousands               (%)
                 71080               Frozen Vegetables nes                                              8,418                      60.6
                 71090               Frozen mixed vegetables                                            1,621                      11.7
                 71022               Frozen beans                                                       1,505                      10.8
                 71010               Frozen potatoes                                                       770                      5.5
                 71030               Frozen spinach                                                        577                      4.2
                 71029               Frozen leguminous veg nes                                             496                      3.6
                 71021               Frozen peas                                                           470                      3.4
                 71040               Frozen sweet corn                                                     43                       0.3
                                     Total of above                                                    13,900                    100.0
                                     Unallocated                                                           105
                 710                 Total                                                             14,005
                 Source: ICT


     Table 4.6   Egyptian Frozen vegetables, main export destinations and destination share by product group, 2002

                                                                           nd                     rd                       th
                 HS       Product Group            Largest market (%) 2 largest            (%) 3 largest         (%) 4 largest (%)
                 Code
                 71080 Frozen Vegetables           Greece           19    France           16 Saudi Arabia       15 USA                 13
                          nes
                 71090 Frozen mixed veg.           Saudi Arabia     80    Qatar            10 Jordan                 2 USA                2
                 71022 Frozen beans                USA              49    Saudi Arabia     41 Israel                 5 Canada             4
                 71010 Frozen potatoes             Saudi Arabia     60    Qatar            40
                 71030 Frozen spinach              Saudi Arabia     56    Germany          27 Canada             11 Sweden                2
                 71029 Frozen leguminous           Saudi Arabia     68    Israel           14 France                 8 Sweden             6
                          veg
                 71021 Frozen peas                 Saudi Arabia     74    Qatar            11 Israel                 7 Ireland            4
                 71040 Frozen sweet corn           Israel           100
                 710      Total                    Saudi Arabia     33    USA              14 Greece             11 France              10
                 Source: ICT


     Table 4.7   Frozen vegetables: evolution of exports

                                  Units       1992          2000   2001    2002     2003        2004         92-00              00-03
                                                                                                forecast     a.a.g.r. (%)       a.a.g.r. (%)
                 Volume           1000 tons   8.0           17.1   23.4         -   25.0          27.0                10                  13
                 Total Value      L.E. mil.    23           49.5   44.1         -   89.6          96.8                10                  22
                 Total Value      $US         6.9.          13.4    9.8         -   15.0          16.2                 9                   4
                 Source: Study team estimates based on CAPMAS, ITC and industry sources




98               Egyptian Processed Food Sector Review
            Distribution channels for exports
            The main distribution channels for Egyptian exports of frozen vegetables are described in
            Table 4.8.

Table 4.8   Distribution channels for Egyptian exports of frozen vegetables

             Channel                                                   Comments
             Further processing industry                               Yes (exports to France, Saudi Arabia)
             Traders                                                   -
             Wholesalers                                               Yes (USA, Greece)
             Modern (centralised) retailers                            Yes (USA)
             Own import company                                        No




    4.2     Tomato products

            Sector Overview
            Egypt produces around 5 million tons of fresh tomatoes per year. The public sector took
            the lead in the development of processing capacity (e.g. Kaha), and over the last decade
            capacity has been increased through private sector investments, both for the production of
            tomato concentrates and for pastes, sauces and ketchup. In 1990, Heinz began operating
            in the country (in partnership with Americana) and promoted the cultivation of industrial
            varieties of tomatoes (i.e. with higher brix – dry matter – more suited to industrial
            processing)27. The Heinz brand claims to have a 90% share of the domestic market but
            newcomers (e.g. Faragalla and Frosty) have entered the market. Also, challenges are
            coming from abroad (e.g. Oman).

Table 4.9   Tomato products – key figures 2003

             Indicator                                          Unit                                      Value
             Domestic                                           Tons (1000)                                                 20
             Consumption                                        $ US million                                                11
             Production                                         Tons (1000)                                                 18
                                                                $US million                                                 18
             Exports                                            Tons (1000)                                                3.5
                                                                $US million                                                  6
             Employment                                         Persons (1000)                                            n.a.
             Enterprises                                        Number                                                    >10
             (key players)
             Source: Study Team estimates




            27
                 Heinz began production using imported tomato paste but has gradually replaced this with locally produced tomatoes. Heinz
                 now claims a 90% share of Egyptian market for tomato ketchup. Furthermore, 30% of Heinz production goes for export.




            Egyptian Processed Food Sector Review                                                                                     99
      Table 4.10   Tomato products: production, source and usage (2000-01)

                                                                                                         Units                Value
                    Production (actual)                                                                       L.E. million          101.1
                    Production (actual)                                                                          1000 tons            17.9
                    Production (available capacity)                                                              1000 tons            47.5
                                                  28
                    Capacity Utilisation rate                                                                           %                 38
                    Private sector share of production (actual)                                                         %                 89
                    Private sector share of production (available capacity)                                             %                 41
                    Exports                                                                                      1000 tons               0.2
                    Imports                                                                                      1000 tons               1.0
                    Change in stocks                                                                             1000 tons               -0.2
                    Domestic consumption                                                                         1000 tons            18.9
                    Production (output) to consumption ratio                                                            %                 95
                    Imports to consumption ratio                                                                        %                  5
                    Exports to production (output) ratio                                                                %                  1
                    Source: CAPMAS and author’s calculations


                   Production
                   Egypt produces around 18 thousand tons of tomato products (paste) per year. This is a
                   limited figure when one considers that total production of the Mediterranean area is
                   around 1 million tons29. Furthermore, Egyptian production is being challenged by the
                   expansion of Chinese production, and the supply of low cost tomato paste from this
                   country is one reason claimed for low capacity utilisation rates in Egypt30.

                   Both cold break and hot break (up to 36 brix) tomato paste are produced. More generally,
                   however, the product range of Egyptian companies’ remains, for the moment, quite
                   limited; particularly when compared to ranges available in main export markets.

      Table 4.11   Tomato products: evolution of production

                                         Units           1992      2000      2001        2002     2003       2004         92-00                 00-03
                                                                                                             forecast     a.a.g.r. (%)          a.a.g.r. (%)
                        Volume           1000 tons        5.5      18.3       17.9          -     18.0                             16                   -1
                        Total Value      L.E. mil.          -      89.6      101.1          -      105                               -                   5
                        Source: Study team estimates based on CAPMAS and industry sources




                   28
                          The data from CAPMAS indicate a significant increase in available capacity between 1999/00 and 2000/01 for both the
                          private sector (from 14.6 to 19.5 thousand tons) and more importantly for the public sector (3.7 to 28.0 thousand tons).
                          These increases result in a drop in capacity utilisation rates from 100% to 81% for the private sector and to 7% (!) for the
                          public sector.
                   29
                          EU-Mediterranean countries dominate this production, but around 30% comes from non-EU countries: Turkey 16%, Tunisia
                          7%.
                   30
                          See footnote 28.




100                Egyptian Processed Food Sector Review
             The main companies in the sector are shown in Table 4.1231. Heinz is investing in new
             capacity in order to enlarge its product range and to increase production for exports32.
             Faragalla is, also, broadening its product range for export markets and is beginning to
             develop on the domestic market.

Table 4.12   Main Egyptian producers of tomato paste (hot and cold break)

                  Company                                                                     Production capacity
                                                                                              (tons per day)
                  Kaha                                                                          600
                  Faragallah                                                                    450
                  Paste & Juice                                                                 300
                  Foodico                                                                       200
                  Heinz / Americana                                                             100 (+new factory 300)
                  Tamaget                                                                       200
                  Other Factories:
                  Edfina                                                                        100
                  Alsohagy                                                                      80
                  Fibco                                                                         70
                  Frostie                                                                       50


             Export Markets and performance
             Official data on exports of tomato products do not provide a clear picture of the export
             situation. To date there has been hardly any exports of tomato pastes. For other tomato-
             based products, these are considered to be ‘food preparations’ and are not separately
             identified. On the basis of company interviews, the estimated volume of exports is put at
             around 3 to 3.5 thousand tons ($US 6 million).

             The main target for exports is the Gulf Region and N. Africa; for, example Heinz claims
             that 35% of its Egyptian production goes to the Gulf region33. Moreover, it appears that
             the companies products are competing well against products form Asia (esp. China) in the
             Gulf region.

             Distribution channels for exports
             The main distribution channels for tomato products are described Table 4.13.




             31
                    These companies are involved in the production of tomato paste, but many more companies are engaged in tomato
                    processing (e.g sauces.) As yet, it is not clear what is the impact of the devaluation of the Egyptian Pound on the
                    competitiveness of Egyptian tomato products.
             32
                    The partnership with Americana, which markets products under its own brand and supplies to its network of fast-food
                    companies, helps provide a continuous flow of production.
             33
                    It may be noted that, despite the fact that Turkey is a far more important exporter of tomato products, the export
                    performance of Heinz-Egypt compares favourably with that of Heinz-Turkey. This may reflect good competitiveness of
                    Egyptian production and/or the relative specialisation of Heinz-Egypt’s production that forces it towards exporting.




             Egyptian Processed Food Sector Review                                                                                         101
      Table 4.13   Distribution channels for Egyptian exports of tomato products

                        Channel                                            Comments
                        Further processing industry                        No
                        Traders                                            Yes
                        Wholesalers                                        Yes (e.g. Saudi Arabia, Africa)
                        Modern (centralised) retailers                     Limited (e.g. Heinz to Saudi Arabia, Kuwait, UAE
                        Food service                                       Limited (e.g. Heinz-Americana)
                        Own import company                                 No




           4.3     Fruit juices, pulp and puree

                   Overview
                   The fruit juice industry originates from the processing of ‘surplus’ fruits, as is the case
                   with jam production34. During the 1990’s the development of the Egyptian fruit juice
                   industry was promoted through investments in UHT carton packaging lines. A
                   consequence of the move towards ‘solution-packaging factories’ has been the close
                   integration of the dairy and fruit processing sectors, even though some successful ‘fruit
                   specialist’ still remain. Buying (on lease) such lines, companies sought to achieve higher
                   capacity utilisation rates by processing both fruit juices and milk35. In fact, since the
                   Egyptian market for liquid milk is relatively small, most producers have run their
                   investments largely for the processing and packaging of fruit juices. Alongside this
                   development, some fruit juice producers continued to maintain (existing) glass-packaging
                   lines, whilst others did not switch to cartons at all.

                   Domestic demand for juices is mainly for ‘pocket money’ small pack or bottle sizes. On
                   the export side, fruit juices packed in UHT cartons is to all intents a ‘commodity’ product,
                   alongside which a higher-value added chilled fruit juice in carton segment is developing.
                   Exports in small glass bottles represent the traditional high quality exotic offer.

                   Increased understanding of export market requirements, combined with seller and buyer
                   recognition of the specific quality of Egyptian mango and guava juices, has encouraged
                   many producers to become involved in the production and export of concentrates.
                   Nonetheless, the major players dominate the global market for concentrates, and Egyptian
                   potential in this segment would appear to be limited to a minor specialised producer.

                   Despite severe competition from countries such as Brazil and India, the recent
                   devaluation of the Egyptian Pound has, nonetheless, opened up market opportunities for
                   Egyptian exports. Notably, devaluation has enabled the export of low-price, low-quality
                   Egyptian fruit concentrates.


                   34
                          Some successful jam manufacturers also produce quality juices. Historically these quality exotic juices have been packed in
                          (small size) glass bottles.
                   35
                          Looking to further improve utilisation of packaging lines, several few companies started to pack soft feta cheese in the
                          same aseptic cartons. With little domestic demand for this product-packaging combination, all these companies sort to
                          develop export opportunities. The most successful channelled their products on the ethnic-expatriate markets, in the USA
                          for example. Through this type of market opening, the sector leaders have also recently managed to develop exports of
                          UHT milk.




102                Egyptian Processed Food Sector Review
Table 4.14   Fruit juices and concentrates - key figures, 2003

              Indicator                                            Unit                                                Value
              Domestic                                             Tons (1000)                                                             61
              Consumption                                          $ US million                                                         30.6
              Production                                           Tons (1000)                                                             80
                                                                   $US million                                                          42.8
              Exports                                              Tons (1000)                                                             22
                                                                   $US million                                                          13.6
              Employment                                           Persons (1000)                                                           4
              Enterprises                                          Number                                                                  20
              (key players)
              Source: Study Team estimates


Table 4.15   Juices & syrups: production, source and usage (2000-01)

                                                                                                          Units                    Value
                  Production (actual)                                                                     L.E. million                     198
                  Production (actual)                                                                     1000 tons                      47.9
                  Production (available capacity)                                                         1000 tons                      62.7
                  Capacity Utilisation rate                                                               %                                 76
                  Private sector share of production (actual)                                             %                                 74
                  Private sector share of production (available capacity)                                 %                                 61
                  Exports                                                                                 1000 tons                        1.4
                  Imports                                                                                 1000 tons                        6.5
                  Change in stocks                                                                        1000 tons                       -1.7
                  Domestic consumption                                                                    1000 tons                      44.5
                  Production (output) to consumption ratio                                                %                                108
                  Imports to consumption ratio                                                            %                                  3
                  Exports to production (output) ratio                                                    %                                 14
                  Source: CAPMAS and author’s calculations


             Production
             There are 3 basic forms of processing:
                1. Direct processing and bottling of pure fruit juices;
                2. Freezing and storage, either for further processing (e.g. jams) or export
                3. Processing as concentrate, permitting storage of up to 1 year36.

             In addition, a few Egyptian companies (e.g. Nile Pulp) have invested in the production of
             higher quality fruit pulps37.




             36
                    Concentrates may subsequently be converted back to juice if the quality is good enough. In the case of concentrates made
                    from poor quality fruit, these may be marketed in the nectar category (i.e. with added sugar). Further, some Egyptian
                    concentrates is known to pass via specialized re-treatment units, typically located in Israel and Cyprus, from which it
                    eventually finds itself back on the market as fruit juice.
             37
                    Such high quality production requires closer integration with the supply of fruits (agriculture) in order to assure the quality of
                    supplied materials.




             Egyptian Processed Food Sector Review                                                                                                103
      Table 4.16   Evolution of production

                                        Units          1992     2000     2001      2002     2003     2004         92-00            00-03
                                                                                                     forecast     a.a.g.r. (%)     a.a.g.r. (%)
                   Juices & syrups      1000 tons       30.0     81.9     47.9     51.0     58.0          60.0              13              -11
                   Concentrate          1000 tons        n.a.    11.5     13.0     15.0     22.0          26.0                -              24
                   Total Value          L.E. mil.       n.a.      350      198      210      256            285               -             -10
                   Source: Study team estimates based on CAPMAS and industry sources


                   The industry consists of around about 20 main production units, of which 10 have UHT
                   Tetra packaging lines (9 of the 10 are located in dairies). As noted above, development of
                   the domestic market for UHT milk has proved to be a relative failure and this has pushed
                   the development of fruit juice processing.

                   The fact that enterprises have been ‘tied in’ to their investment in packaging lines38 has
                   influenced the sectors development and strategies. Basically, when faced by the quasi-
                   monopoly of carton pack suppliers39, enterprises over invested in capacity given the
                   relatively weak (low income) domestic market, in which alternative sources of fresh milk
                   and juices are available. This has forced companies with UHT carton packaging facilities
                   to adapt their behaviour:
                   •   Two traditional market leaders (Juhayna, Enjoy) have nicely positioned themselves
                       on the ‘ethnic’ export market, giving a much lower priority to development of the
                       domestic market;
                   •   A more recent entrant (Faragalla) has adopted an aggressive export marketing of it’s
                       own wide range of branded juices and other processed foods, aimed at the general –
                       as opposed to ‘ethnic’ – market;
                   •   Another company has focussed on supplying the retail distribution sector in Egypt
                       and Europe with distributor’s own–brand juices.

                   Despite the success of such strategies, the fundamental weakness of Egyptian production
                   remains the relatively low volumes of fruit being processed relative to major producers.
                   In a global market characterised by high-volume low-cost production, the need for
                   Egyptian companies to cover the (fixed) costs of investments in packaging technology
                   running at low capacity and/or low volumes implies higher production costs and, hence,
                   poor competitiveness.

                   Export Markets and performance
                   Egyptian success in the USA, and elsewhere, has been achieved through the initial
                   development of juices sold in small glass bottles and targeted at the ‘ethnic’ market. With
                   the development of carton-packaged juices, Egyptian companies have widened their
                   target markets, with success in some specific areas.




                   38
                        It is a typical strategy of the market leader Tetrapack to lease equipment (new or re-engineered) and provide training and
                        incentives for launch campaigns, provided the company purchase paper for at least 1 year and signs an after sales
                        agreement.
                   39
                        A criticism made during the company interviews was that packaging equipment/material suppliers provided enterprises with
                        over optimistic evaluations of the market for carton packaged milk and juices.




104                Egyptian Processed Food Sector Review
             According to data from the ITC Trademap database (see Table 4.17), Egyptian exports of
             fruit juices in 2002 are estimated at a value of $US 8 million. The main export market is
             the USA with a share of 64% of the value of exports. Some ways behind are: Saudi
             Arabia, Jordan, Italy and Canada40.

             From interviews conducted by the study team, however, it appears there is a significant
             underestimate of the value of exports of fruit juices and concentrates. For 2003, industry
             estimates indicate export volumes of around 11 thousand tons for each of the categories
             fruit juices and fruit concentrates. Further, the underlying trend is of a 15% increase per
             annum in the volume of packaged juice exports and an additional 1,500 tons per year of
             fruit concentrates. It appears that the devaluation of Egyptian Pound in 2003 had a
             positive impact on export sales41, particularly for concentrates.

Table 4.17   Egyptian exports of fruit and vegetable juices, unfermented (HS code 2009), 2002

                  Importing           Value                   Share              Volume                Share               Unit value
                  country             $US thousand            %                  Tons                  %                   $ per ton
                  Total                         8,032                 100                      -                   -                   -
                  USA                           5,117                  64                      -                   -                   -
                  Saudi Arabia                     889                 11                 1,213                    -               733
                  Jordan                           477                   6                  894                    -               534
                  Italy                            448                   6                1,075                    -               417
                  Canada                           401                   5                  428                    -               937
                  Source: ITC


             Distribution channels for exports
             The main distribution channels for juices and concentrates are described in Table 4.18.

Table 4.18   Distribution channels for Egyptian exports of fruit juices and concentrates

                  Channel                                Comments
                  Further processing industry            Yes, for fruit concentrates
                  Traders                                Main export channel, also for co-packing of retail distributor own brands
                  Wholesalers                            Yes, for ‘ethnic’ distribution channels
                  Modern (centralised) retailers         Yes, but mainly via traders
                  Own import company                     No




             40
                    With some companies targeting their marketing efforts towards Europe, the Baltic States and other E. European regions
                    (Russia), the share of the USA is expected to fall.
             41
                    Companies with only glass bottling packaging lines have been hampered in taking advantage of devaluation because of the
                    shortage of supplies of locally produced glass bottles.




             Egyptian Processed Food Sector Review                                                                                      105
      Table 4.19   Key players in the fruit juice and concentrates sector

                    Juices:
                    Juhayna
                    Enjoy
                    Faragallah
                    Greenland
                    Domty
                    Edafco
                    [other active companies are Vitrac, Halwani, Comby, El Horreya]
                    Concentrates:
                    El Marwah (Juhayna)
                    Faragallah
                    Nile Fruits
                    Foodico
                    P&J
                    Kaha
                    Comby
                    Hansa Foods
                    Edfina




           4.4     Olive oil and table olives

                   Production
                   Seven main companies dominate Egyptian production (see Table 4.21). Leading firms in
                   the sector offer a broad range of products: all qualities of olive oils and many forms of
                   table olives (further processed and marketed on the domestic market and in the Gulf
                   region).

                   The biggest producer of table olives in Egypt is Dr. Olive (Zagazig), with an annual
                   production of about 10 thousand tons (of which 3,000 tons are exported to Libya and the
                   Gulf states). It is followed by Wadi Foods, Hi Tadi and El Samahy. Beyond this there are
                   numerous smaller traditional pickling plants producing around 100 thousand tons per
                   year.

                   The only ‘top notch’ producer of quality table olives in Egypt is Egyptian Canning Co.
                   (Americana), which produces 1000 tons of top quality canned and in glass jar table olives
                   for export to N. America and Australia, with local consumption of 2-300 tons by
                   American Pizza Hut franchises and fast food chains.




106                Egyptian Processed Food Sector Review
Table 4.20   Olive oil and olive products - key figures, 2003

                                                                                             Value
             Indicator                                Unit                                   Olive Oil               Table Olives
             Domestic                                 Tons (1000)                                            3.5                       190
             Consumption                              $ US million
             Production                               Tons (1000)                                                8                     160
                                                      $US million
             Exports                                  Tons (1000)                                                5                       80
                                                      $US million
             Employment                               Persons (1000)
             Enterprises                              Number                                                     6                          5
             (key players)
             Source: Study Team estimates


Table 4.21   Main Egyptian producers of olive oil

             Company                                                               Share of Egyptian exports of olive products
                                                                                   (%)
             Mina Oils                                                               50-60
             Dr. Olive                                                               15
             El Salheiyah                                                            13
             Wadi Foods                                                              7
             NSPO                                                                    6
             EMCO                                                                    5
             Janaclis                                                                4


Table 4.22   Olive oil and table olives: evolution of production

                              Units         1991/92      1999/00     2000/01   2001/02       2002/03     2003/04      91/92-     99/00-
                                                                                             prov.       prov.        99/00      02/03
                                                                                                                      a.a.g.r.   a.a.g.r.
                                                                                                                      (%)        (%)

             Table olives     1000 tons     38.5         85.0        70.0      135.0         160.0                    10         23
             Olive oil        1000 tons     1.1          3.8         -         -             8.0         -            17         28
             Source: Study team estimates for olive oil, International Olive Oil Council for table olives


             Export Markets and performance
             Italy is the most important export destination for Egyptian olive oil, reflecting the
             ‘integration’ of a few Egyptian producers/exporters into the Italian global olive oil
             marketing industry. Other companies (e.g. Mina Oils, Dr. Olivee and Wadi Foods) have
             developed their export sales independently, focussing on the Gulf, USA and France.




             Egyptian Processed Food Sector Review                                                                                     107
      Table 4.23   Olive oil and table olives: evolution of exports

                                   Units         1992     2000        2001   2002        2003    2004       92-00               00-03
                                                                                                 forecast   a.a.g.r. (%)        a.a.g.r. (%)
                   Table olives    1000 tons.    9.0      10.0        12.0   25.0        80.0      55.0                 1               100
                   Olive oil       1000 tons     1.1       3.6         3.8    4.0         5.0       5.5                 16               12
                   Source: Study team estimates for olive oil, International Olive Oil Council for table olives


                   Distribution channels for exports
                   The main distribution channels for olive oil and olives are described in Table 4.24.

      Table 4.24   Distribution channels for Egyptian exports of fruit juices and concentrates

                   Channel                                                                      Comments
                   Further processing industry                                                              Most exports
                   Traders                                                                                          -
                   Wholesalers                                                                                    Yes
                   Modern (centralised) retailers                                                                 Yes
                   Own import company                                                                             No




           4.5     Cheese products

                   Dairy processing sector
                   According to data from CAPMAS there were 3334 licensed dairy processing units in
                   1997; of these, some 95 percent had 5 or less workers (see Table 2.25). The majority of
                   units process less than 1 ton of milk per day and there are very few units processing more
                   than 10 tons of milk per day during the peak season (December-April); most processing
                   units work only during the first 6 months of the year, producing soft and hard cheese and,
                   when the price is low enough, butter and ghee.

      Table 4.25   Breakdown of licensed dairy processing units by number of workers

                   Number of workers                Number of processing units                     Comparative importance
                                                                                                   (%)
                   1-5                                                         3190                                           95.68
                   6 – 10                                                           57                                         1.71
                   11 – 15                                                          21                                         0.63
                   16 – 20                                                          20                                         0.60
                   21 – 25                                                          10                                         0.30
                   26 – 30                                                           6                                         0.18
                   31 – 40                                                           4                                         0.12
                   41 – 50                                                          11                                         0.33
                   51 – 100                                                         12                                         0.36
                   101 – 500                                                         3                                         0.09
                   Total                                                       3334                                          100.00
                   Source: CAPMAS, June 1997




108                Egyptian Processed Food Sector Review
There are around 25 companies involved in the industrial processing and packaging of
dairy products. Of these, only 14 companies are members of the Dairy Industry
Development Association (DIDA) and about 7 or 8 can be considered as significant
players (see Table 4.26, at the end of this sub-section). Most production of these
companies use fresh milk, as recombining (use of skimmed milk powder) remains
unimportant due to its higher cost.

Overall the private commercial sector (basically members of the DIDA) account for
around 15 percent of production of dairy products. They have, however, made significant
progress since the early 1980s and taken market share away from the public sector
company, Misr Milk and Food Company, whose output has fallen to an estimated 10
percent of total supply.

The commercial sector, both private and public factories, has significant over capacity.
Their total capacity is estimated at 1.9 million tons of dairy products per year, although
actual yearly production is only around 500-800 thousand tons. Furthermore, it appears
that progress towards changing Egyptian consumers’ preferences from fresh to processed
products is slow; this could seriously impede further development of the private industrial
sector. At the same time, although strong urban demand provides a firm basis for modern
large-scale producers to expand commercial production, factors such as high capital and
material costs and limited purchasing power are expected to be major constraints on
production.

More generally, the constraints facing the dairy industry in Egypt include:
•  Production of unclean milk in some dairy farms makes it difficult to use such milk to
   process end products with a high good quality.
•  The difficulty of obtaining high-quality raw milk with a reasonable price.
•  Lack of milk testing laboratories services for both dairy farms and plants.
•  Lack of consumer awareness regarding the hazards of using unprocessed milk leaves
   the peddlers unchecked and limits both the demand and price of processed milk.
•  Unfair competition between the imported dairy products (which are subsidized) and
   the local producers who pay high customs fare for the imported raw materials and/or
   equipment.
•  Poor handling of dairy products during storage, shipping and distribution cause quick
   deterioration and/or low quality end product. This in turn gives the consumer a bad
   impression about these products.
•  Most dairy processing units are still utilizing old techniques for manufacturing and
   packaging. Also, they put limited investment in marketing and branding.
•  The lack of coordination between the dairy producers and processors makes it
   difficult to establish a National Dairy Association/Board, which can play a significant
   role to develop the industry within Egypt.

Cheese production
Total cheese production in Egypt is estimated to be around 425 thousand tons. The most
important category is Feta cheese (est. 320 thousand tons in 2002), about 70 percent of
which is produced in small unlicensed factories. The rest is Romano cheese (est. 65
thousand tons in 2002) and processed cheese (est. 40 thousand tons in 2002). In addition,
there is a small but growing production of mozzarella cheese and a very small amount of


Egyptian Processed Food Sector Review                                                   109
                   blue and cheddar cheese. In recent years the public sector market share has diminished
                   drastically to almost insignificant levels42.

                   Butter and ghee
                   Egypt produces only a very small quantity of butter on a commercial scale (est. 10
                   thousand tons)43. The absence of a significant domestic butter industry is due to several
                   factors, the most important being the lack of adequate refrigeration throughout the
                   country, which makes the conversion of butter-to-butter oil and ghee necessary. Also
                   there is an increasing trend toward the use of palm oil in ghee rather than butter44.

                   Milk Powder
                   Egypt does not have a significant milk powder production. Imported non-fat dry milk
                   (NFDM) and whey powder are used mainly for the production of feta cheese, yoghurt and
                   ice cream. Small quantities are also used in the production of chocolate and pastries.

                   Export Market and performance
                   Egypt’s exports of dairy products increased dramatically in 2003, up from 6.8 thousand
                   tons in 2002 to 13.4 thousand tons (+97%); with the value rising from L.E. 42.2 million
                   to L.E. 87.3 million (+107%).

      Table 4.26   Leading companies in the dairy product-processing sector

                        Company              Leading products Main export locations                  Output 2003           Number       of
                                             (*=export                                               equivalent fresh      employees
                                             product)                                                milk input in tons
                   1    Juhayna              UHT Milk*             USA, Italy, Germany,              180000                750
                                             Yoghurt               Switzerland, Netherlands
                                             Drinking Yoghurt      Jordan, Libya
                                             Juice*                Mauritania

                   2    Greenland            Feta Cheese*          USA                               144000                600
                                             Domiati Cheese*       UK, Greece, Netherlands
                        (Americana
                                             Hard Cheese*          Saudi Arabia, Kuwait, UAE,
                        Group)
                                             Processed Cheese*     Libya, (plus 15 other Arab
                                             UHT Milk*             countries)
                                             Juice*

                   3    Domty (Candia)       Feta Cheese*          Qatar, Bahrain, Saudi Arabia,     72000                 300
                                             Domiati Cheese*       UAE
                                             Mozzarella*           France, Italy, Switzerland,
                                             Processed Cheese      Germany, Sweden,
                                             Drinking Yoghurt      Canada, USA
                                             UHT Milk*
                                             Juice*

                   4    Enjoy                Set Yoghurt           USA,                              60000                 250
                                             Drinking Yoghurt      UK, Netherlands, Sweden, Italy,
                                             UHT Milk*             Libya, Lebanon, Palestine
                                             Juice*




                   42
                        Source: Egypt Dairy and Products Annual 2003, USDA Foreign Agricultural Service, GAIN Report, September 2003.
                   43
                        Most butter production is for farmers home consumption with a small amount going to sale at local markets.
                   44
                        Ibid, footnote 42.




110                Egyptian Processed Food Sector Review
    Company             Leading products Main export locations                       Output 2003          Number      of
                        (*=export                                                    equivalent fresh     employees
                        product)                                                     milk input in tons
5   Nestle              Ice cream           Ethiopia, Sudan                          60000                250
                        Set Yoghurt
                        Drinking
                        Dry blends*
                        Baby foods*

6   Siclam              Set Yoghurt         Italy, Netherlands                       60000                250
                        Drinking Yoghurt    Jordan, Lebanon, Palestine,
                        Feta Cheese*        Kuwait, Saudi Arabia
                        Domiati Cheese*
                        Hard Cheese*
                        Processed Cheese*
                        UHT Milk*
                        Juice*

7   Faragallah          Processed Cheese*   USA, Canada                              54000                200
                        UHT Milk*           Europe
                        Juice*              Australia, New Zealand
                                            Jordan, Saudi Arabia, Morocco,
                                            GCC, Libya
                                            Other Africa

8   Arab          Dairy Feta Cheese*        Iraq,    Libya,    Saudi       Arabia,   36000                200
                        Domiati Cheese*     Kuwait, UAE, Qatar, Bahrain,
    (Lactalise)
                        Hard Cheese*        Oman, Jordan, Yemen
                        Processed Cheese*

9   El Misrieen         Set Yoghurt         Saudi    Arabia,     Kuwait,    UAE,     180000               200
                        Drinking Yoghurt    Qatar, Bahrain, Oman, Libya,
                        Feta Cheese*        Jordan
                        Domiati Cheese*
                        Juice*

10 Katilo               Yoghurt             Saudi Arabia, Jordan, Kuwait,            180000               200
                        Feta Cheese*        UAE, Qatar, Bahrain, Oman
                        Domiati Cheese*     USA
                        Hard Cheese*
                        Processed Cheese*

11 Edafco (Viva)        UHT Milk*           Libya                                    180000               200
                        Juice*              Germany, Italy, Sweden,
                                            Austria, UK
                                            Mauritius
                                            USA

12 IGI Interagro        Set Yoghurt                                                  180000               200
                        Drinking Yoghurt
    (ex Dallah)
                        UHT Milk*

13 Bell Egypt           Processed Cheese*   Saudi Arabia, Jordan, Kuwait,            180000               200
                                            UAE, Qatar, Bahrain, Oman
                                            USA

14 Misr Milk &Food Set Yoghurt              Saudi    Arabia,     Jordan,     Iraq,   180000               200
                        Feta Cheese         Kuwait, UAE, Qatar, Bahrain,
    Company
                        Domiati Cheese      Oman
                        Hard Cheese
                        Processed Cheese*
                        Pasteurised milk
                        UHT Milk




Egyptian Processed Food Sector Review                                                                              111
                        Company               Leading products Main export locations                     Output 2003          Number      of
                                              (*=export                                                  equivalent fresh     employees
                                              product)                                                   milk input in tons
                   15 Oburland                Feta Cheese               Libya                            180000               200
                                              Domiati Cheese
                                              Processed Cheese*
                                              Emulsifiers/stabilizers

                   16 Egyptian Danish Ice Cream*                                                         50                   200
                                              Ice lollys
                        (Iceman)
                   17 Hawaii                  Ice Cream*                                                 50                   200
                        Total                                                                            782200
                   Source: Study Team estimate




           4.6     Dried vegetables, herbs and spices

                   Production
                   In 1953 the first dehydrating unit was set up by foreign investors in the city of Port Said.
                   This investment set out the path for future growth markets: industrial ingredients for
                   products such as soups and sauces, and for the fast food business. In the 1960’s,
                   processing of dried onions started south of Cairo and later 3 factories were set up in
                   Alexandria and the Delta area. Currently there are 8 dehydration units located in the
                   geographical triangle of El Menia – Port Said – Alexandria; with average distances
                   between supplying farms and dehydration units of around 50 km45.

      Table 4.27   Dehydrated vegetables - key figures, 2003

                    Indicator                                            Unit                                     Value
                    Domestic                                             Tons (1000)                                            0.3
                    Consumption                                          $ US million
                    Production                                           Tons (1000)                                           13.5
                                                                         $US million                                           20.0
                    Exports                                              Tons (1000)                                           12.1
                                                                         $US million                                           17.7
                    Employment                                           Persons (1000)                                         1.2
                    Enterprises                                          Number                                                     8
                    (key players)
                    Export data refer to dried vegetables
                    Source: Study Team estimates


                   The main dehydrated vegetables produced in Egypt are onions, leeks and garlic, along
                   with Molokhiyah46. The main dehydrated herbs and spices produced in Egypt are basil,
                   cumin seed, thyme, fennel, caraway, chamomile and mint leaf.




                   45
                        Some onions are supplied, however, from more distant farms.
                   46
                        A green leafed plant, indigenous to Egypt, and popular in the Japanese market.




112                Egyptian Processed Food Sector Review
             Key players in the sector include:
             •  Giza National Dehydration (Kato group), which has maintained strong links to
                MacCormik (world leader in ‘spices’);
             •  El Nanaeiah (Gharieb group), which has strong ties to Germany;
             •  New Benisuef (El Shenawi group), which has 3 dehydration lines and operates freely
                on the market;
             •  El Nasr Dehydration, former public enterprise that encountered difficulties after
                privatisation but is now performing well under new ownership;
             •  El Tanbouli in association with Kato has set up a new line in Beni Sueff.

             In addition, Agro Green and AgroMisr, operating smaller units are, nonetheless, active
             in the sector. Further, Sekem, is the Egyptian leader in the ‘organic’ segment.

             The value of production is not available from any known source, but its evolution has
             largely followed the success of Egyptian exports (annual increase in the region of 1,000
             to 1,500 tons).

Table 4.28   Dried onions: evolution of production

                                Units         1992      2000     2001      2002     2003      2004         92-00            00-03
                                                                                              forecast     a.a.g.r. (%)     a.a.g.r. (%)
              Volume            1000 tons         -      9.2     10.5      12.0     13.5          14.0                -              14
              Total Value       L.E. mil.         -         -        -         -        -             -               -
              Source: Study team estimates based on industry sources


             Export Markets and performance
             Europe is the main market for Egyptian exports of dried onions, with 90% of Egyptian
             exports going to Germany, the Netherlands and the United Kingdom47. The United
             Kingdom still maintains strong links to commonwealth countries and tends to import high
             quality products that are either destined for domestic distribution or further processing.
             The Netherlands and Germany import both for further processing and for re-export, either
             within the EU or beyond. The price for the EU market is formed in Hamburg/Hanover.

             Currently, Egyptian producers receive a fair price for the production. Improvements in
             the quality of production that has come on stream in early 2004 should enable a 10%
             increase in value (e.g. $US 1,800 per ton for kibbled grade, $US 2,000 per to for fine
             powder)




             47
                  Egypt exports 7-10,000 tons of dehydrated vegetables to the EU (largely as an ingredient for soups and sauces). The EU
                  duty free quota has been increased from 7 to 16 thousand tons per annum. Egypt is unlikely to reach this level in the near
                  future due to the high price obtained for fresh onion exports in 2004.




             Egyptian Processed Food Sector Review                                                                                         113
      Table 4.29   Dried vegetables: evolution of exports

                                   Units          1996     2000    2001   2002       2003    2004         96-00          00-03
                                                                                             forecast     a.a.g.r. (%)   a.a.g.r. (%)
                    Volume         1000 tons         9.2    10.9      -       12.8    12.1          14              4              4
                    Total Value    L.E. mil.      55.9      60.9      -       73.4   105.8          120             2             20
                    Total Value    $US            16.1      16.5      -       16.3    17.7          20              0              2
                    Source: Study team estimates based on CAPMAS, ITC and industry sources


                   Distribution channels for exports
                   The main distribution channels for juices and concentrates are described in Table 4.30.

      Table 4.30   Distribution channels for Egyptian exports of fruit juices and concentrates

                    Channel                                               Comments
                    Further processing industry                           Starting for high grade products
                    Traders                                               Control virtually all export volumes
                    Wholesalers                                           -
                    Modern (centralised) retailers                        Not applicable
                    Producer partnerships                                 No
                    Own import company                                    No




114                Egyptian Processed Food Sector Review
 5 Demand-side factors influencing development
   of the Egyptian FPI



5.1   Social and demographic change

      The growth of the Egyptian population implies an annual increase of over a million
      persons. Of the total population, however, the vast majority do not as yet represent a
      significant market for the FPI, since their purchasing power remains low. With the
      exception of small volume purchases of a limited range of products from the majority of
      the population, the main target groups of the FPI can be characterised crudely as follows:
      •   2.5 million upper-income consumers;
      •   10 million low to middle-income consumers;
      •   Tourists, equivalent on an annual basis to approximately 145 thousand additional
          consumers.

      It can also be noted that higher income consumers are often able to employ domestic staff
      to purchase and prepare fresh foods, hence limiting their impact on the demand for
      processed foods. Nonetheless, despite the limited size of the market, as represented by
      consumers able to afford purchases of processed food products, the changes in Egyptian
      society are supporting changes in the food processing sector, for example:
      •    The growth of the urban population;
      •    Improvements in education levels of younger people and, in-turn, higher income
           levels is a stimulus to the development of the FPI;
      •    A greater number of females engaged in the workforce, together with their
           developing of greater autonomy and scope for personal ‘time-management’ raises
           demand for more convenience foods.
      Overall, opinions from the retail distribution sector suggest that they are convinced that
      there is significant potential in Egypt for the development of processed/convenience food
      market.


5.2   Migration and access to ‘western’ markets

      Arab immigration to ‘western’ countries has resulted in the development of a natural
      market for ‘ethnic’ foods. However, to access these markets, exporters need to ensure that
      their products comply with local environmental, health and safety standards while, at the
      same time, retaining the original characteristics sought after by immigrant consumers.

      One advantage that Egyptian processed food exports possess is the brand loyalty to
      Egyptian products of ethnic consumers in markets in the EU, North America and




      Egyptian Processed Food Sector Review                                                  115
            Australia-New Zealand. This goes hand in hand with full compliance to Halal
            requirements, and in certain certified factories to kosher requirements.

            Although, immigrant populations can provide an entry point to foreign markets, one key
            for success is to expand the market to a broader range of consumers. This implies meeting
            the consumer preferences of ‘western’ consumers and adapting to their changing tastes
            and demands. Although there are exceptions, it remains the case that there has so far been
            a failure to convert imported ethnic food, from Egypt and Arab countries more generally,
            into a mass consumption product.


      5.3   Organisation of distribution markets

            Egyptian consumers are increasingly becoming aware of the quality and variety of
            consumer-orientated products. As a result, Egyptian consumer’s buying habits are
            changing dramatically. In the past, most Egyptian consumers used to buy products, such
            as meat, fresh fruits and vegetables from small neighbourhood shops. However, with the
            increasing number of supermarkets and hypermarkets in Cairo and Alexandria and
            services offered in one place, many middle to high-income consumers have started to
            purchase most of their requirements from supermarkets48.

            What may be termed the ‘modern retail’ sector is in relative infancy in Egypt; in 1999,
            Metro opened its first supermarket in Cairo and now has 30 outlets. Moreover, the
            experience of Sainsbury’s revealed some of the pitfalls for foreign distributors entering
            the Egyptian market; the company invested heavily in setting up a network of modern
            supermarkets but was ultimately discouraged by the apparent discontent directed at the
            companies operations. Nonetheless, the example given by Sainsbury’s and other
            companies that followed demonstrated the way forward: well designed shops and an
            attitude that recognised the consumer as the central element of the distribution service.




            48
                 Source: USDA Foreign Agricultural Service, GAIN Report Egypt Exporter Guide 2003.




116         Egyptian Processed Food Sector Review
Table 5.1   Breakdown of ‘modern’ food retail outlets in Egypt

             Ownership        Size Category               Total Number of Outlets           Companies
                                                          (estimate 2003)                   (number of outlets 2002/2003)
             Egyptian         Supermarket                               30                  Metro
                              (> 15 outlets)
             Egyptian         Supermarket                               30                  Ragab & Sons (13)
                               (5-15 outlets)                                               Fathallah (8)
                                                                                            Zahran (5)
             Egyptian         Supermarket                               20                  AbuZekri(4)
                              (2-5 outlets)                                                 Seoudi (3)
                                                                                            Oscar (2)
                                                                                            El Hawari (1 super + 1 hyper planned)
             Egyptian         Hypermarket                                4                  Alfa (4 hyper + 1 super)
             Foreign          Hard Discount -                            5                  Shoprite (5)
                              Supermarket
             Foreign          Hypermarkets                               2                  Carrefour (France)
             Source: Study team estimates


Table 5.2   Number of retail outlets by type in Egypt

                                                   1998          1999          2000          2001           2002          Change
                                                                                                                          1998-2002
            Supermarkets                                325           360           390           437              493          +168
            Hypermarkets                                   2             2             2             3               6             +4
            Convenience stores                          245           250           280           324              372          +127
            Source: Euromonitor Data 2003


            The lessons learnt by Egyptian distributors from the Sainsbury ‘experience’, as reflected
            in interviews with Egyptian retail distribution companies, has brought greater
            understanding of the ‘rules of competition’ in a modern retail sector and what this may
            mean in the future. Examples include:
            •    The importance of investing in modern shop outlets and putting an end to distributing
                 via low quality premises;
            •    The importance and means of attracting customers through marketing49;
            •    Recognition of the possibilities of grouping orders to manufacturers, especially with
                 regard to “non food” products.

            At the same time, it remains the case that certain practices still remain in place that would
            not be generally accepted by most modern retailers, for example:
            •   Retailers are predominately supplied directly by suppliers from their factories and
                using the supplier’s own transport. In some cases, this results in several deliveries
                being made during the same day;
            •   Ordering of goods is not centralised, with each shop outlet sending in separate orders
                to suppliers50.


            49
                 For example this may cover promoting frozen food as being “as good as fresh”. Also, Metro is now distributing a leaflet
                 aimed at informing consumers on products, prices, and giving consumer advice.




            Egyptian Processed Food Sector Review                                                                                          117
      Further dynamic development of the modern retail distribution can be foreseen.
      Carrefour, for example, is preparing for further development and should further introduce
      the rules and practices of modern distribution to the Egyptian food retail sector. The
      company has begun cooperating with a few companies to raise volumes through multiple
      branding: producer brand, retail brand (distributors own label), and first price brand (i.e.
      lowest price).

      On the basis of a more global view of the development of the modern retail sector, further
      change in Egypt is to be expected. The hypermarket format appears to be leading
      development in many new (low income) markets but, at the same time, the hard discount
      format has had some interesting successes. In South Africa, for example, processed food
      is affordable to about half the population and the modern retail sector now accounts for
      about 80% of sales to this segment of the population. From the perspective of the FPI,
      such a development has important implications for development strategies, since hard
      discount retailers in particular demand low prices and, hence, high performance
      processing.




      50
           This is explained by retail distributors as being due to the high variability of demand which makes individual ordering
           necessary to avoid holding excess stock or losses from unsold products.




118   Egyptian Processed Food Sector Review
      6 Supply-side factors influencing the
        development of the Egyptian FPI



    6.1     Agricultural production

            The agricultural sector accounts for 20 percent of Egypt’s GNP, 34% of the workforce
            and contributes 20% of exports. The area under cultivation has risen steadily from 6
            million feddans51 to 8 million feddans due to continuous development and reclamation of
            new land, together with protection of agricultural plots from use for construction of
            housing.

            Increased land under cultivation, combined with the pursuit of liberal agricultural policies
            and support from research centres in the introduction of new varieties has enabled a
            dramatic increase in agricultural output (see Table 6.1 and Table 6.2).

Table 6.1   Output of main agricultural products (millions of tons)

                                                       1999           2004 est.           Change
                 Wheat                                   2.00             6.62               331%
                 Rice                                    2.44             5.70               234%
                 Corn                                    3.35             6.60               197%
                 Sugar Cane                              8.70            15.26               175%
                 Sugar Beet                              1.98             3.20               162%
                 Vegetables                              8.00            15.40               193%
                 Fruits                                  2.60             7.50               288%
                 Source: MALR and ACC


Table 6.2   Output of main animal products (millions of tons)

                                                       1999           2004 est.           Change
                 Milk                                     1.9               4.0              211%
                 Beef                                   0.315            0.545               173%
                 Poultry                                0.420            0.700               167%
                        1
                 Eggs                                     3.2               7.0              219%
                 Fish                                   0.280            0.750               268%
                 1.     Billions of eggs
                 Source: MALR and ACC




            51
                      1 feddan = 4200 square meters.




            Egyptian Processed Food Sector Review                                                    119
                  FAO estimates of the volume of production illustrate the position of Egyptian production
                  in global and regional terms (Table 6.3). According to these data, Egypt accounts for less
                  than 2% of world production for all of the categories covered. Nonetheless, the
                  importance of Egypt in terms of production in the Near East is more evident, particularly
                  for production of dairy products, beef and buffalo meat, poultry meat, vegetables and
                  fruit.

      Table 6.3   Egyptian production of agricultural products and share of world and regional production

                                                        Egyptian Production (million tons)           Egyptian share of production, 2002 (%)
                                                              1998                   2002                    World                  Near East
                       Vegetable oils                      0.133                  0.185                      0.18                          9.4
                       Dairy                               1.037                  1.190                      1.68                      39.0
                       Total Meat                          1.254                  1.442                      0.58                      18.9
                       - Beef and buffalo meat             0.518                  0.554                      0.90                      28.7
                       - Poultry Meat                      0.535                  0.652                      0.88                      18.9
                       - Sheep and goat meat               0.095                  0.108                      0.91                          5.7
                       Vegetables (incl. Melons)          12.503                 14.115                      1.73                      20.9
                       Fruit (excl. melons)                6.347                  7.408                      1.55                      18.0
                       Vegetable oils: 1998=1999
                       Source: FAO


                  The most notable factor limiting further agricultural development in Egypt is the
                  availability of water. Estimates of available water resources suggest that they are
                  sufficient to provided irrigation for 11 million feddans of agricultural land, a figure that
                  Egypt is expected to reach by 2007.

                  At the same time, agri-food policies in Egypt must meet the challenges of a steadily
                  increasing population; annual population growth is expected to be 2.2%. Increasing
                  demand will require agricultural output to increase by 4.1% per annum in order to keep
                  pace with the growing population.

                  From the perspective of the FPI, the development of new lands has brought an additional
                  benefit beyond the increase in supply of fresh agricultural produce. Hand in hand with the
                  development of new lands has been the organisation of agricultural production in larger
                  farms. Improved management control over these farms, compared to smaller producers,
                  facilitates cooperation between food processors and agricultural producers, since these
                  farms are able to offer better guarantees over volumes, prices and quality. Nonetheless,
                  the share of ‘managed’ farms remains small52 and contract farming is the exception rather
                  than the rule. Consequently, most agricultural raw materials used by the FPI are still
                  purchased on a ‘spot basis’ (i.e. at the time of harvesting / delivery to the market, rather
                  than under pre-arranged supply contracts), which is an obstacle in meeting traceability
                  demands.

                  The new Minister of Trade and Industry has asked the Ministry of Agriculture and Land
                  Reclamation (MALAR) to allocate one million feddans for farming of export agri-foods

                  52
                         Such farms are estimated to account, for example, for only 2.5-3% of exported volumes of agricultural products.




120               Egyptian Processed Food Sector Review
            in 2005 to meet export market demands with a goal to increase agri-food exports (Fresh
            and processed) from the current level of LE 1 billion to a targeted LE 5 billion LE.

            The fact that most Egyptian food processing companies are SMEs, without the size to
            exercise control over their agricultural inputs (either through contract farming or own
            production of crops) means that they must rely on what the agricultural sector delivers.
            The agricultural sector, in turn, is characterised by small-scale producers. Overall, this
            makes it difficult to put in place the requisite quality control mechanisms required for
            export and by modern retail distributors, and ultimately final consumers.


    6.2     Subsidised food items

            Egypt subsidises a number of basic food items; the total level of food subsidies is L.E. 4.4
            billion, plus a further L.E. 5.8 billions for Baladi Bread and L.E. 1.9 billion for flour
            bread.

Table 6.4   Subsidised food items (2004)

                                                                                                            Subsidy L.E. million
                 Baladi bread (82%)                                                                                            5,800
                 Flour bread (72%)                                                                                             1,900
                 Edible Oil                                                                                                       540
                 Lentils                                                                                                          540
                 Vegetable Ghee                                                                                                   480
                 Beans                                                                                                            450
                 Rice                                                                                                             360
                 Pasta                                                                                                            360
                 Tea                                                                                                               96
                 Other (Sugar,etc)                                                                                             2.820
                 Source: Ministry of Supply




    6.3     Imported food products

            For a description of the rules governing the importation of food products, see Section 7.4.

            For data on the main Egyptian imports of processed food, see Section 3.2 (see Table 3.6
            and Table 3.7). Major import categories of processed food include edible oils, dairy
            products and prepared fish53.

            FPI segments and specific market segments reliant on imported processed food include:
            •   The production of sweets and confectionary products depends heavily on imported
                sugar, cocoa, beans, oils, fats, coconut milk, nuts and dried fruits.
            53
                   The Egyptian FPI relies heavily upon a wide variety of imported raw materials. Among the most important categories are:
                   frozen beef, wheat (for milling into flour for bakery products), corn (for corn puff snacks etc.), edible oils, butter & ghee,
                   cheddar cheese, skimmed milk powder/casemate (for the dairy industry), herring and salmon (for local smoking), mackerel
                   and sardines (for local canning), sugar, cocoa-chocolate-gums (for the confectionery industry).




            Egyptian Processed Food Sector Review                                                                                            121
            •     The production of several varieties of soft drinks is based on imported ingredients.
            •     Hotels & catering: among products imported for hotels are: high quality beef54,
                  seafood (lobster & soft crabs), sauces, canned vegetables and fruits, Tex Mex
                  products and beef liver.

            In addition, the Egyptian FPI is reliant on imported ingredients such as: flavourings,
            colourings, emulsifiers, preservatives and pectin, as well as imported packaging materials
            (see Section 6.5)


      6.4   Imported materials for re-export

            According to Egyptian law, import taxes are not paid on materials for re-export purposes.

            Under temporary admission rules, basic materials and intermediate goods imported for
            manufacture, as well as production requirements of exported goods, are temporarily
            exempted from customs and other fees. The temporary exemption is issued in return for
            an insurance deposit (guarantee) with the due customs and fees value. In addition, these
            good and materials are exempted from import rules listed in the import and export law.
            Importers can use these good for other purposes after paying due customs fees, plus an
            extra tax of 2% for each month.

            Under the drawback system, customs and service fees on foreign materials used in
            manufacturing local exported goods are refunded provided that they get transferred to a
            free zone area, are re-exported, or sold to tax-free outlets within a period of 2-years from
            release date (renewable), by a Finance Minister’s decree. Value of customs partial
            exemption is immediately refunded if sales are made to tax-reduced outlets.

            Because of significant delays in the operation of the reimbursement process under the
            drawback system, and the fact that many components and ingredients go into exported
            finished products for which the share of import duties and sales tax cannot be calculated
            accurately, the Egyptian government introduced a new “Export Subsidy” system in 2001
            by which exporters could be reimbursed according to specified rates for some industries.
            In the case of processed food exports, the rate of reimbursement is 8-9% of the value of
            the goods exported55. Although the reimbursement system was supposed to reduce delays,
            food-processing companies still complain that it can take up to 8 months to receive
            payment.

            Nonetheless, this “Export Subsidy” system, combined with the effects of the devaluation
            of the Egyptian Pound has provided a positive incentive for exporters. The latest reports
            from MOFTI indicate that these export subsidies will continue and increase to LE 800
            million in 2004/05(an increase of 150 million LE over the 2003/04 budget)


            54
                 The volume of beef imported by the hotel sector could increase substantially if government requirements are simplified and
                 the 7% fat content requirement for imported beef is abolished.
            55
                 Under Decree 506 the reimbursement of costs of imported materials (reimbursed on export) was conditional upon
                 surrendering 75% of foreign exchange earnings at the official exchange rate. This Decree was cancelled at the end of
                 2004.




122         Egyptian Processed Food Sector Review
6.5   Packaging supplies

      The Egyptian market for foils, paper and plastic packaging is well supplied, although
      most of these forms of packaging are imported. A more pressing area of concern for the
      FPI is packaging for liquid products:
      •   Although glass bottles and jars are very commonly used in Egypt, FPI companies
          complain that there is insufficient volume and flexibility in supply, and that local
          producers are reluctant to invest in quality improvements and new mould.
          Consequently, companies – exporters in particular – have resorted to relying on
          imported glass packaging to assure flexibility and quality.
      •   For carton packaging, TetraLaval controls a large segment of the market with rolls
          being supplied from Saudi Arabia and India56. To keep this type of packaging down
          to competitive prices requires large production volumes, which the Egyptian market
          has found difficulty in providing. As a result, this form of packaging has often proved
          too expensive for low value products aimed at the ‘mass’ market. At the same time
          import duties remain high (23%), and the same applies on imported foil for processed
          cheese packaging (Alcan foil) and aseptic Scholle bags for fruit pulp and puree
          packing.
      •   As for carton, PET packaging requires large-scale production to keep down costs,
          especially for improved technological application requiring also UHT sterilisation.
          PET does have the advantage that printing is more flexible and can be undertaken
          locally, which is not the case for carton. A few projects are being developed: Candia
          is using PET in licensed dairy plant for bottled milk, and Nestle is producing liquid
          yoghurt in PET bottles. Also, there is pressure from foreign markets for PET
          packaging of fruit juices57.

      The problems of obtaining sufficient supplies of packaging were highlighted by the
      increase in demand that resulted after devaluation of the Egyptian Pound. The size of the
      increase in export demand came as surprise to both producers and the local glass industry,
      the latter being unable to meet demand in 2004. Exporters, especially of fruit juices,
      reliant on glass bottles have encountered severe difficulties obtaining sufficient supply.
      Many companies had either to rely on imported glass packaging, change to alternative
      materials (laminates, Doy packs, Tetrapack, cans), or reduce production58.


6.6   Logistics

      As concerns domestic (inland) logistics, the general picture is that the transport structures
      and organisation of logistics fall short of meeting the (desired) requirements of the FPI.
      Taxes on imports of trucks and other vehicles, which are seen as a means of protecting
      local assembly units using older lines, are a dissuasive factor for upgrading the stock of

      56
           The estimated demand for the Egyptian market for Tetrapak cartons is 800 million units per year. To set up local production
           it is believed that the market must exceed 1 billion units.
      57
           The Seclam factory in Alexandria (Mansour Group) was the first Egyptian company to package juice in PET, under the
           brand name “YES”. They were followed by the Superfoods factory, also in Alexandria (Naggar Group), marketing under the
           “OK” brand name.
      58
           A group of Egyptian food companies are considering the possibility of buying a French or Spanish glass plant and moving it
           to Egypt, where available sand, labour, and subsidised fuel make it feasible to undertake production.




      Egyptian Processed Food Sector Review                                                                                       123
      commercial vehicles. Despite the recent reduction of import duties on trucks, the
      condition of importing same year (i.e. new) models remains an obstacle in way of
      upgrading transport fleets in Egypt. With respect to the cold storage logistics chains, this
      seems to be underdeveloped given the needs of the FPI: insufficient availability of
      refrigerated trucks and limited investment in cold storage warehousing except for
      potatoes.

      As concerns international logistics, projects are underway to renew and upgrade the port
      infrastructure. The cost of international (container) transport is however seen by
      companies to be a pressing problem. A specific example is the costs of logistics towards
      Saudi Arabia, which are said to be high because of agreement(s) with Jordan; shipments
      by sea are, however, developing.

      If the political situation improves, Egypt could have short-term opportunities to increase
      exports to Israel, Iraq and the Palestinian Authority, due to their geographical proximity
      and the fact that overland trucking to these markets would be cheaper and faster from
      Egypt than from many regional competing suppliers.

      Container shipments towards Europe largely rely on a few regular lines operating for the
      export of fresh agricultural produce. With regard to “reefer containers”, due to the uneven
      nature of volumes being exported, shippers do not consider Egypt to be important market
      able to provide significant and reasonably predictable volumes; Egyptian exporters are
      said to be unable to provide any sort of forecast for short and medium-term requirements.

      At the same time, there is an incentive for shipping companies to encourage the
      development of container volumes out of Egypt. Currently, cargoes are frequently
      unloaded in Egypt from ships en route to Asia and so it would make sense to increase
      container traffic out of Egypt destined to Asian markets. Some Turkish exports are, in
      fact, using Egyptian ports as a transfer location for these types of shipments.

      Furthermore a new terminal for reefer trucks is being established in Badr City (50 Km
      east of Cairo). The terminal should provide capacity for 250 trucks that are used in
      overland export of fresh and frozen foods to Arab and Gulf markets.

      Egypt Air has practiced a monopoly over air-cargo transport for along time, allowing
      foreign carriers only to carry exports in the cargo space of passenger planes and refusing
      to allow licences for dedicated air-cargo airliners to operate from Egypt, or making the
      licence difficult and expensive. The increase in Egyptian agri-exports have exposed this
      monopoly to be inadequate to do the job and due to continued pressures from, for
      example, ACC, HEIA, USAID, a perishable terminal was established in Cairo airport
      managed by Lufthansa to keep the cold chain unbroken. Further, continued pressure is
      being exerted on Egypt Air to reduce airfreight rates (currently about 1 USD/Kg to
      northern EU) and to allow more air-cargo operators to work in Egypt.




124   Egyptian Processed Food Sector Review
6.7   Technology

      In general terms, the Egyptian FPI has made progress towards improving the level of
      technology. Support from foreign donors and agencies have been important in this
      respect. Particularly in the segment of 1st-processing of agricultural products, many
      improvements have been generated via ALEB/USAID technical assistance linked to
      investment loans59. For 2nd-processing companies, they appear to have been less able to
      access technical assistance and have generally undertaken investments directly with
      international equipment suppliers.

      Bar coding and traceability
      As of January 1st 2005, the EU is imposing stricter controls on traceability of food
      products (fresh and processed) imported into the EU. One of the elements of a successful
      traceability system is bar-coding, which was started in Egypt some 6 years ago by
      Egyptian Article Numbering (EAN)60 and to date around one thousand Egyptian
      companies have subscribed to bar-coding. A co-operation between EAN and the Egyptian
      Export and Import Control Authority (MOFTI) is promoting a cheap subscription to
      Egyptian companies and, under a grant from UNIDO, is offering free training and part
      subsidy for subscription to bar-coding systems for food processors interested in exporting
      products to the EU and North America.


6.8   Technical support

      Chemical and micro-biological testing
      There are 18 technical laboratories and research centres in Egypt. The most notable
      laboratories and R&D centres providing services to the Food Processing industry such as:
      1. Food Technology Research Institute (FTRI) – Dokki, Giza
      2. High Institute of Public Health – Alexandria (supported by ALEB/USAID)
      3. Nutrition Institute – Cairo
      4. Pesticide Residue Laboratory (MALR) - Dokki, Giza
      5. Mubarak’s Scientific Research City – Alexandria

      These centres are able to provide technical support to food processors in the form of
      chemical and micro-biology tests:
      •  Analysis of water, fat, protein and carbohydrate content in food and ingredients;
      •  Analysis of heavy metals and pesticide residue;
      •  Microbiology tests.




      59 The Agriculture- Led Export Business (ALEB) - USAID: ALEB provides assistance in utilizing market information, integrating
         food processing technologies and standards, enhancing marketing and business skills, strengthening associations and
         service firms, and initiating strategic alliance opportunities.
      60
         EAN is a member of the international system for numbering, bar coding and electronic data exchange that evolved from the
         earlier American UPC system. More than 100 countries are part of the system, which provided for effective supply chain
         management and has developed into the industry standard.




      Egyptian Processed Food Sector Review                                                                                   125
      Accreditation
      In April 2003, IMC embarked on a laboratory-upgrading programme to assist Egyptian
      testing and calibration laboratories to achieve international accreditation61. The notion of
      accreditation is however relatively ‘new’ to Egypt (only over last couple of years). As
      part of an ongoing programme the Egyptian Accreditation Council (EAC) is being
      strengthened, with aim that it should itself obtain international accreditation.

      Other
      Agricultural Genetic Engineering Research Institute (AGERI). Established in 1989 under
      the auspices of the Ministry of agriculture and Land Reclamation, AGERI62 – in
      partnership with several American universities – has been researching bio pesticides and
      an elite variety of crops that are thought to be resistant to environmental pests63,64.

      Egyptian Centre for Measuring Organic Products, is a private company certified by the
      EU to test organic products and grant manufacturers certificates that are accepted by the
      EU.

      The Horticultural Export Improvement Association (HEIA) promotes the expansion of
      sustainable exports of Horticulture crops through accessing modern production
      technology, state- of- the-art post-harvest practices, and market information. HEIA is
      strengthening institutional capacity through networking, quality certification, product
      technology adaptation, outreach and publications. HEIA completed a cold storage facility
      at Cairo Airport that began operation in 2003.




      61
           To date 18 laboratories have been upgraded, of which 7 are operating in the food sector.
      62
           Originally called the National agricultural Engineering Laboratory (NAGEL).
      63
           Source: United Nations (2001), Economic and Social Commission for Western Asia, “the Impact of Environmental
           regulation on Production and Export in the Food Processing, Garment and Pharmaceuticals Industries in Selected ESCWA
           countries” E/ESCWA/ED/2001/14.
      64
           The issue of what crop varieties are GMOs is important. European resistance to the use of GMOs and food products
           derived from GMOs, together with negative attitudes in some Gulf States (e.g. Saudi Arabia), mean that Egyptian exports
           could be restricted via controls on GMO content. Potentially this could have dramatic affects on the Egyptian agricultural
           and agro-food industry.




126   Egyptian Processed Food Sector Review
                                                                                                         65
         Egyptian FPI views on the services and role of research centres and laboratories
         Underlying issues that have been raised during interviews with food processing companies concerning
         the services of research centres and laboratories revolve around:
           •     High costs of analysis;
           •     Long waiting periods to receive results;
           •     Inaccuracy of results;
           •     Non-accreditation of laboratories;
           •     R&D areas are not sufficiently related to requirements of the Egyptian FPI.
         In the view of food processing companies, the main services they require to be supplied by the research
         and testing milieu are:
           •     Participation in solving technical problems together with development of new products and
                 packaging;
           •     Affordable costs of analysis (chemical and micro-biological);
           •     Faster and more accurate results;
           •     Accreditation;
           •     Confidentiality;
           •     Specifically, in the area of agricultural research, the Egyptian FPI is looking to the Agricultural
                 Research Centre (which draws on resources of both the Ministry of Agriculture, especially for
                 applied research, and the academic expertise of Cairo University), for research in areas such as:
                        Varietal research (e.g. new processing varieties of tomatoes and potatoes);
                        Aflatoxin reduction in grains and peanuts, especially proper pesticide use;
                        Training in Good Agricultural Practices (GAP), especially Eurogap requirements and
                         traceability of foods from farms to meet EU requirements.
         At the same time, research centres and laboratories counter with their own requirements from food
         processors, these include:
           •     Greater input in defining the types of problems faced by the FPI in areas such as: production,
                 packaging, and environmental control;
           •     Funding for R&D;
           •     Accuracy in sample taking;
           •     Active participation in training sessions/programmes arranged by research centres etc.
         There are, however, some examples of changes in the research and testing environment that are
         viewed positively:
           •     The National Research Centre (Cairo) is changing its status into an investment establishment
                 offering paid-for R&D services to the Egyptian FPI. In 2003/2004 these services yielded L.E. 13.5
                 million in income and the number of businesses utilising the services of NRC has reached 45.
           •     The Food Technology Centre (FTC) is being linked to IMC to attempt to upgrade its services and
                 ensure that it delivers maximum benefits to the FPI. FTC has an ambitious range of services that
                 they will seek to provided when they have moved to new headquarters in Alfayum in 2006. The
                 services will include: sensory evaluation, environmental testing, packaging testing, upgrading of
                 traditional products (e.g. black honey). Further, a special unit at FTC is pursuing ALEB project


65
     During the course of the study, the following R&D centres and laboratories have been interviewed:
     •    H.I.P.H. – Alexandria University
     •    Central laboratory for food and animal feed – Dokki
     •    Agricultural Research Central Laboratory of Pesticide Residue – Dokki
     •    Mubarak’s Scientific Research City – Borg El Arab
     •    FTRI – Cairo
     •    FTC – Cairo
     •    Dairy Training Centre – Alexandria
     •    Export & Import Control Laboratory – Dekhila, Alexandria




Egyptian Processed Food Sector Review                                                                           127
                          goals and is training Egyptian FPI staff on HACCP, ISO, GMP, through a Spanish grant.
                     •    The general plan of the Ministry of Higher Education and Scientific Research stresses the
                          strengthening of links with the private sector.
                     •    IMC is funding the accreditation of 17 testing laboratories (see Section 6.8)
                   Among the key areas where support for local sources of innovations in food processing technology are
                   required are:
                     •    Cold pasteurisation (irradiation of food to reduce biological hazards), which is especially required
                          in for herbs, seeds and spices due to the high microbiological loads from sun drying in the fields.
                          Research in this area is being undertaken in co-operation with the Ministry of Power (Nasr City);
                     •    Spray drying, for milk and flavours processing;
                     •    Freeze drying, for vegetable to extend shelf lives and reduce wastage;
                     •    Artificial sweeteners, for production of low calorie beverages and dietary foods;
                     •    Emulsifiers production technology / Enzyme research, for the dairy sector;
                     •    Wet extraction process, for soy and other leguminous proteins;
                     •    GMO issues and effects;
                     •    Continuous agitating sterilisation, for canned foods;
                     •
                                                                                               2
                          Flexible packaging developments (retort pouches, aseptic packs, O barriers, biodegradable and
                          recyclable packaging);
                     •    Plastic containers development (nested & stackable pallets and box pallets).




      6.9   Access to finance

            The current commercial (LE) loan rate prevails for larger companies. International Donor
            loans are available at lower rates; these tend to be earmarked for SMEs seeking to
            purchase machinery, equipment and raw materials.

            From interviews with FPI, criticisms have been raised of the handling of donor loans by
            state owned banks and the Egyptian Industrial Development Bank (EIDB). These relate,
            for example, to the charging of higher interest rates than those at which the donor loans
            are obtained, reduction in the period of grace for repayments, and shortening of the
            repayment period.

            In January 2005 Ministry of Fiance and Ministry of Investment in Egypt announced the
            establishment of a € 50 million fund, named the Horus Fund For Agrofood Industries
            Finance Support. The fund will be managed by Hermes Investment Portfolio
            Management, Rabo Investment and a French investment bank Prime Group. The fund
            will mainly offer financial support to upgrade Agrofood processing operations in Egypt
            and increase exports of processed foods. The Fund will increase to 100 million Euros by
            2006. IMC has a € 2.5 million share in the fund.




128         Egyptian Processed Food Sector Review
 7 Egyptian trade environment of the FPI



      In 1990, the Economic Reform Programme set out a programme of liberalising trade
      policy. This programme, which makes customs duties the main instruments of trade
      policy while non-tariff barriers are to be phased out, is continuing. However, despite the
      commitment to trade liberalisation, measures to combat Egypt’s long-standing deficit
      have continued to take the form of administrative guidance and creeping import-
      resistance. The national export strategy was designed by the government in 2001 as a
      policy platform to enhance Egypt’s presence on the international marketplace. However,
      this was still coupled with an “import-substitution mood”66.


7.1   Multilateral trade agreements (WTO)67

      An overview of multilateral trade agreements is provided in the Global Assessment.

      Egypt actively participated in the Uruguay Round negotiations and its subsequent rounds
      (Egypt is a founding member of the WTO). Since then, Egypt has followed a steady plan
      to meet its WTO commitments. It has removed most non-tariff barriers, decreased tariffs,
      liberalised foreign investment policies, and privatised public sector companies. Egypt has
      also liberalised the foreign exchange market, which has helped to boost its exports in the
      processed food sector.


7.2   Regional trade agreements

      COMESA (Common Market of Eastern and Southern Africa)68
      Egypt as the largest economy within COMESA has the advantage of possessing the
      strategic location, human capital and infrastructure necessary to allow trans-national firms
      access to the COMESA market through a variety of joint ventures.

      The enormous potential of the COMESA market should prove highly attractive to trans-
      national corporations. By establishing branches in Egypt, they will be able to benefit from
      the customs exemptions granted to COMESA member nations. Thus, for example, it
      would be possible to use foreign direct investments in Egypt as an advanced industrial
      centre within COMESA to establish manufacturing centre that target the COMESA



      66
           Source: European Commission, Market Access Sectoral and Trade Barriers Database, http://mkaccdb.eu.int/cgi-
           bin/stb/mkstb.pl.
      67
           An overview of multilateral trade agreements is provided in the Global Assessment.
      68
           An overview of COMESA is provided in the Global Assessment Report.




      Egyptian Processed Food Sector Review                                                                              129
            countries. Egypt can also be the centre of trade for the products for re-exports to other
            countries in the association.

            MAFTA (Mediterranean Arab Free Trade Area)69
            The MAFTA – AGADIR agreement which went into effect on 1st January 2005 is a free
            trade agreement between Egypt, Tunisia, Morocco and Jordan, which are all connected
            with partnership agreements with the EU, that allows free movement of ingredients, raw
            materials and semi-finished products for further processing into finished products
            acceptable for export to the EU in accordance with country of origin requirements from
            any of the 4 member countries.

            GAFTA (Greater Arab Free Trade Area)70
            Aside from the EU and WTO free trade pacts, FTAs within the Arab region are also
            gathering momentum. The Greater Arab Free Trade Area (GAFTA) is an Arab League
            initiative that aims to revive previously unsuccessful attempts at regional integration. The
            establishment of free trade area (GAFTA) is set for 2005-2006.

            The GAFTA agreement is to reduce customs on trade among members by 50%, 60% and
            finally to 80% in 2004, with zero tariffs by 2005. This agreement will benefit Egyptian
            food processing sector given the comparative advantages of Egypt (e.g. low labour cost,
            developed agricultural production systems and skilled man power) compared to oil rich
            Arab countries with limited agricultural and food processing industries.

            The Egyptian FPI has, however, expressed concerns about the competitiveness effects of
            certain advantages given to other Arab food processors; for example: free land, cheap
            power, no value added taxes, low ‘other’ taxes, low import duties on ingredients and
            packaging, and low interest rates on loans. In addition, there is a worry about the possible
            abuse of certificates of origin, particularly with regard to cheap Asian products being
            labelled as ‘Arab’ for re-exports to Egypt71.

            MEDA (Euro-Mediterranean Agreement)72
            Egypt is the leading recipient among the Mediterranean partners in terms of total funds
            received from the MEDA programme with objectives among others to promote the
            effective implementation of the Association Agreement, primarily by helping Egyptian
            companies and institutions meet the challenge of increasingly competitive internal and
            external markets.


      7.3   EU-Egypt Association Agreement

            Following the Barcelona Declaration Egypt signed a partnership agreement with the
            European Union in 2001 covering co-operation in economic, social, and political issues
            and stipulating the progressive establishment, during a transition period of twelve years,

            69
                 An overview of MAFTA is provided in the Global Assessment Report.
            70
                 An overview of GAFTA is provided in the Global Assessment Report.
            71
                 A mechanism for studying such misuse is being created by the Arab League (source: Arab League, Economics Dept.,
                 press release).
            72
                 An overview of MEDA is provided in the Global Assessment Report.




130         Egyptian Processed Food Sector Review
of a free trade area (FTA) between Egypt and EU member states. The agreement will
permit Egypt to join the Euro-Mediterranean free-trade zone. Under the agreement,
import tariffs on most products - including agricultural products - will be cut
substantially, or eliminated over a period of 12-15 years. Both Egyptian and European
exporters of agricultural and food products are expected to gain substantially from the
agreement.

The Association Agreement between the EU and Egypt came into effect on 1st of January
2004. This agreement specifies the tariffs on exports from Egypt to European Union and
vice-versa. According to this protocol import duties for processed food items originating
from Egypt such as dairy products, sweet corn products, further processed edible oils and
fats, pure fructose, prepared potato products etc will be imported to EU without duty
payment. Some other products can be imported with reduced tariff and specified quota.

With this agreement, Egypt has gone a step forward in joining one of the biggest trading
areas in the world with some privileges and challenges. All the technical trade rules will
be according to the WTO agreements to which Egypt is a signatory.

To foster a more efficient and transparent business environment, several legislative
adjustments have been made in areas such as sales tax, investment promotion, securities,
insurance, financial leasing, mortgage, money laundering, export promotion, and
intellectual property rights. The majority of these focused on the legal changes necessary
to accede and comply with the WTO and enhance the readiness of the economy for
globalisation.

In the last decade Egypt's economy has grown by almost 5% and output per capita
Increased by almost 3% per annum. GNP exceeded Euro l00 billion for the first time In
2000 with an output per capita of about Euro 1,500. Egypt's development strategy is to
accelerate the rate of growth to 7,6% (from its current 3.2%), to double real GDP per
capita and to drastically reduce unemployment, which is about 10%.

In this process of integration into the world economy Egypt cannot simply respond
passively to increased competitive pressures, but has to define and implement winning
strategies for its industry. Achievements of Egyptian industry to date, though
considerable, are not enough as the economy compares unfavourably against that of the
EU. However, it does offer advantages in terms of the skills of its human resource,
natural resources, geographic location, and political and social stability.

SPS restrictions on EU imports of Egyptian food products
It should be noted that all animal proteins (meat, poultry, fish and dairy) are on the EU’s
restricted lists of imports due to requirements to meet special protocols for SPS (Sanitary
and Phytosanitary) controls. Currently, only fresh sea-fish (not farmed) can be exported
to the EU, and only from 2 EU approved factories.




Egyptian Processed Food Sector Review                                                     131
      7.4   Domestic market access

            Tariffs and duties
            Following tariff reductions in 1998, current maximum MFN (Most Favoured Nation)
            tariff rates do not exceed 30% but there are important exceptions, some of which relate to
            food (and related) products:73,74
            •    Beverage and spirits: beer (1200%), wines (600-3000%) and spirits (up to 3000%).
                 There is a tariff discount for beverages imported with a licence from the Ministry of
                 Tourism to be sold in hotels and restaurants;
            •    Raw and manufactured tobacco: 85%.

            In addition to import tariffs, Egypt also applies75:
            •   Sales tax of 10% on all imports including machinery for production (Capital goods).

                        Latest import duty reductions to assist local food manufacturing industries
                        In December 2004, Egyptian customs authorities announced the approval of further reductions on
                        import duties of ingredients, raw materials and packaging. For imported materials and ingredients for
                        food manufacturing the maximum duty was set at 5% on CIF value. Examples of reductions in duty
                        rates are:
                                •     Cheddar Cheese (20Kg pack minimum), reduced from 12% to 5%;
                                •     Starch, reduced from 12% to 5%;
                                •     Cacao grains, reduced from 5% to 2%;
                                •     Cacao paste, reduced from 12% to 5%;
                                •     Several preparations and ingredients, reduced from 22% to 12%;
                                •     Aseptic bags for packing fruit pulp and concentrates, reduced from 12% to 5%.
                        The poultry industry also got a boost, with a reduction of the duty on imported poultry feed to 2%.
                        These reductions in import duties translate into cost reductions of between 3-7 % on average and will
                        contribute positively to an increase in competitiveness of EFPI.




            Non tariff barriers (NTB)
            Registration, documents and customs procedures: the border clearance system is seen by
            exporters in to Egypt and Egyptian importers as being complex, time-consuming,
            cumbersome and subject to frequent modification. Complaints have included:
            •  Sampling procedures undertaken by several government bodies and sequentially
               leading to goods being blocked at ports. Although a one-stop shop system has been
               introduced76, under supervision from General Organisation for Import and Export
               Control, the overall policy towards simplification and facilitation can be offset by



            73
                 In addition, it has been noted that dairy, poultry and food preparations are among the product groups for which there is a
                 concentration of Egyptian bound tariff violations (Source: ibid, footnote66)
            74
                 Egypt also applied a tariff rate of 80% on imported poultry. This was reduced in 2004 to 5% (CIF) on imported live poultry
                 and 32% on frozen poultry and parts. Similarly, the tariff rate on Feta Cheese, which stood at 30%, was reduced to 5%
                 (Ministerial decree no. 300/2004).
            75
                 Previously, Egyptian customs applied customs surcharges of 2-3%, plus a service charge of 1%. These charges were
                 cancelled under Ministerial regulation no. 1230 (September 2004), which also reduced the number of customs categories
                 from 42 to only 6, as part of ongoing structural reforms (see Section 1.3).
            76
                 See Section 7.5.




132         Egyptian Processed Food Sector Review
      product specific measures whose conformity to SPS and TBT rules are, in the words
      of the European Commission, questionable77.
•     Non-uniform and discretionary application by customs officials of valuation of
      imports (see below: Tariff valuation procedures).
•     Direct shipment requirements78 (i.e. from the country of production) for imports
      cause problems for companies importing to Egypt when their distribution networks
      mean that goods would normally pass via a third country79.

           Tariff valuation procedures
                                                                       80
           According to non-Egyptian trade information sources , under-invoicing is prevalent in Egypt as a
           means of tax avoidance. This has led the Customs Authority to adopt a tough policy on commercial
           invoices. Tariff valuation is based either on the world price list received annually from foreign
           producers/ distributors, or if that is not available, they take the highest price available in the local
           market. In cases where customs officials suspect under-invoicing they usually add from 10 to 30%
           (called an “improvement percentage”) to the invoice value. Importers have the right to take legal
           action against the Customs Authorities in the event of a dispute, including arbitration that takes 15
           days or more. During this time, the shipments are withheld and the importer has to pay fees as
           deposit until arbitration is over.


           Suspicions of under-invoicing can be raised by legitimate business practices, for example when
           businesses provide low-priced introductory samples that are later followed by larger quantities at
           higher prices. Or, alternatively, in the reverse situation when a high price is charged for small initial
           shipments and a subsequent quantity discount offered on a larger shipment. In other instances, when
           a new product is introduced at below the prevailing price or comes from a cheaper source than
           previously, then the Customs Authorities may contest the valuation.




Import prohibitions: a list of products whose importation is subject to conditional
prohibition (the “prohibited imports list”) was introduced in 1986. With respect to food
and processed food items:
•   Following the dioxin crisis, Egypt introduced a ban on a wide range of EU food
    imports in 1999. Although the ban was lifted in 2000, except for animal feed,
    compulsory random dioxin tests is carried out for various imported foodstuffs81.
•   In response to the BSE crisis, a ban was introduced on the import of live cattle and
    related meat products from the EU. The ban still applies, with the exception of
    Ireland and the Netherlands. Frozen cow meat may be imported from those EU states
    that have taken veterinary measures as set out in the decree 2720/01.

Import quotas: with respect to food products:
•  Import quotas exist on the importation of sugar for the domestic processing of
   pharmaceuticals and beverages, two industries severely affected by increased tariffs
77
     Source: European Commission, ibid footnote66
78
     Decree 619/98 (November 1998), introduced direct shipment requirements for a wide range of consumer goods and made
     obligatory the legislation of certificates of origin. The decree was modified in November 1999 by effectively excluding
     multinational companies from direct shipment requirements.
79
     Meat and poultry products must be shipped directly from the country of origin.
80
     Source: US Department of Trade
81
     Compulsory testing is required in the absence of a recognised test results issued by an EU testing house. Such test can be
     carried out only by one central laboratory at a cost of LE 5000, and a rarely available in less than 2 weeks.




Egyptian Processed Food Sector Review                                                                                      133
            and high customs valuation placed on sugar in 1999 following the disruptions to the
            sugar market82.

      Standards and other technical requirements83: with respect to food products:
      •   Egyptian standards are at variance with international standards for a range of food
          products84. Complaints have been raised that lacks of transparency and arbitrary
          decisions have caused problems for imports of processed foods.
      •   Extremely strict labelling requirements exist, particularly for meat. Poultry and meat
          products must be packed in sealed bags and labelled (in Arabic and eventually in
          another language) both outside and inside, showing:
                  •   Country of origin
                  •   Name of product
                  •   Name of slaughter house
                  •   Slaughter date
                  •   Name and address of importer
                  •   Name of the Quarter85 supervising the slaughter procedure, according to
                      Shari’a.
          For foodstuffs, products must be labelled, in Arabic and another language, showing
                  •   Country of origin
                  •   Commodity name, grade and kind
                  •   Name of importer and address
                  •   Production date, expiration date
                  •   Mode of production – for products to be prepared before utilisation
                  •   Components included and proportions thereof
                  •   Mode of preservation and storing conditions
                  •   Net gross weight according to type of commodity
                  •   Additives, preservatives or upgrading materials
      •   Importers of animal products are required to provide:
                  •   Islamic Slaughter Certificate;
                  •   Veterinary certificate confirming country of origin and that any animal
                      used in the making of the product was examined before and after
                      slaughter, and is free from contagious disease;
                  •   Certificate of origin showing: name of exporting country, number of
                      parcels, type of meat, date of inspection, product and expiration dates,
                      name of exporter, port of entry, name of consignee.
                  •   For frozen meat, a further certificate, confirming that the temperature of
                      –18Co was maintained before export and that each piece was wrapped in
                      accordance with accepted international standards.




      82
           The import price/value remains higher than international market price for non-quota imports of sugar. Domestic production
           of sugar is heavily subsidised.
      83
           Egyptian standards are designed and implemented by the Egyptian Standards Authority and the General Organisation for
           Export and Import Control (GOEIC), see Section 1. and Section 7.5
      84
           For example, Egypt requires that imported beef consumption should have less than 7% fat, a level not usually obtained. For
           frozen beef for direct consumption the fat content should be less than 7%, and have an expiration date of 9 months from
           slaughter. For frozen beef for further processing the fat content level is less than 20% and the expiration period 6 months.
      85
           The Quarter must be approved by the Egyptian Commercial Office in the country of origin.




134   Egyptian Processed Food Sector Review
      •     A maximum validity period is imposed for all foodstuffs eligible for sale in Egypt. If
            only one half of the validity period is remaining then the foodstuff should not be
            permitted for human consumption.
7.5   Initiatives to improve customs procedures

      In 1999 the Egyptian Government established a register of trustworthy
      importers/exporters, who proved reliable in trading products in conformity with Egyptian
      specifications. Inclusion in the register, held by GOIEC, entitles speedier external
      controls on product quality based on declarations of the producer/importers. While
      random checks will continue to be carried out the deregulatory nature of the measure is
      likely to streamline customs procedures.

      Presidential Decree No 106 (April 2000) transferred the administrative authority of food
      inspection to Egyptian Standards Organisation and the General Organisation for Export
      and Import Control (GOEIC). This initiative simplified a system under which as many as
      four separate ministries86 were entitled to draw samples from products for testing.
      Exporters (and importers) to Egypt have in the past complained heavily about testing
      procedures in Egypt under which separate ministries may require different tests, resulting
      in supplementary delays and costs: delays at point of entry, taking of large sample for
      testing, charges for laboratory tests, storage and penalty charges etc.; there are also cases
      where goods have deteriorated following excessive delays and then been denied entry87.
      Article 1 of Decree No 106 specifies that inspection of all exports and imports that are
      subject to control procedures should be conducted solely under GOEIC supervision;
      further, the concerned authorities shall conduct the process simultaneously. Similarly,
      GOEIC was made the sole authority to which certificates required for imported food
      products need to be submitted88.

      In July 2001 the Egyptian Customs Authority officially announced beginning
      implementation of the invoice-or transaction value based procedures in accordance with
      the WTO valuation agreement. The system is not yet being implemented. (see Section 7.4
      – Non Tariff Barriers for more comments on valuation procedures)




      86
           Radiation Department of the Ministry of energy and Electricity; Ministry of Health; Ministry of Agriculture (Veterinary Office);
           Ministry of Supply (Import and Export Control).
      87
           Source: United Nations, ibid footnote 63.
      88
           at the same time, GOEIC will not issue a release certificate unless all authorities (e.g. Ministry of Health, Ministry of
           Agriculture etc.) approve the consignment.




      Egyptian Processed Food Sector Review                                                                                            135
 8 Egyptian legal and regulatory environment of
   the FPI



8.1   Legal standards

      Egyptian standards are designed and implemented by 2 organisations:
      •   Egyptian Organisation for Standardisation and Quality Control (EOS);
      •   General Organisation for Export and Import Control (GOEIC).
      The former has to enforce requirements and standards for imported and domestic
      products; the latter inspects imported and exported goods.

      Most Egyptian standards on foods are mandatory, especially technical standards that
      relate to health and safety. However, some mandatory standards relating to quality
      aspects move beyond restrictions imposed for health and safety reasons (e.g. fat content
      in meat or brix on fruit juice). It is questionable whether such standards need to be
      mandatory, and could not be replaced by voluntary industry standards.

      Under the Quality Control Plan (Presidential Decree 42/2003) Egyptian standards are to
      be harmonised towards international standards (for food: CODEX). IMC, contracted EOS
      to update the some 3400 identified standards and upgrading them to a high level of
      conformity with international standards where necessary. This programme of updating
      existing standards is being implemented over the next 2 years these standards and the
      intention is that those for food should be harmonised by the end of 2004. In 2005, another
      project will finance the placing EOS standards on a website.

      The upgrading of EOS compulsory food standards (195 standards) was declared to be
      completed on Dec. 1st 2004. Those 195 standards were given priority since they directly
      affect consumer health & food safety in addition to the fact that the updating of these
      standards is expected to have a positive effect on increasing exports of value added foods,
      which will now be compatible with Codex Alimentarius and EU import standards.
      Eighteen specialized committees were formed, each comprising 15 experts: Chamber of
      Food Industries, ministries and regulatory authorities, food processing companies,
      universities and research centres and also Consumer protection agencies. The main
      targets of the updating are:
          1. Enable exported Egyptian processed foods to be compatible with world market
               demands and at same time to be competitive with imported foods in the local
               market.
          2. Permit processors to be innovative and to develop new products to satisfy export
               demand without compromising food quality & safety aspects and without being
               restricted with other unrelated aspects such as Salt & Sugar content or flavours,
               provided it is permitted for food use and is declared on the label to protect
               consumers rights.


      Egyptian Processed Food Sector Review                                                   137
                  3. Defining the basic prerequisites for food quality, safety and environmental
                     aspects and clarifying which conditions of violations are punishable by law and
                     which that are not.

            The new context will be explained in new Ministerial decrees which are currently being
            formulated by the Minister of Foreign Trade and Industry (MFTI) and will be issued
            soon89.

            Egyptian authorities recognise foreign standards only when there is no Egyptian standard
            for the goods or products concerned. Thus all manufacturers and importers are required to
            abide by Egyptian product standards. In cases where no mandatory standards exist, the
            following standards may be acceptable90:
            •    Egyptian Product Standards (voluntary);
            •    International Standards (ISO/IEC);
            •    European Standards (EN), or in the absence of EN standards, British (BN), German
                 (DIN) and French (NF) standards may be applied;
            •    American Standards (ANS);
            •    Japanese Standards;
            •    CODEX.

            EOS has set up a language unit that specialises in translating international standards into
            Arabic and domestic standards into English, French, and German. The standards are
            published in Arabic and the original language. In case of dispute, it would appear that the
            original language prevails.


      8.2   Regulatory conformity assessment

            As noted above GOIEC has responsibility for supervising inspection of imported and
            exported goods.

            EOS has responsibility for checks on factories to make sure that systems are in place to
            meet (Egyptian) standards. According to IMC, about 650 factories have been identified in
            the food sector that should apply existing/new standards. Further, IMC will finance
            projects to do ‘gap’ analysis to check if a factory has appropriate quality systems to apply
            relevant standards. Where minor problems are identified EOS will provide assistance.
            Where major problems are identified, EOS contacts IMC who will recruit a consultant to
            assist in dealing with the problem.

            Egyptian food manufacturing companies, whether they produce for the domestic and/or
            export market, are subject to spot checks by officials from the Ministries of Health,
            Ministry for Agriculture, Ministry of Supply and the Industry Control and Chemical
            Administration of the Ministry of Industry.


            89
                 Source: MFTI and EOS (December 2004).
            90
                 In the absence of an Egyptian or international standard, authorities will often refer to the Analysis Certificate accompanying
                 the product.




138         Egyptian Processed Food Sector Review
Figure 8.1   Schematic representation of regulatory control of the Egyptian FPI


                                                        Ministry of Foreign Trade
                                                          and Industry (MOFTI)




                       Foreign Trade                                                                 Industry




                                                                                                  Egyptian                   Industrial Control
                  General Organisation for                   Chemical Authority
                                                                                              Organisation for                   Authority
                  Export & Import Control                                                   Standardisation and
                          (GOEIC)                            Control of laboratories
                                                                                            Quality Control (EOS)          Inspection of factories
                                                                   for testing
                                                                                                                             for compliance with
                Control of imports and                                                       Issue of standards,               EOS standards,
               exports for compliance to                                                    Control of laboratories        Collection of samples
              EOS; Collection of samples                                                          for testing                     for testing
                       for testing



                    Ministry of Supply and
                                                                      Ministry of Power and                             Ministry of Health
                        Internal Trade
                                                                              Energy
                    Inspection of markets and
                                                                  Inspection of imports (radiation
                  retailers, sample collection for
                                                                              control)
                   check on commercial fraud,
                                                                                                                      Food Control Authority
                     shelf life, weight, labelling
                              compliance
                                                                                                                     Inspection of factories for
                                                                                                                    compliance with food health
                                                                                                                         laws and decrees.
             Note: Additional controls are undertaken by:                                                         Control of imported foods at port
             Ministry of Social Insurance (w orkers coverage),                                                      of entry (sample collection)
             Ministry of Labour (w orkers' disputes),
             Ministry of Finance (sales tax, corporate tax, customs), and
             Ministry of Interior (civil defence, fire dept.)




     8.3     Voluntary standards

             Although regulatory agencies in developed countries do not formally require foreign
             exporters to be HACCP91- or ISO92-certified, governments and importers alike definitely
             recommend the application of a recognised, rigorous and systematic quality control
             system during production. Many established producers in Egypt have attempted to adopt
             HACCP and are aware of its ability to detect contamination at many production stages93.
             IMC and UNIDO, as well as other donors, have offered financial support to upgrade
             Egyptian food processors and fresh produce packers to HACCP standard by bearing 85%
             of the cost of consultation and training. However, only 30 processors out of 300 listed
             (10%) have applied.


             91
                    Hazard Analysis and Critical Control Point.
             92
                    International Organization for Standardization.
             93
                    Source: United Nations, ibid footnote 63




             Egyptian Processed Food Sector Review                                                                                   139
      Table 8.1   Egyptian food processors with existing HACCP (39 companies)

                   Americana (Egyptian Canning Co.)                    Heinz
                   Basma                                               Imtenan for Trading and Exporting
                   Blue Nile                                           International Aromatics
                   Daltex Imbasco Co.                                  Koki (Cairo Poultry)
                   Domty – Halibo                                      MAFA – Maghraby – MAFA Organic
                   Dreem                                               Mass Food – Temmy’s – Nutssy
                   Egyptian Canning Company                            Meshreq
                   El Farasha Pasta                                    Misr Café Co.
                   El Misrieen                                         Nestle Egypt Co
                   El Salheya – New Salheya Olive                      Nile Fruit-Pulp
                   Enjoy                                               Roasty
                   Faragalla                                           Seclam Dairy Processing
                   Farm Frites                                         Sekem – ISIS – Hator – Libra
                   Fine Foods                                          Shinnawy
                   Golden State Foods – G.S.F                          SONAC
                   Green Land for Dairy Products                       SONUT - Schweppes
                   Green Valley                                        Spice Land
                   H.A. Sultan Farm Co. Ltd                            Unifood
                   Halwani Brothers                                    Vitrac
                   Herrawi Group – Froca, Misr for Rice and Herrawi
                   Source: ALEB and Study Team


                  The study team estimates the number of Egyptian food-processing companies that have
                  introduced HACCP systems in various degrees of implementation but are awaiting
                  certification audits to be around 100 companies.




140               Egyptian Processed Food Sector Review
9 Industry opinions on key constraints faced by
  the Egyptian FPI



  This analysis presents the issues identified through interviews and discussions with the
  selected sample of EFPI companies. The main burdens affecting Egyptian food
  processing companies are summarised in the following box.

   Tax Burdens:
            •   10% Sales Tax on all imported ingredients and raw materials (except fresh foods,
                fresh and locally procured milk and honey);
            •   10% Sales Tax on imported and locally made production lines and machinery;
            •   45% Corporation Tax;
            •   38% Tax on food export subsidy.
   Financial Burdens:
            •   15-17% interest rate on commercial loans;
            •   100% coverage of L/C (letter of credit) value in advance to purchase imported
                materials or machinery;
            •   Instability of foreign exchange rate / unavailability of foreign currency.
   Legislative Burdens:
            •   Multiplicity of regulatory agencies, inspection authorities etc. requiring multi-sampling
            •   Labour Law (new fund);
            •   Export revenue exchange law – cancelled end of 2004;
            •   Social security penalties and expenses.
   Logistical Burdens:
            •   Expensive port fees, clearance delays, demurrage expenses;
            •   High rates for transport (air, sea and land – especially for reefers);
            •   Unreliable local trucking (frequent loss of cargo).
   Other Burdens:
            •   Cost of utilities (power, land, water and fuel);
            •   Cost of export marketing (fairs and exhibitions);
            •   Technical Barriers to Trade in EU and other markets requiring expensive certification
                (Euro GAP, ISO, HACCP, BRC, traceability, bar coding etc.);
            •   Cost of certifying import documents from Egyptian Embassies abroad;
            •   High costs of analysis and testing in R&D/Testing centres and labs in Egypt;
            •   Cost of getting accurate and dependable data and statistics required for planning
                and strategy etc.;
            •   Cost of resources (raw material prices increased by an average 18% in the last year
                following devaluation).


  Among the demands, and issues raised by Egyptian FPI companies, the following may be
  highlighted:


  Egyptian Processed Food Sector Review                                                              141
       Subsidies and Duties
      •   38% Tax on export Subsidy should be cancelled.
      •   Export subsidy on Citrus was cancelled.
      •   Truck import Tariff has been reduced from 40% to 5% on CIF value to support fleet
          upgrading through import of new trucks, however the import condition of same year
          make (no used trucks are allowed for import) prevails, which makes truck dealers
          import cut down truck bodies, cabins, chassis & Engines, then re-assemble it in
          country which results in a “Frankenstein” fleets of trucks that are often out of service
          and for which it is often extremely difficult to obtain spare parts.

      Furthermore, the new cabinet has raised the subsidized prices of Diesel fuel for 0.40
      LE/litres to 0.60 LE/litres (a 50% increase) which translates to a 30% increase in trucking
      rates between farms & factories and between factories & ports also between packaging
      plants & processors. In addition, the increasing cost of potable water (increased by 40%
      in November 2004) has also raised cost to the Egyptian FPI, for which water is a key
      ‘ingredient’ in food processing (i.e. beverages, dairy and juice manufacturing).

      National Social Insurance Authority (NSIA)
      In addition to the general bureaucracy, excessive paper work and delays in getting
      workers registered in NSIA, the majority of EFPI interviewed admitted that they do not
      register all the workers they employ to avoid paying out dues & penalties for late
      subscriptions, for example the penalty for late remittance of monthly subscriptions has
      been raised (unconstitutionally) to 3% interest per month which translates into 36% per
      annum and when compounded reached 45-50%.
      The legal Authority of the NSIA inspectors allows them to raid plants anytime to count
      workers (including temporary Labour & trainees) and crosscheck them with records and
      decide penalties.

      Legislations
      Establishing an Egyptian Organization or Committee similar to the European Food Safety
      Commission or the US FDA, comprising all Egyptian legislators (EOS, Health, Agric.,
      Food Supply, Export as well as Reps. Of Food Chambers and private biz) abiding to
      Codex standard and guided by a Unified Food Law (currently under study by IMC &
      CFI), benefiting from both EU & US experience.

      Training
      EFPI needs training on all aspects of:
      •   Food Processing;
      •   Quality Management Program (ISO, TQM, QMS);
      •   Food Safety Programs (HACCP / GMP / GHP / PEST CONTROL / BAR CODING
          etc…);
      •   Traceability;
      •   Bioterrorism Law (US);
      •   Packaging;
      •   Labelling;
      •   Euro Gap;
      •   Post Harvest;
      •   BRC;


142   Egyptian Processed Food Sector Review
•   Logistics;
•   Cold Chain;
•   Cost Control;
•   Export Documentation;
•   Warehouse Management systems;
•   Inventory Management systems;
•   Order Management systems;
•   Transport Management;
•   Freight & Fleet Management;
•   Work Load & Labour Management;
•   Customer satisfaction.

Many of these training programs are on going with support from various donors (USAID
– IMC/EU – GTZ – JAICA – DANIDA) but needs to be continued due to seasonal
workforce nature of Agrifood Sector.




Egyptian Processed Food Sector Review                                             143
10 “Competitiveness” opinion survey of Egyptian
   FPI enterprises



10.1   Introduction

       Under the local assessment component of the study, local food process companies have
       been requested to complete a questionnaire relating to various factors that influence their
       competitiveness. This questionnaire was developed in the initial phase of the project and
       covers the following main themes:
       •  Human Resources;
       •  Labour market conditions;
       •  Training and technical support;
       •  Technology;
       •  Company Operations;
       •  Market Access (domestic);
       •  Market Access (international);
       •  Transport infrastructure;
       •  Industrial Infrastructure;
       •  Administrative (legal & regulatory) environment.

       The questionnaire, completed by a senior company manager, asks enterprises to give their
       opinions for each factor (with a ranking from 1 to 5) on:
                 1. The current situation in Egypt as it affects companies within their sector,
                    using a score of: 1 (poor) to 5 (excellent)
                 2. The importance at the current time of the factor in determining or influencing
                    the competitiveness of companies within their sector, using a score of: 1 (not
                    important) to 5 (extremely important)
                 3. The importance in the future94 of the factor in determining or influencing the
                    competitiveness of companies within their sector, using a score of 1 (not
                    important) to 5 (critical).

       In total, completed questionnaires were provided by 13 enterprises. The survey was
       carried out in April-May 2004. The distribution by sector of these companies is as
       follows:




       94
            Taking into account likely changes in the business environment (e.g. trade liberalisation and market openness, changing
            customer demands, etc.).




       Egyptian Processed Food Sector Review                                                                                      145
              Sector                                                     Number of companies
              Processed (canned, bottled) fruit and vegetables                     2
              Frozen fruit and vegetables                                          2
              Processed fruit & vegetables (not frozen)                            1
              Dairy products and juices                                            1
              Olive oil                                                            2
              Other edible oils                                                    1
              Breakfast cereals                                                    1
              Ethnic products                                                      1
              Food conglomerate                                                    2
              Total                                                                13




      10.2   Evaluation of current situation in Egypt

             Table 10.1 and Table 10.2 show those factors for which, on the basis of the opinions of
             the surveyed companies, obtain the highest and lowest average scores.

             With regard to the factors obtaining the highest average scores, the following features
             stand out:
             •   Companies express a high opinion with regard to the quality of Egyptian products
                 and to the technological level of production compared to standards in the region (Gulf
                 States, Turkey). To a slightly lesser extent, the quality of products compared to world
                 standards also obtains a good average score.
             •   The situation with regard to the availability of labour, both unskilled and at
                 management-administrative level (and to a lesser extent, engineers, scientific and
                 technical workers) does not appear to be a problem. While the situation with regard to
                 labour relations (strikes) is also ranked highly.
             •   Company attitudes to and level of health & safety standards are rated very highly.

             With regard to the factors obtaining the lowest average scores, the following features
             stand out:
             •   The situation with regard to technological aspects is ranked consistently as being
                 poor, not only as concerns availability of finance for new technological investments
                 but also with respect to technical co-operation issues and access to technical and
                 research centres.
             •   The administrative burden, and the efficiency of public administrations and
                 procedures stand out as being a key concern. This is reinforced by factors specifically
                 related to import activities and customs.
             •   The situation with regard to maritime and air freight costs also appears to be a
                 problem. Also, within Egypt, the situation regarding costs of transport and quality of
                 the transport infrastructure obtains only a low average score.




146          Egyptian Processed Food Sector Review
Table 10.1   Highest scoring factors for the current situation in Egypt

              Rank       Factor                                                                                         Score   Number
                                                                                                                                of obs.
              1          The level of health and safety standards observed by companies                                 4.2     13
              1          The attitude of companies to improving health and safety standards                             4.2     13
              3          The rate of strikes and labour disputes                                                        4.1     13
              3          The quality of products produced compared to standards in the Gulf States                      4.1     13
              5          The quality of products produced compared to standards in Turkey                               4.0     11
              6          The availability and quality of un-skilled workers                                             3.7     13
              7          The technological level of production compared to standards in the Gulf States                 3.6     13
              8          Labour productivity, compared to standards in the Gulf States                                  3.4     13
              8          The attitude of companies to marketing                                                         3.4     13
              8          Availability of locally producer (Egyptian) raw & primary materials                            3.4     13
              11         The technological level of production compared to standards in Turkey                          3.4     11
              12         The quality of products produced compared to world standards                                   3.3     12
              13         The use of new communication in company operations and management systems.                     3.3     13
              13         Growth in demand for the sectors products (within Egypt)                                       3.3     13
              15         The availability and quality of management and administrative employees                        3.2     13
              15         Relations and interactions with retail distributors                                            3.2     13
              15         Relations and interaction with wholesale distributors                                          3.2     13
              18         The availability of engineers, scientific and technical workers                                3.1     13
              18         The level and quality of training support provided by outside organisations                    3.1     13
              18         Development of accessing new customers/new market segments (within Egypt)                      3.1     13

              Source: Author’s calculations based on questionnaire results for Egyptian FPI enterprises


Table 10.2   Lowest scoring factors for the current situation in Egypt

                     1
              Rank       Factor                                                                                         Score   Number
                                                                                                                                of obs.
              1          The efficiency of public administrations                                                       1.1     13
              1          The speed and efficiency of customs procedures                                                 1.1     13
                         The level of technical cooperation and collaboration between industry and public and private
              1          organisations                                                                                  1.1     13
              1          The level of technical cooperation and collaboration between firms                             1.1     13
              5          The cost of air freight transport                                                              1.1     12
              6          The burden of administrative procedures on domestic activities                                 1.2     13
              6          The cost of maritime freight transport                                                         1.2     13
              8          The burden of administrative procedures on investment activities                               1.2     13
              8          The cost of import duties                                                                      1.2     13
              8          The availability of finance to invest in technological improvement                             1.2     13
              11         The burden of administrative procedures on import and export activities                        1.3     13
              12         The availability of technical centres, and support for research & development                  1.4     13
              12         Employment Regulations (hiring & firing regulations, contracts of employment)                  1.4     13
              14         The attitude of public administrations to higher education and training                        1.6     13
              15         The cost of transport (within Egypt)                                                           1.8     13
              16         The quality of the transport infrastructure (within Egypt)                                     2.2     13
              16         The rate of absenteeism                                                                        2.2     13
              18         Relations and interactions with export traders operating in the sector                         2.2     13
              19         The level and quality of staff training provided by companies                                  2.3     13
              20         Labour productivity, compared to world best standards                                          2.3     12
              1.   Inverse ranking

              Source: Author’s calculations based on questionnaire results for Egyptian FPI enterprises




             Egyptian Processed Food Sector Review                                                                                   147
      10.3   Evaluation of current competitiveness factors

             Table 10.3 and Table 10.4 show, respectively, those factors receiving the highest and
             lowest average scores for their importance in determining or influencing the current
             competitiveness of firms in the food-processing sector. Overall, in the opinion of the
             surveyed Egyptian companies, the key factors influencing the competitiveness of
             Egyptian products/producers relate to the availability of raw materials, product quality,
             and markets access. This is demonstrated by the factors obtaining the highest average
             scores, for which the following features may be noted:
             •   Unsurprisingly, the factor receiving the highest average score for determining current
                 competitiveness is the availability of local raw materials.
             •   Equally, the quality of Egyptian products compared to the standards of regional
                 producers and world standards is important for determining the competitiveness of
                 Egyptian producers.
             •   Costs of maritime and air freight transport are both considered to be important in
                 determining current competitiveness.
             •   In terms of labour costs and availability, although this is not regarded as an important
                 factor with respect to un-skilled labour, Egyptian food processing companies appear
                 to consider the cost of skilled workers (engineers, scientific, technical, administrative
                 and management workers) as an important factor determining their competitiveness.
             •   The attitude of companies to health and safety standards, together with their
                 observance of these standards, is considered as important determinant of
                 competitiveness95.

             With regard to the factors obtaining the lowest average scores, the following features
             stand out:
             •   Technological cooperation and collaboration, together with public sector support to
                 promote technological improvement are not seen to be important factors influencing
                 current competitiveness. This result appears to be driven by the fact that enterprises
                 consider that the current situation for these ‘technological factors’ is very poor in
                 Egypt (see previous section) rather than the fact that they are not per se important for
                 competitiveness.
             •   Similarly, the quality and availability of specialist support services, and of technical
                 centres and support for research and development are have low average scores for
                 their impact in determining current competitiveness.
             •   Labour market conditions (labour relations, employment regulations etc.) do not
                 appear to be important factors influencing competitiveness of food processing
                 companies.




             95
                  This finding appears to stem from two main reasons: First, the ability to gain access to some markets that place a high
                  priority of food safety, is conditional on enterprises investing in appropriate measures (HACCP, BRC, EuroGap, etc.). In
                  turn, an enterprise may be able to invest more securely in new production lines, for example, if it is sure that appropriate
                  certification will enable it to enter markets and hence increase production (export) volumes. Secondly, the need to upgrade
                  facilities to comply with HACCP, or other quality control systems/standards, translates into higher initial costs that affect
                  competitiveness.




148          Egyptian Processed Food Sector Review
Table 10.3   Highest scoring factors for determining current competitiveness

              Rank      Factor                                                                                 Score   Number
                                                                                                                       of obs.
              1         Availability of locally produced (Egyptian) raw & primary materials                    4.2     13
              2         The attitude of companies to improving health and safety standards                     4.1     13
              3         The level of health and safety standards observed by companies                         4.0     13
              3         The cost of maritime freight transport                                                 4.0     13
              5         The availability of finance to invest in technological improvement                     3.9     13
              6         The cost of air freight transport                                                      3.8     12
              7         The cost of import duties                                                              3.8     13
              8         The quality of products produced compared to standards in the Gulf States              3.7     13
              9         The quality of products produced compared to world standards                           3.7     12
              10        The quality of products produced compared to standards in Turkey                       3.5     11
                        Possibility to export: the ease with which companies can gain access to customers in
              11        markets in neighbouring countries                                                      3.5     13
                        Possibility to export: the ease with which companies can gain access to customers in
              11        ‘international’ markets                                                                3.5     13
              13        The attitude of companies to marketing                                                 3.4     12
              14        The technological level of production compared to world standards                      3.4     13
              14        The availability, quality and level of interaction with packaging suppliers            3.4     13
              16        Labour productivity, compared to world best standards                                  3.4     11
              17        The quality of the maritime transport infrastructure                                   3.3     12
              18        The cost of engineers, scientific and technical workers                                3.3     13
              18        The use of new communication in company operations and management systems.             3.3     13
              20        The cost of management and administrative employees                                    3.2     13

              Source: Author’s calculations based on questionnaire results for Egyptian FPI enterprises


Table 10.4   Lowest scoring factors for determining current competitiveness

                    1
              Rank      Factor                                                                                 Score   Number
                                                                                                                       of obs.
              1         The level of support from the public sector to promote technological improvement       1.5     13
              2         The level of technical cooperation and collaboration between firms                     1.6     13
              3         The rate of strikes and labour disputes                                                1.7     13
                        The level of technical cooperation and collaboration between industry and public and
              4         private organisations                                                                  1.9     13
              5         Labour relations (co-operation between employers and employees)                        2.3     13
              5         Employment Regulations (hiring & firing regulations, contracts of employment)          2.3     13
              5         The availability and quality of un-skilled workers                                     2.3     13
              8         The quality and availability of specialists support services                           2.4     13
              8         The availability of technical centres, and support for research & development          2.4     13
              10        Relations and interaction with wholesale distributors                                  2.5     13
              10        Relations and interactions with retail distributors                                    2.5     13
              10        The attitude of public administrations to higher education and training                2.5     13
              13        The rate of absenteeism                                                                2.5     13
              14        The level and quality of staff training provided by companies                          2.6     13
              15        The attitude of companies to using outside specialists support services                2.7     13
              16        Labour productivity, compared to standards in Turkey                                   2.7     10
              17        The quality of the transport infrastructure (within Egypt)                             2.8     13
              18        The quality and availability of marketing expertise                                    2.8     12
              19        The efficiency of public administrations                                               2.8     13
              20        Labour productivity, compared to standards in the Gulf States                          2.9     11
              1.   Inverse ranking

              Source: Author’s calculations based on questionnaire results for Egyptian FPI enterprises




             Egyptian Processed Food Sector Review                                                                          149
      10.4   Evaluation of future competitiveness factors and comparison with
             current situation

             Table 10.5 shows the highest scoring factors in terms of their importance for determining
             or influencing future competitiveness. Also shown is the corresponding score for the
             current situation.
             From the table, the following features stand out:
             •     Among the factors identified as being important for determining future
                   competitiveness those for which the current situation in Egypt is viewed as being
                   particularly poor (i.e. average score less than 2) and that, therefore, may present a
                   serious handicap to the future competitiveness of Egypt’s FPI are:
                   •   The cost of maritime freight transport and the cost of air freight transport;
                   •   The availability of finance to invest in technological improvements;
                   •   The cost of import duties96 and the burden of administrative procedures on import
                       and export activities.
             •     Other factors viewed as important for future competitiveness, for which the current
                   situation – although not poor – is not particularly favourable (i.e. average score above
                   2 but less than 3) are:
                   •   The technological level of production compared to world (best) standards;
                   •   Ease of access to neighbouring and ‘international’ markets;
                   •   The cost of management, administrative employees and engineers, scientific and
                       technical workers;
                   •   The quality of the maritime transport infrastructure;
                   •   Labour productivity, compared to world best standards;
                   •   The availability, quality and level of interaction with equipment suppliers.
             •     Among the factors identified as being important for determining future
                   competitiveness, those for which the current situation in Egypt is viewed as being
                   particularly good (i.e. average score above 4) and that, therefore, may provide a
                   source of competitive strength for Egypt’s FPI are:
                   •   The level of health and safety standards observed by companies, together with the
                       attitude of companies to improving health and safety standards;
                   •   The quality of products produced by Egyptian companies relative to those in
                       neighbouring countries (e.g. Gulf States and Turkey).
             •     Other factors viewed as important for future competitiveness, for which the current
                   situation – although not particularly good – is favourable (i.e. average score above 3
                   but less than 4 are:
                   •   The availability of locally produced raw and primary materials;
                   •   The quality of products compared to world (best) standards;
                   •   The availability of engineers, scientific and technical workers, and the
                       availability of management and administrative employees;
                   •   The use of new communication technologies in company operations and
                       management systems;
                   •   The attitude of companies to marketing..

             96
                  It should be noted that the survey was carried out before the recent changes to import duties.




150          Egyptian Processed Food Sector Review
Table 10.5   Highest scoring factors for future competitiveness and corresponding scores for current competitiveness and
             current situation in Egypt

                                                                                                 Future            Current     Number
                     1
              Rank       Factor                                                                  Competitiveness   Situation   of obs.
              1          The cost of maritime freight transport                                           4.2         1.2         13
                         Availability of locally producer (Egyptian) raw & primary
              2                                                                                           4.2         3.4         13
                         materials
                         The    availability   of   finance   to   invest   in   technological
              3                                                                                           4.1         1.2         13
                         improvement
                         The level of health and safety standards observed by
              3                                                                                           4.1         4.2         13
                         companies
                         The attitude of companies to improving health and safety
              3                                                                                           4.1         4.2         13
                         standards
              6          The cost of air freight transport                                                3.8         1.1         12
              7          The cost of import duties                                                        3.8         1.2         13
                         The quality of products produced compared to standards in the
              8                                                                                           3.7         4.1         13
                         Gulf States
              9          The quality of products produced compared to world standards                     3.7         3.3         12
                         The technological level of production compared to world
              10                                                                                          3.6         2.8         12
                         standards
                         The quality of products produced compared to standards in
              11                                                                                          3.5         4.0         11
                         Turkey
                         Possibility to export: the ease with which companies can gain
              12                                                                                          3.5         2.8         13
                         access to customers in markets in neighbouring countries
                         Possibility to export: the ease with which companies can gain
              12                                                                                          3.5         2.8         13
                         access to customers in ‘international’ markets
              14         The availability of engineers, scientific and technical workers                  3.5         3.1         13
                         The availability, quality and level of interaction with packaging
              14                                                                                          3.5         3.0         13
                         suppliers
                         The use of new communication technologies in company
              16                                                                                          3.4         3.3         12
                         operations and management systems.
              16         The attitude of companies to marketing                                           3.4         3.4         12
              18         The cost of management and administrative employees                              3.4         2.8         13
                         The availability and quality of management and administrative
              19                                                                                          3.3         3.2         13
                         employees
              19         The cost of engineers, scientific and technical workers                          3.3         2.8         13
              19         The quality of the maritime transport infrastructure                             3.3         2.5         13
              22         Labour productivity, compared to world best standards                            3.3         2.3         10
                         The attitude of companies to innovation and product
              23                                                                                          3.3         3.0         12
                         development
                         The availability, quality and level of interaction with equipment
              24                                                                                          3.2         2.8         13
                         suppliers
                         The burden of administrative procedures on import and export
              24                                                                                          3.2         1.3         13
                         activities

              Source: Author’s calculations based on questionnaire results for Egyptian FPI enterprises




             Egyptian Processed Food Sector Review                                                                                     151
      10.5   Conclusions

             Overall, although it is necessary to recognise the small sample of enterprises covered, a
             reasonably consistent picture emerges nonetheless with regard to the current situation in
             Egypt and competitiveness factors.

             On the one hand, Egyptian food processing companies consider themselves to be well
             placed in terms of the quality of their products vis-à-vis those of competitors in the region
             (and to a lesser extent ‘world’ standards). Moreover, the availability of key skilled
             workers does not appear to be a problem; although there is some concern over labour
             costs for these workers. On the other hand, there appears to be a perception that
             enterprises are handicapped by inadequacies in the supporting environment in which they
             operate. In this respect, certain specific cost items such as maritime and air transport,
             together with import and export duties and procedures can be identified as important
             constraints. Accordingly, the recent actions by the government to reduce customs duties
             and steps to improve administrative efficiency should be viewed positively.

             A further area that should be of concern to public policy makers, however, is that of
             technical support and cooperation. In an environment in which innovation is a key
             mechanism for achieving competitive advantage and from escaping from the inevitable
             downward price pressure of low value-added product segments, it is striking that all
             aspects of technical/technological cooperation and collaboration and support score very
             lowly with regard to the current situation in Egypt. It appears that the absence of
             ‘technical networks’ is such that Egyptian food processing companies do not even
             consider that they are important for determining their current or future competitiveness.
             Yet, given an industrial structure characterised by small and medium-sized enterprises,
             such networks would normally be considered as important for both process and product
             innovation. It is equally noticeable that, whereas technical networks are not considered
             important, the availability of finance to invest in technological improvements is both
             identified as one of the most important factors for future (and current) competitiveness,
             and is also one of the factors for which the situation in Egypt is particularly poor. Taken
             together, these findings suggests that Egyptian companies recognise the need for
             investments in technological improvement, but that this is very much at an individual
             company level, rather than part of a industry-wide strategy of technological development.




152          Egyptian Processed Food Sector Review
IV        Benchmarking Analysis




 Egyptian Processed Food Sector Review   153
      1 Summery of Main Findings




            This document provides an assessment of the situation of the Egyptian Food Processing
            Industry (FPI) relative to 5 countries: Morocco, Turkey, South Africa, Spain and China.
            Specific attention is given to the following product groups: cheese, fruit juices, processed
            vegetables (for which tomato products and frozen vegetables are covered), and olive
            products. The choice of “benchmark” countries and product groups was made in
            consultation with the Project Steering Committee. With regard to the choice of
            benchmark countries, the following comments may be made:
            •   Morocco and Turkey represent regional competitors from the MENA region.
            •   South Africa, likewise, is the major FPI competitor in sub-Saharan Africa.
            •   China, with its grow position in global food trade, represents a major competitor and
                potential threat in global markets.
            •   Spain, can be considered as an international role model.

            The following main findings can be drawn from the analysis:
                 1. Relative to its overall land area and population size, Egypt has a much lower
                    availability of arable land. In turn, this lack of arable land is reflected in a
                    substantial negative trade balance in processed food for Egypt, whereas the other
                    benchmark countries are all net exporters of processed food (with the exception
                    of Morocco that has a small negative trade balance). Consequently, the share of
                    Egyptian exports of processed food relative to output is the lowest among the
                    benchmark countries for which comparable data is available.

Table 1.1   Processed food: trade position indicators for 2002

                                                       Egypt       Morocco         Turkey         S. Africa       Spain         China
            Value of exports ($ million)                 190             465           1,555           1,020          8,426     7,522
            Value of net exports ($ million)          -1,043              -44           572             242            159      3,685
            Per capita exports ($/inhabitant)             2.8            16.4           23.4           156.8          212.6       5.9
            Share in world markets                    0.08%         0.19%          0.63%              0.41%       3.39%         3.03%
            Source: ITC calculations based on COMTRADE of UNSD


Table 1.2   Exports as a share of output, %
                                                                 Egypt     Morocco         Turkey        S. Africa      Spain    China
                                                                 1998           2001           2000        1999          2000    2001
            Processed meat, fish, fruit, vegetables and fats     3.3%           25.9%          22.4%           N.A.     25.1%     N.A.
            Dairy products                                       1.1%            3.9%           2.9%           N.A.      8.2%     N.A.
            Source: UNIDO




            Egyptian Processed Food Sector Review                                                                                  155
                    2. Despite the relative low level of exports of the Egyptian processed food industry,
                       it occupies a slightly more important position (in terms of its share of
                       manufactured value added - MVA) in the overall manufacturing sector than is the
                       case for the other benchmark countries. Furthermore it has been characterised by
                       the second strongest growth, after China, among these countries both in terms of
                       value added and increase in its share of world export markets.
                    3. The relatively strong growth performance of the food-processing sector comes,
                       however, from a position of relative weakness compared to the other benchmark
                       countries. Available comparable data, strongly suggests that the performance of
                       the Egyptian FPI in terms of indicators such as output per worker and value
                       added per worker is a long way short of that obtained elsewhere97. Even when
                       compared to a country such as Morocco, which has an overall level of economic
                       development similar (or below) that of Egypt this remains noticeably to be the
                       case.

Table 1.3   Food, beverages and tobacco, MVA per employee by sub-sector, $US
                                                                     Egypt     Morocco       Turkey       S. Africa      Spain       China
                                                                     1998         2001         2000         1999          2000        2001
            Total                                                    5,000        25,640      34,910         26,510      37,050       9,600
            Total (excluding tobacco)                                5,210        16,330      32,300            N.A.     36,280       7,000
            Source: Author’s calculations based on UNIDO



                    4. Furthermore, analysis of the main processed food segments98 indicates that Egypt
                       achieves the lowest share of value added (below 20%) in the total value of output
                       among the benchmark countries.

Table 1.4   Share of value added in the total value of output, %

                                                                       Egypt      Morocco       Turkey      S. Africa      Spain     China
                                                                        1998        2001         2000          1999        2000       2001
            Processed meat, fish, fruit, vegetables and fats             16%           24%         31%            N.A.       17%
                                                                                                                                        24%
            Dairy products                                               19%           26%         40%            N.A.       20%
            Notes:
            1.      China, data refer to all food processing, except beverages and tobacco

            Source: Author’s calculations based on UNIDO



                    5. ITC calculations based on the COMTRADE database, and covering the period
                       1998-2002, provide a breakdown of the relative change of world market share of
                       processed food exports for each of the benchmark countries. From this
                       breakdown, Egypt’s initial position on (geographical) markets with dynamic

            97
                 To some extent the low level of value added and the low share of output destined to export are most probably related.-
                 Typically, the greater the extent to which domestic production is destined to export markets then the closer value-added per
                 employee measured in international currency terms (i.e. $ denominated) will be to international levels. With only a small
                 share of exports in production, value added and output per employee in the Egyptian FPI will be more closely related to the
                 (low) overall levels in the domestic market
            98
                 The UNIDO data used for this analysis covers 2 broad segments: (1) processed meat, fish, fruit, vegetables and fats; (2)
                 dairy products.




            156 Egyptian Processed Food Sector Review
                       demand is found to largely account for its increase in world market share. By
                       contrast, Egypt’s initial product specialisation has had a negative effect on export
                       performance (i.e. specialisation in products with non-dynamic world demand).
                       Further, the negative estimate for the adaptation component, suggests that Egypt
                       has a poor performance in terms of shifting exports towards specific product-
                       country markets characterised by dynamic demand.
                   6. Analysis of unit values of exports enables some analysis of the positioning of
                      Egyptian exports on world markets. On the one hand, high unit values relative to
                      competing (benchmark) countries are indicative of a ‘quality premium’ for
                      Egyptian exports and, at the same time, a potential risk of competition from lower
                      cost suppliers. On the other hand, low unit values are indicative of a quality
                      shortfall and, at the same time, a potential opportunity to compete as a low cost
                      supplier. Overall, the probable strategy should be to seek to maintain Egypt’s
                      quality advantage in (relatively) high unit value exports, while seeking to raise
                      the unit values (quality) of products for which Egypt is a low cost/quality
                      supplier.
                       Analysis of COMTRADE data indicate that Egypt is positioned very much as a
                       low cost/quality supplier for cheese products, mixed frozen vegetables, olive oil,
                       olive products and preserved tomatoes. By contrast, Egypt is a high cost/quality
                       supplier of fruit juices99, frozen vegetables (especially potatoes and ‘other
                       vegetables), and tomato ketchup and other tomato sauces.

Table 1.5   Average unit values of selected processed food exports (index, Egypt =100)

            HS Code                                                     Egypt      Morocco       Turkey      S. Africa     Spain      China
            0406          Cheese & curd                                 100        151           174         151           187        176
            2009          Fruit Juice                                   100        116           90          90            85         84
            200980        - Fruit & veg. juice nes                      100        -             90          84            122        136
            200290        Tomatoes, prepared or preserved
                          (other)                                       100        408           105         120           138        85
            210320        Tomato ketchup and other tomato
                          sauces                                        100        78            47          55            74         62
            0710          Frozen vegetables                             100        91            68          75            99         112
            071010        - Potatoes                                    100        61            24          69            52         87
            071022        - Beans                                       100        139           85          91            116        73
            071080        - Other vegetables                            100        78            48          62            75         79
            071090        - Mixed vegetables                            100        171           181         117           237        238
            1509          Olive Oil                                     100        117           111         299           136        268
            200570        Olives – prepared or preserved                100        137           108         203           151        -
            Source: Author’s calculations based on COMTRADE




            99
                 Although this is less so the case for the main Egyptian export category of “fruit and vegetable juices nes” (HS code 200980)




            Egyptian Processed Food Sector Review                                                                                          157
      2 Basic Indicators




            Table 2.1 provides some basic information on population and national income for each of
            the benchmark countries, together with labour costs and value added estimates for
            manufacturing. It can be noted that among the benchmark countries:
            •   Egypt has the second lowest average labour costs per worker in manufacturing and
                average value-added per worker in manufacturing.
            •   If gross national income per capita is taken to be an indicator of economy wide
                productivity100, then it is striking that manufacturing productivity (value added per
                worker) relative to average economy wide productivity101 is much greater in
                Morocco, Turkey and South Africa, than for Egypt. Turkey, in particular stands out,
                as average value added per worker in manufacturing is 13 times greater than gross
                national income per capita.

Table 2.1   Basic economic indicators for benchmark countries

                                                                      Egypt      Morocco       Turkey       S. Africa     Spain       China
            Population (millions)                                         65             29          66             43         41       1,272
            Gross national income ($US billion)                         99.6           34.7       167.3         121.9      588.0      1,132.2
            Gross national income per capita ($US)                     1,530         1,190        2,530         2,820     14,300             890
            PPP gross national income ($US billion)                      232            102         386           472         816       5,027
            PPP gross national income per capita ($US)                 3,560         3,500        5,830        10,910     19,860        3,950


            Labour cost per worker in manufacturing ($
            per year)                                                  1,863         3,391        7,958         8,475     19,329             729
            Value added per worker in manufacturing ($
            per year)                                                  5,976         9,089      32,961         16,612     47,016        2,885


            Ratio of labour cost per worker in                          1.22           2.85        3.15          3.01        1.35        0.82
            manufacturing to gross national income per
            capita
            Ratio of value added per worker in                          3.91           7.64       13.03          5.89        3.29        3.24
            manufacturing to gross national income per
            capita
            Source: World Bank: World Development Indicators 2003 and author’s calculations




            100
                  Caution should be exercised in making this interpretation since a correct estimate of average labour productivity should
                  adjust for the proportion of the working population within the total population.
            101
                  As shown by the ratio of value added per worker in manufacturing to gross national income per capita.




            Egyptian Processed Food Sector Review                                                                                            159
            Table 2.2 shows some basic indicators related to the availability of agricultural land and
            agricultural productivity. What is most evident is that Egypt’s situation with respect to the
            availability of arable land relative to population size, for which Egypt has only 0.05
            hectares of arable land per capita. This is half of the figure for China and one sixth to one
            eighth of the figure for the other benchmark countries.

Table 2.2   Basic agricultural indicators for benchmark countries

                                                                   Egypt       Morocco         Turkey       S. Africa       Spain       China
            Land Area (thousand sq. km)                                995             446           770          1,221         499      9,327
            Arable land (% of land area)                                2.8           19.6           31.4          12.1        26.7        13.3
            Permanent cropland (% of land area)                         0.5             2.2           3.3            0.8        9.8         1.2
            Irrigated land (% of cropland)                           100.0            13.2           16.7            8.9       19.9        39.6
            Arable land – hectares per capita                         0.05            0.31           0.38          0.35        0.34        0.10
            Agricultural productivity (US$ constant
            1995)                                                    1,324           1,512          1,852         3,837     22,088          334
            Source: World Bank: World Development Indicators 2003


            Table 2.3 provides information on the urbanisation rate, identified as one of the key
            factors influencing the development of the food-processing sector, in selected
            Mediterranean countries. Egypt is noticeable both for the low level of urbanisation
            compared to other Mediterranean countries and also for the low rate of increase in the
            share of the population in urban areas. In 1960 the share of the population living in urban
            areas was lower in Turkey, Tunisia and Morocco than in Egypt. These countries have,
            however, seen substantial increases in the rate of urbanisation, most notably in Turkey
            where the share has more than doubled from 31% to 73%.

Table 2.3   Urbanisation rates in selected Mediterranean countries

                                                      Urbanisation rate (% of the population)                      Percentage change in
                                                           1960                               1998                    urbanisation rate
            Spain                                           57                                 77                              35
            France                                          63                                 75                              19
            Turkey                                          31                                 73                              135
            Tunisia                                         37                                 64                              73
            Morocco                                         30                                 54                              80
            Egypt                                           38                                 45                              18
            Portugal                                        22                                 37                              68
                                         102
            Source: Médagri (2000)




            102
                  As reported in M. Padillla, G. Ghersi « Le marché international du lait et des produits latiers » in Options Méditerranéennes,
                  Sér. B / no 32, 2001 – Les filières et marchés du lait dérivés en Méditerranée.




            160 Egyptian Processed Food Sector Review
            3 General overview of FPI in benchmark
              countries



    3.1      Value-added and employment

             Table 3.1 shows the share of the food, beverages and tobacco sector in total manufactured
             value added for each of the benchmark countries, together with average annual growth
             rates in value added for the period 1992-2002. The food-processing sector in Egypt has
             the highest share in manufactured value added among the benchmark countries103 and
             fastest growth during the period 1992-2002.

Table 3.1    Food, beverages and tobacco, share in manufactured value added (MVA) and growth in value added

                                                                        Egypt      Morocco       Turkey       S. Africa     Spain      China
             Share in manufactured value added, 2002, (%)                 17.1           16.7        15.8          15.9       16.5       N.A.
             Average annual growth rate, 1992-2002, %                       7.0           3.6          3.5           0.4       1.5       N.A.
             Source: UNIDO


             Table 3.2 and Table 3.3 provide a breakdown of manufactured value added (MVA) by
             sub-sector of the food-processing sector. Among the benchmark countries, Egypt is
             shown to have the smallest food-processing sector in terms of total MVA104. In terms of
             the composition of MVA by sub-sector, the share of the dairy sector is lowest and that of
             “other food products” is highest in Egypt when compared to the other benchmark
             countries.

             Table 3.4 and Table 3.5 provide a breakdown of employment by sub-sector of the food-
             processing sector. Despite having lower value added, the level of employment in food
             processing in Egypt is greater than in Morocco, Turkey and South Africa. In terms of the
             composition of employment by sub-sector, the share of the “processed meat, fish, fruit,
             vegetables, and fats” and the share of the dairy sector are lowest in Egypt, while the share
             of employment in “other food products” is highest in Egypt when compared to the other
             benchmark countries.




             103
                   Date for china are not available.
             104
                   Allowance should be made for differences in the year of available data. The size of the food processing sector (measured
                   by MVA) of Egypt is probably on a par with that of Morocco; although, at the same time, the population of Morocco is less
                   than half that of Egypt and it’s gross national income is approximately only one third of that of Egypt.




             Egyptian Processed Food Sector Review                                                                                        161
Table 3.2   Food, beverages and tobacco, breakdown of MVA by sub-sector, $US million

                                                             Egypt      Morocco       Turkey    S. Africa       Spain   China
                                                             1998        2001          2000       1999          2000     2001
            Processed meat, fish, fruit, vegetables, fats      248          302         1,621         644       3,540
            Dairy products                                         63       138          412          292       1,252
                                                                                                                        16,873
            Grain mill products; starches; animal feeds        151          183          526         N.A.         976
            Other food products                                496          155         1,552        N.A.       3,519
            Beverages                                          204          228          879                    3,161    7,763
                                                                                                    1,837
            Tobacco products                                       41       635         1,063                     543   13,206
            Total of above                                   1,203         1,641        6,053       2,773      12,991   37,842
            Notes:
            1.   Egypt, data for tobacco products refers to 1997
            Source: UNIDO


Table 3.3   Food, beverages and tobacco, breakdown of MVA by sub-sector, share of total MVA (%)

                                                            Egypt       Morocco       Turkey    S. Africa      Spain    China
                                                            1998         2001         2000        1999         2000     2001
            Processed meat, fish, fruit, vegetables, fats    20.6%        18.4%        26.8%      23.2%        27.2%
            Dairy products                                   5.2%          8.4%        6.8%       10.5%         9.6%
                                                                                                                        44.6%
            Grain mill products; starches; animal feeds     12.6%         11.2%        8.7%         N.A.        7.5%
            Other food products                             41.2%          9.4%       25.6%         N.A.       27.1%
            Beverages                                       17.0%         13.9%       14.5%                    24.3%    20.5%
                                                                                                  66.2%
            Tobacco products                                 3.4%         38.7%       17.6%                     4.2%    34.9%
            Total of above                                  100.0%       100.0%       100.0%     100.0%        100.0%   100.0%
            Notes:
            1.   Egypt, data for tobacco products refers to 1997
            Source: Author’s calculations based on UNIDO


Table 3.4   Food, beverages and tobacco, breakdown of employment by sub-sector, thousand employees

                                                             Egypt      Morocco       Turkey     S. Africa      Spain   China
                                                             1998         2001         2000        2001         2000     2001
            Processed meat, fish, fruit, vegetables, fats      43.8         20.9         53.5         55.1      125.7
            Dairy products                                      8.1             8.7       8.5         20.9       25.9
                                                                                                                        2570.0
            Grain mill products; starches; animal feeds        37.0         19.2         15.4         27.4       20.5
            Other food products                               114.1             8.5      66.0         53.4      127.7
            Beverages                                          20.2             4.3      11.1         26.5       43.3    950.0
            Tobacco products                                   17.4             2.4      18.9            2.1      7.5    247.0
            Total of above                                    240.7         64.0        173.4        185.4      350.6   3941.1
            Source: UNIDO




            162 Egyptian Processed Food Sector Review
Table 3.5   Food, beverages and tobacco, breakdown of employment by sub-sector, share of total employment (%)

                                                            Egypt    Morocco    Turkey    S. Africa   Spain     China
                                                            1998      2001      2000        2001      2000      2001
            Processed meat, fish, fruit, vegetables, fats    18.2%     32.7%     30.9%      29.7%     35.9%
            Dairy products                                   3.4%      13.6%     4.9%       11.3%       7.4%
                                                                                                                65.2%
            Grain mill products; starches; animal feeds     15.4%      30.0%     8.9%       14.8%       5.8%
            Other food products                             47.4%      13.3%    38.1%       28.8%     36.4%
            Beverages                                        8.4%       6.7%     6.4%       14.3%     12.4%     24.1%
            Tobacco products                                 7.2%       3.8%    10.9%         1.1%      2.1%     6.3%
            Total of above                                  100.0%    100.0%    100.0%     100.0%     100.0%    100.0%
            Source: Author’s calculations based on UNIDO


            From the data available in the preceding tables it is possible to estimate the average MVA
            per employee; this provides a basic indicator of productivity per employee. As shown in
            Table 3.6, with the exception of China for certain sub-sectors, estimated productivity in
            the food processing sector in Egypt is systematically below that of the other benchmark
            countries. Even allowing for differences in the years of available data across countries,
            Egypt’s performance in terms of value added per employee appears to be poor; for
            example, one can ask why a country such as Morocco with average per capita income
            below that of Egypt is able to achieve levels of MVA per employee that are 2 to 3 times
            (or even more) higher than those achieved by Egypt?

Table 3.6   Food, beverages and tobacco, MVA per employee by sub-sector, $US

                                                             Egypt   Morocco    Turkey    S. Africa    Spain    China
                                                             1998      2001      2000       1999       2000      2001
            Processed meat, fish, fruit, vegetables, fats    5,660     14,450    30,300      11,690    28,160
            Dairy products                                   7,780     15,860    48,470      13,970   48,340
                                                                                                                 6,570
            Grain mill products; starches; animal feeds      4,080      9,530    34,160        N.A.   47,610
            Other food products                              4,350     18,240    23,520        N.A.   27,560
            Beverages                                       10,100     53,020    79,190               73,000     8,170
                                                                                             64,230
            Tobacco products                                 2,360    264,580    56,240               72,400    53,470
            Total of above                                   5,000     25,640    34,910      26,510   37,050     9,600
            Total of above (excluding tobacco)               5,210     16,330    32,300        N.A.   36,280     7,000
            Notes:
            1.   Egypt, data for tobacco products refers to 1997
            Source: Author’s calculations based on UNIDO




            Egyptian Processed Food Sector Review                                                                  163
                      The agro-food sector in Egypt: analysis of local data (CAPMAS)
                      CAPMAS data for 1999/2000 indicate that there are 301 units, agro-food enterprises, employing a
                      workforce of 64 thousand (excluding beverages and tobacco), as shown in Table 3.7. From these data it
                      is possible to calculate performance indicators that may be used for comparison with the figures
                      obtained from UNIDO data described earlier in this section. As shown in Table 3.8, the average value of
                      production per employee for the agro-food industry is $US 25 thousand and the average value-added
                      per employee is $US 3.4 thousand; this latter figure may be compared to the figure of approximately
                      $US 5 thousand calculated using UNIDO data.


                      All in all, the data do not suggest a situation that is very different from the analysis undertaken using
                      UNIDO data. In fact, they suggest that the relative performance of the agro-food sector in Egypt may be
                      even worse than described earlier, since value-added per employee is found to be even lower on the
                      basis of the CAPMAS data.


                      At the same time, the data indicate a low share of value added in total production, a feature that will be
                      examined in Section 4 of this report. The data indicate that the average share of value-added in
                      production is only 13%. For the sub-sector processed meat, fish, vegetables and fats this figure is only
                                                          105
                      11% and for dairy products 22%            .


                                                                    106
Table 3.7   Overview of the agro-food industry (1999/2000)

                                                                          Units        Employment       Production     Value Added
                                                                          Number       Thousand         $US million    $US million
            Processed meat, fish, fruit, vegetables, fats                         36           18.8            491.3           53.1
            - Meat Industry                                                        4             1.6            16.8            -4.0
            - Fish Industry                                                        2             0.3             4.0            1.3
            - Processed vegetables                                                 7             0.8            12.3            1.8
            - Oils and fats                                                       23           16.1            458.2           54.1
            Dairy products                                                         7             1.4            17.6            3.8
            Grain mill products, starches, animal feed                        104              16.5            552.4           34.0
            - Mill products                                                       94           15.3            507.3           31.7
            - Animal feed                                                         10             1.1            45.1            2.4
            Other food products                                               154              27.5            562.2          126.6
            - Bread, pastry, biscuits                                         129                4.5            32.2            3.7
            - Sugar                                                               10           14.7            466.3           89.9
            - Cacao, chocolate                                                     2             1.1             8.1            -0.4
            - Other                                                               13             7.1            55.5           33.4
            Total of above                                                    301              64.1           1623.5          217.6
                                 107
            Source: CAPMAS             and author’s calculations




            105
                  These may be compared, respectively, to figures of 16% and 19% as described in Section 4.
            106
                  Local currency converted to $US using exchange rate $US1 = L.E. 3.446
            107
                  As reported in CIHEAM (2004): Agri.Med, Egypt, Annual Report 2004.




            164 Egyptian Processed Food Sector Review
Table 3.8   Performance indicators for Egyptian agro-food industry

                                                                             Production/Emp        VA/Emp        VA/Production
                                                                             $US                   $US           %
            Processed meat, fish, fruit, vegetables, fats                                26,196          2,833                 11%
            - Meat Industry                                                              10,365        -2,488                  -24%
            - Fish Industry                                                              12,950          4,159                 32%
            - Processed vegetables                                                       16,080          2,308                 14%
            - Oils and fats                                                              28,530          3,370                 12%
            Dairy products                                                               12,752          2,757                 22%
            Grain mill products, starches, animal feed                                   33,553          2,068                  6%
            - Mill products                                                              33,106          2,068                  6%
            - Animal feed                                                                39,548          2,060                  5%
            Other food products                                                          20,456          4,607                 23%
            - Bread, pastry, biscuits                                                     7,120           815                  11%
            - Sugar                                                                      31,776          6,126                 19%
            - Cacao, chocolate                                                            7,115           -332                 -5%
            - Other                                                                       7,774          4,675                 60%
            Total of above                                                               25,335          3,395                 13%
                                                                   108
            Source: Author’s calculations based on CAPMAS


                      Egypt’s position in the Mediterranean agro-food industry
                                                         109
                      Analysis undertaken by CIHEAM            shows the relative position of Egypt within the Mediterranean agro-
                      food industry. As shown in Table 3.9, among southern-Mediterranean countries, Egypt has the third
                      largest agro-food sector in terms of production and value added, after Turkey and Israel. At the same
                      time, when measured by employment, Egypt has the largest agro-food industry.


                      Constructing indicators of the performance of the agro-food sector, Egypt is very poorly positioned when
                      compared to other Mediterranean countries. As shown in Table 3.10, in terms of labour productivity
                      (whether measured as production per employee or value-added per employee), Egypt is ranked in last
                      position among the 11 southern-Mediterranean countries. Further, when looking at the rate of value
                      added generated per unit of production (in value terms), Egypt at 20% is ranked second lowest among
                      the 11 southern-Mediterranean countries.




            108
                  As reported in CIHEAM (2004): Agri.Med, Egypt, Annual Report 2004.
            109
                  CIHEAM (Centre International de Hautes Etudes Agronomiques Méditerranéennes), Agri.Med Annual Report 2004.




            Egyptian Processed Food Sector Review                                                                               165
 Table 3.9   The agro-food industry in Mediterranean countries (1998)

                                             Production                          Value added                    Employment
                                        $ million             %              $ million         %            Thousand             %
             Turkey                         13000            31.4%                3400        34.7%               136            20.4%
             Israel                          7000            16.9%                1800        18.4%                  50          7.5%
             Egypt                           6000            14.5%                1200        12.3%               200            29.9%
             Morocco                         4600            11.1%                 950            9.7%               92          13.8%
             Tunisia                         3100             7.5%                 500            5.1%               34          5.1%
             Algeria                         3000             7.3%                 800            8.2%               90          13.5%
             Syria                           1800             4.4%                 400            4.1%               24          3.6%
             Lebanon                         1500             3.6%                 350            3.6%               15          2.2%
             Cyprus                            550            1.3%                 200            2.0%                 8         1.2%
             Jordan                            550            1.3%                 120            1.2%               16          2.4%
             Malta                             240            0.6%                   70           0.7%                 3         0.4%
             Total of above                 41340            100.0%               9790        100.0%              668        100.0%
             France                        120000            41.9%               33700        45.5%               450            39.3%
             Italy                          90000            31.4%               20000        27.0%               270            23.6%
             Spain                          61000            21.3%               17000        23.0%               290            25.3%
             Portugal                        9500             3.3%                1500            2.0%               87          7.6%
             Greece                          6000             2.1%                1800            2.4%               49          4.3%
             Total of above                286500            100.0%              74000        100.0%             1146        100.0%
             Total all countries           327840                                83790                           1842
             Source: CIHEAM (2004), based on UNIDO, World Bank and CIAA data, and author’s own calculations


Table 3.10   Agro-food industry performance indicators in Mediterranean countries (1998)

                                              Productivity 1                         Productivity 2                    VA rate
                                             Production/Emp                               VA/Emp                 VA/Production
                                          $ thousand              Rank           $ thousand          Rank        %           Rank
             Turkey                                   95.6               3                 25.0             2     26%                 4
             Israel                                  140.0               1                 36.0             1     26%                5
             Egypt                                    30.0            11                    6.0          11       20%                10
             Morocco                                  50.0               8                 10.3             8     21%                 9
             Tunisia                                  91.2               4                 14.7             7     16%                11
             Algeria                                  33.3            10                    8.9             9     27%                3
             Syria                                    75.0               6                 16.7             6     22%                 7
             Lebanon                                 100.0               2                 23.3             4     23%                6
             Cyprus                                   68.8               7                 25.0             2     36%                 1
             Jordan                                   34.4               9                  7.5          10       22%                 8
             Malta                                    80.0               5                 23.3             4     29%                 2
             Total of above                           61.9                                 14.7                   24%
             France                                  266.7               2                 74.9             1     28%                2
             Italy                                   333.3               1                 74.1             2     22%                 4
             Spain                                   210.3               3                 58.6             3     28%                3
             Portugal                                109.2               5                 17.2             5     16%                5
             Greece                                  122.4               4                 36.7             4     30%                1
             Total of above                          250.0                                 64.6                   26%
             Total all countries                     178.0                                 45.5                   26%
             Source: CIHEAM (2004), based on UNIDO, World Bank and CIAA data, and author’s own calculations




             166 Egyptian Processed Food Sector Review
     3.2     Trade Performance Index

             Table 3.11, provides information from ITC analysis of the COMTRADE database of the
             general trade performance in processed food for the benchmark countries. Overall, these
             show a positive performance of Egyptian processed food exports. After China, Egypt
             showed the strongest growth among the benchmark countries over the period 1998-2002
             both in absolute terms and on a per capita basis. The relative unit value of exports is also
             calculated to be high (2.4), with only Morocco (4.4) having a higher calculated average
             unit value relative to the world average. At the same time, whereas relative unit values of
             processed food exports are calculated to have been increasing for the other benchmark
             countries, for Egypt it fell (-5%) over the period 1998-2002.

Table 3.11   Processed food: general trade performance indicators (1998-2002)

                                                                       Egypt      Morocco        Turkey        S. Africa      Spain         China
             Value of exports ($ million)                             190          465         1,555          1,020         8,426         7,522
             Trend of exports (98-02) p.a.                           13% 49         3% 90         3%     94      7% 62         5% 81        22% 31
             Share in national export                                  3%           6%            4%             4%            7%            2%
             Share in national import                                  9%           5%            2%             4%            5%            1%
             Average annual change in per capita
                                                                       8% 32        3% 61        -5% 123        -1% 54         3% 63         9% 30
             exports
             Relative unit value (world average =1)                    2.4          4.4           1.2               -          1.5           1.1
             Average annual change in relative unit
                                                                      -5%         13%             5%                -          3%            3%
             value
              Notes:
              1.     Data in red (right hand sub-columns) indicates rank out of 144 reporting countries
              2.     S. Africa data are for the South Africa Customs Union (South Africa, Botswana, Namibia, Lesotho and
                     Swaziland)
              3.     Relative unit value: unit value (value divided by quantity) of country relative to world unit value
              Source: ITC calculations based on COMTRADE of UNSD


             Table 3.12 provides information from ITC analysis of the COMTRADE database of the
             general trade position in processed food for the benchmark countries. These indicators
             tend to mitigate the encouraging trade performance indicators given above. On the one
             hand, Egypt is the only benchmark country with a strongly negative trade balance in
             processed foods, it has the lowest per capita value of food exports and a meagre share in
             world markets110.

             In terms of product diversification, the measures used by ITC indicate that Egypt has a
             more diversified range of processed food exports than either South Africa111 or
             Morocco112, but is less diversified than Spain, Turkey or China. In terms of market
             diversification, Turkey stands out as having the greatest level of geographical
             diversification of processed food exports. By contrast, China has very low market

             110
                   This situation is, of course, not surprising given the limited availability of agricultural land – hence agricultural produce – per
                   capita of Egypt compared to the other benchmark countries.
             111
                   For South Africa, this partly reflects the high shares of preserved fruits and fruit juices in total processed food exports (see
                   Table 0.3).
             112
                   For Morocco, this partly reflects the high shares of prepared or preserved fish and of prepared or preserved vegetables in
                   total processed food exports (see Table 0.1).




             Egyptian Processed Food Sector Review                                                                                                 167
             diversification, which reflects the very high proportion on Chinese processed food
             exports that are destined to the Japanese market113.
             The overall indicator (ranking) of the general trade position for processed food, Egypt is
             ranked lowest amongst the benchmark countries; Egypt is ranked in 82nd position out of a
             total of 144 countries. By contrast, Spain is the highest ranked country (8th position),
             followed by Turkey (15th), South Africa (21st) and China (23rd).

Table 3.12   Processed food: trade position indicators for 2002

                                                            Egypt         Morocco         Turkey        S. Africa        Spain           China
             Value of net exports ($ million)            -1,043 135          -44 69         572 17         242 22         159 31       3,685      7
             Per capita exports ($/inhabitant)               2.8 124        16.4 91        23.4 84       156.8 33       212.6 25          5.9 111
             Share in world market                       0.08%      77 0.19% 54 0.63% 30 0.41% 40 3.39%                           9 3.03%        10
             Product diversification
                                                              16    31        11 53          28 11            8 67         27 12          34      7
             (Number of equivalent products)
             Product spread (concentration)                         39             66             14             42               7               5
             Market diversification
                                                              11    26          7 55         23     3       11 25          11 28            5    80
             (Number of equivalent markets)
             Market spread (concentration)                          51             61               3            46             19               35
             Overall Current (2002) Index                           82             57             15             21               8              23
              Notes:
              1.     Data in red (right hand sub-columns) indicates rank out of 144 reporting countries
              2.     S. Africa data are for the South Africa Customs Union (South Africa, Botswana, Namibia, Lesotho and
                     Swaziland)
              3.     Product diversification: number of export products of equal size that would lead to the observed
                     concentration of exports
              4.     Product spread: concentration of products by value (weighted standard error)
              5.     Market diversification: number of export markets of equal size that would lead to the observed
                     concentration of exports
              6.     Market spread: concentration of markets by value (weighted standard error
              Source: ITC calculations based on COMTRADE of UNSD


             Table 3.13 provides information from ITC analysis of the COMTRADE database of the
             change in the trade positions in processed food for the benchmark countries between 1998
             and 2002. Overall, Egypt is ranked in 2nd position out of 144 countries covered by the
             analysis, ahead of China (9th position). These two countries are ranked someway ahead of
             the other benchmark countries. The strong overall score of Egypt reflect the strong
             increase in Egypt’s world market share, bettered only by China, and it’s high ranking in
             terms of changes in product and market diversification and spread.

             The COMTRADE analysis provides a breakdown of the relative change of world market
             share into 4 component parts114. From this breakdown, Egypt’s initial position on
             (geographical) markets with dynamic demand is found to largely account for its increase

             113
                   See Table 0.5.
             114
                   These are: (1) Competitiveness effect – gain in market share due to increased competitiveness (gain in market share in
                   destination markets times the initial share of partner country imports in world imports); (2) initial geographical specialisation
                   – benefit associated with initial export position on dynamic partner country (import) markets; (3) initial product specialisation
                   – benefit associated with initial export specialisation in products characterised by dynamic demand; and (4) adaptation to
                   changes in world demand – change in share of exporting country in specific product-country markets multiplied by the
                   change in the specific product-country market in world change.




             168 Egyptian Processed Food Sector Review
             in world market share. By contrast, Egypt’s initial product specialisation has had a
             negative effect on export performance (i.e. specialisation in products with non-dynamic
             world demand). Further, the negative estimate for the adaptation component, suggests
             that Egypt has a poor performance in terms of shifting exports towards specific product-
             country markets characterised by dynamic demand.

Table 3.13   Processed food: trade position change indicators 1998 - 2002

                                                                  Egypt       Morocco        Turkey      S. Africa     Spain        China
             Relative change of world market share (% p.a.)      3.90          1.37         -6.79        N.A.         1.89          8.34

             - Competitiveness effect (% p.a.)                   1.84   59     1.89    57 -4.30 128         -         2.15    54    4.80    32

             - Initial geographical specialisation (% p.a.)      9.10   17    41.50     5   0.42    76   0.46   74    0.11    81 -0.52      96
             - Initial product specialisation (% p.a.)          -4.36 114 -36.06 141 -3.56 109 -2.91 102 -0.06                72    2.67    42
             - Adaptation (% p.a.)                              -2.67   92    -5.97 117     0.64    17      -         -0.31   53    1.40    10

             Trend of import coverage by exports                 12%    28      -1%    89    -1%    81    3%    62     -1%    86     9%     32
             Matching with dynamics of world demand                     23             55           88          50            56            29

             Change in product diversification                          24             64           70          49            90            33

             Change in product spread                                   24             64           68          49            90            29
             Change in market diversification                           24             37           57          117           121          101

             Change in market spread                                    21             40           61          115           117           99

             Overall (1998 - 2002) Index                                  2            57           95          91            110            9
             Notes:
             1.     Data in red (right hand sub-columns) indicates rank out of 144 reporting countries
             2.     S. Africa data are for the South Africa Customs Union (South Africa, Botswana, Namibia, Lesotho and Swaziland)

             Source: ITC calculations based on COMTRADE of UNSD




             Egyptian Processed Food Sector Review                                                                                         169
                       Openness of Mediterranean agricultural systems to international trade
                       An analysis of the degree of commercial integration into the world economy of Mediterranean countries
                                                                                      115
                       is presented in CIHEAM (2004)                                        . The degree of integration is measured using the following coefficient:
                          f          f     aipc
                       (X + M ) / VA
                                           f                                    116
                       where:             X = food exports
                                               f
                                          M = food imports
                                                   aipc
                                          VA              = value added of the agro-industrial production complex (agriculture and agro-food
                                         industry)
                       A coefficient of 100 (or above) is considered to represent a relatively open economy.


                       Among Mediterranean countries, only 5 attain or are close to a ratio of 100: Jordan, Cyprus, Malta,
                       Portugal and France. Egypt ranks in 13th place among the 14 countries presented, with not only a low
                                                                                                                                                                       f
                       aggregate level of integration but with a negative trade balance (as reflected in the relative size of X /
                              aipc                              f           aipc
                       VA            compared to M / VA                            ). What is also notable is that the data suggest that among the countries
                       shown, Egypt together with Syria are the only countries for which integration has actually diminished
                       over the last decade (as indicated by the negative variation between 1991 and 2000). These data
                       suggest that Egypt is failing to participate in the globalisation of agro-food markets.


Table 3.14   Openness of food systems of Mediterranean countries to international trade (%)

                                                            f           f             aipc                                   f        aipc            f         aipc
                                                          (X + M ) / VA                              Variation*            X / VA                   M / VA
                                                          average 99-01                                 91-00            average 99-01           average 99-01
             1        Jordan                                            312                              73                      83                       229
             2        Cyprus                                            147                               8                      50                       97
             3        Malta                                             140                               7                      22                       119
             4        Portugal                                          100                              73                      26                       74
             5        France                                            99                               18                      57                       42
             6        Spain                                             86                                -                      45                       41
             7        Italy                                             73                               25                      30                       42
             8        Greece                                            53                                -                      22                       31
             9        Morocco                                           43                               42                      22                       21
             10       Algeria                                           43                               12                      1                        42
             11       Tunisia                                           38                                5                      17                       21
             12       Syria                                             22                               -16                     8                        14
             13       Egypt                                             22                               -44                     2                        20
             14       Turkey                                            22                               27                      15                        7
                                                                    f       f           aipc
             *Note: Variation of the ratio (X + M ) / VA                                       between averages 1990-92 and 1999-2001
             Source: CIHEAM (2004), based on World Bank, WDI, 2003




             115
                   CIHEAM (Centre International de Hautes Etudes Agronomiques Méditerranéennes), Agri.Med Annual Report 2004.
             116
                   Food understood to include the following sections of the Standard International Trade Classification (SITC): Section 0 (food
                   and live animals), section 1 (beverages and tobacco), Section 4 (animal and vegetable oils) and division 22 (oilseeds and
                   oleaginous fruits).




             170 Egyptian Processed Food Sector Review
 4 Production and productivity performance




4.1   Introduction

      UNIDO data provide one of the few sources of readily available and reasonably
      comparable data on the production performance of the food-processing sector. These data
      are described and analysed in this section with the aim of providing an overview of the
      general relative performance of the Egyptian food-processing sector relative to the other
      benchmark countries. The data permit two main segments of the food processing sector
      relevant to this study to be separately identified: (1) Processed meat, fish, vegetable and
      fats; (2) Dairy products. The reader should be aware that differences in the years of
      available data, differences in classification systems, and the sensitivity of (dollar
      measured) data to exchange rate variations imply that caution should be exercised in
      making comparisons across countries.


4.2   Processed meat, fish, fruit, vegetables, and fats

      Table 4.1 and Table 4.2 provide details of the output and value added of the main
      processed food segment (meat, fish, fruit, vegetables and fats) in aggregate and on a per
      employee basis. These data enable some comparison of the relative production and
      productivity performance across the benchmark countries.

      If we look at the share of production costs and value added in the total value of output
      (Table 4.1), the first noticeable feature of the data is that Egypt is shown to have the
      lowest share of value added (16 percent) in total output117. This figure may be compared
      to shares of 24 percent for Morocco and China, and 31 percent for Turkey. The
      conclusion to be drawn from this is that, with the exception of Spain, Egypt achieves a
      much lower rate of value-added per unit of output than the other benchmark countries.
      The ratio of value-added to output provides one basic measure of productivity, and in this
      respect the productivity performance of Egypt is seen to be poor when compared to its
      main potential competitors among the benchmark countries.

      Value-added may be broken down into two components: first, a wage component
      reflecting the costs of labour and, secondly, a non-wage component reflecting essentially
      profits and taxes. For Egypt, the wage component accounts for 31 percent of value-added,
      a figure that can be considered to be reasonable when compared to Morocco and Spain.
      However, it is Turkey that stands out as its wage component accounts for only 18 percent
      of value added. For Turkey, the combined high share of value added in output and the

      117
            Data for South Africa is not available.




      Egyptian Processed Food Sector Review                                                   171
            low share of labour costs in value added indicates a far higher level of relative
            profitability than is achieved by the other benchmark countries.

Table 4.1   Processed meat, fish fruit, vegetables and fats: estimates of value and composition of output, $US million

                                                      Egypt         Morocco         Turkey        S. Africa       Spain            China
                                                       1998           2001            2000          1999           2000             2001
            Value of output                        1,550          1,258           5,229             N.A.       20,824            70,304
                  Of which:
                  - Production costs etc.          1,302 84%         956 76% 3,608 69%               N.A       17,284 83% 53,431 76%
                  - Value added                      248 16%         302 24% 1,621 31%               644        3,540 17% 16,873 24%
                     Of which
                     - Wages component                77 31%         112 37%        292 18%         N.A.        1,699 48%
                     - Non-wage component            171 69%         190 63% 1,329 82%              N.A.        1,841 52%
             Notes:
             1.     China, data refer to all food processing, except beverages and tobacco
             2.     Production costs etc. refers to the non-value added component of total output
             3.     Non-wage component refers to non-wage component of value added (i.e. profits, taxes etc.)
             Source: UNIDO and Author’s calculations


            When measured on a per employee basis (Table 4.2), it appears that Egypt achieves much
            lower rates of output and value added per employee than the other benchmark countries
            except China118. To some extent this reflects lower labour costs (wage component), but
            nonetheless Egypt achieves a much lower non-wage component of value-added per
            employee than the other benchmark countries for which data are available.

Table 4.2   Processed meat, fish fruit, vegetables and fats: output and value-added per employee, $US

                                                    Egypt         Morocco           Turkey         S. Africa         Spain           China
                                                     1998            2001            2000            1999            2000            2001
            Output per employee                       35,360          60,240          97,740             N.A.        165,660           27,360
            Value added per employee                   5,660          14,450          30,310          11,380            28,160            6,570
                  Of which
                  - Wages component                    1,740            5,380           5,420           4,590           13,500             N.A.
                  - Non-wage component                 3,920            9,070         24,890                            14,660             N.A.
            Notes:
            1.     China, data refer to all food processing, except beverages and tobacco
            2.     South Africa, wage component refers to average wages per employee in 2001
            Source: Author’s estimates and calculations based on UNIDO


            Table 4.3, Table 4.4 and Table 4.5 provide an overview by sub-segment of the
            consumption, production and trade position of Egypt and three of the benchmark
            countries119. In terms of the ratio of output to apparent consumption (Table 4.3), Egyptian
            production covers a lower proportion of domestic demand (apparent consumption) than is
            achieved by the other countries. Further, only the sub-segment “processing and


            118
                  Data for China refer to all food processing. Allowance should be made for differences in the year of data across countries.
            119
                  Data are not available for South Africa and China.




            172 Egyptian Processed Food Sector Review
            preserving of fruit and vegetables” achieves a level of domestic output that exceeds
            domestic demand.

Table 4.3   Processed meat, fish fruit, vegetables and fats: ratio of output to apparent consumption

                                                                      Egypt              Morocco        Turkey       Spain
                                                                       1998               2000           1997        2000
            Processing & preserving of meat                                     0.42            N.A.          0.68      1.05
            Processing & preserving of fish                                     0.11            1.89          1.39      0.62
            Processing & preserving of fruit & vegetables                       1.11            1.44          1.68      1.25
            Vegetable and animal oils & fats                                    0.63            0.76          0.90      1.11
            Total of above                                                      0.59            1.14          0.96      1.02
            Notes:
            1.   ISIC codes may vary across countries
            Source: Author’s estimates and calculations based on UNIDO


            Given the above, it is not altogether surprising that Egypt only achieves a very low level
            of exports measured as a share of output (Table 4.4). The data show that only 3.3 percent
            of Egyptian production goes to exports, whereas the other countries achieve export levels
            of around one-quarter of total production.

Table 4.4   Processed meat, fish fruit, vegetables and fats: exports as a share of output (%)

                                                                      Egypt            Morocco         Turkey        Spain
                                                                       1998             2000           1997          2000
            Processing & preserving of meat                                   1.7          N.A.               5.9       13.4
            Processing & preserving of fish                                   5.9          47.6            29.4         61.5
            Processing & preserving of fruit & vegetables                  18.2            33.1            42.7         33.5
            Vegetable and animal oils & fats                                  0.6              1.9         17.9         29.1
            Total of above                                                    3.3          25.9            22.4         25.1
            Notes:
            1.   ISIC codes may vary across countries
            Source: Author’s estimates and calculations based on UNIDO


            Egypt is also far more reliant on imports of processed meat, fish, fruit & vegetables and
            fats than the other benchmark countries for which data are available. With the exception
            of imports of fruits and vegetables for Spain, Egypt has the highest ratio of imports to
            apparent consumption for each of the sub-segments (Table 4.5).




            Egyptian Processed Food Sector Review                                                                        173
Table 4.5   Processed meat, fish fruit, vegetables and fats: imports as a share of apparent consumption (%)

                                                                      Egypt         Morocco            Turkey           Spain
                                                                       1998             2000            1997            2000
            Processing & preserving of meat                                58.6             N.A.             35.8               9.1
            Processing & preserving of fish                                89.9                0.9             2.0             76.0
            Processing & preserving of fruit & vegetables                     8.9              3.4             3.4             17.0
            Vegetable and animal oils & fats                               37.5             25.6             26.2              21.6
            Total of above                                                 42.5             15.6             25.2              23.6
            Notes:
            1.    ISIC codes may vary across countries
            Source: Author’s estimates and calculations based on UNIDO




    4.3     Dairy products

            Table 4.6 and Table 4.7 provide details of the output and value added of the dairy
            products segment in aggregate and on a per employee basis. The general picture for the
            dairy products segment is quite similar to the one presented in the preceding section.
            Egypt achieves a lower share of value-added to output than the other benchmark countries
            but has a low wage component in value added, though greater than Turkey. On a per
            employee basis, except in relation to China, Egypt achieves a lower level of output and
            value added, similarly Egypt is shown as having a low level of wages (wages component)
            and non-wage component per employee. Once again, Turkey stands out in terms of its
            productivity and profitability.

Table 4.6   Dairy products: estimates of value and composition of output, $US million

                                                 Egypt      Morocco      Turkey      S. Africa         Spain           China
                                                  1998        2001         2000          1999          2000             2001
            Value of output                    332          531         1,030            N.A.        6,260           70,304
                 Of which:
                 - Production costs etc.       269 81% 393 74%           618 60%         N.A.        5,008 80%       53,431 76%
                 - Value added                   63 19% 138 26%          412 40%          292        1,252 20%       16,873 24%
                    Of which
                    - Wages component            13 21%      54 39%        62 15%        N.A.         513 41%
                    - Non-wage component         50 79%      84 61%      350 85%         N.A.         739 59%
            Notes:
            1.     China, data refer to all food processing, except beverages and tobacco
            2.     Production costs etc. refers to the non-value added component of total output
            3.     Non-wage component refers to non-wage component of value added (i.e. profits, taxes etc.)
            Source: UNIDO and Author’s calculations




            174 Egyptian Processed Food Sector Review
Table 4.7   Dairy products: output and value-added per employee, $US

                                                    Egypt         Morocco        Turkey        S. Africa   Spain     China
                                                    1998               2001       2000           1999      2000      2001
            Output per employee                       41,050           60,900     121,180           N.A.   241,410    27,360
            Value added per employee                   7,750           15,870      48,480         12,570    48,300     6,570
                  Of which
                  - Wages component                    1,660            6,160          7,050       7,470    19,950      N.A.
                  - Non-wage component                 6,090            9,710      41,430                   28,350      N.A.
            Notes:
            1.     China, data refer to all food processing, except beverages and tobacco
            2.     South Africa, wage component refers to average wages per employee in 2001
            Source: Author’s estimates and calculations based on UNIDO


            Table 4.8 provide an overview of the consumption, production and trade position of
            Egypt and three of the benchmark countries120. Whereas domestic production for the three
            other countries covers over 90 percent of demand (apparent consumption), Egypt
            achieves only 70 percent coverage. Further Egypt has the lowest share of exports to
            output and the highest share of imports to demand (apparent consumption).

Table 4.8   Dairy products: key indicators

                                                                                Egypt          Morocco     Turkey    Spain
                                                                                1998             2000      1997      2000
            Ratio of output to apparent consumption                                     0.69        0.91      0.98      0.93
            Exports as a share of output (%)                                             1.1         3.9       2.9       8.2
            Imports as a share of apparent consumption (%)                              31.8        12.4       4.7      14.9
            Notes:
            1.     ISIC codes may vary across countries
            Source: UNIDO




   4.3.1    Consumption of dairy products in Mediterranean countries

            Table 4.9 shows data on the consumption and production per capita of dairy products in
            selected Mediterranean countries. In general, the data show a modest increase in per
            capita demand in northern Mediterranean countries and a modest decrease in southern
            Mediterranean countries. At the same time, there has been an increase in production per
            capita in southern Mediterranean countries, and a mixed picture in northern
            Mediterranean countries. Despite an improvement in the ratio of output to apparent
            consumption, Egypt remains the country with the lowest share of apparent consumption
            met through domestic production (63%).




            120
                  Data are not available for South Africa and China.




            Egyptian Processed Food Sector Review                                                                       175
Table 4.9   Evolution of apparent human consumption of dairy products (in equivalent raw milk)

                                    Consumption kg/hab                  Production of milk kg/hab            Ratio of output to apparent
                                                                                                                      consumption
                                     1988               1998               1988                1998               1988               1998
            France                    419                404                486                434                1.16               1.07
            Portugal                  132                168                147                194                1.11               1.15
            Spain                     147                189                166                168                1.13                0.89
            Turkey                    197                172                183                156                0.93                0.91
            Tunisia                   82                  80                 49                 75                0.60                0.94
            Egypt                     95                  84                 41                 53                0.43                0.63
            Morocco                   69                  64                 41                 41                0.59                0.64
                                     121
            Source: CNIEL/FAO




            121
                  As reported in M. Padillla, G. Ghersi « Le marché international du lait et des produits latiers » in Options Méditerranéennes,
                  Sér. B / no 32, 2001 – Les filières et marchés du lait dérivés en Méditerranée.




            176 Egyptian Processed Food Sector Review
5 Overview of FPI export situation



 In this section we give an overview of the general export position in processed food for
 the benchmark countries. The data are drawn from the ITC COMTRADE database and
 refer to 2002. It should be noted that Egypt does not provide data to the COMTRADE
 database and, accordingly, data for Egypt are mirror data reported by importing countries.

 Table 5.1 provides details of the level of processed food exports by geographical area,
 while Table 5.2 and Table 5.3 show the main product categories exported to the main
 geographical markets122.

 Overall, the geographical composition of food exports for each country reflects to a
 greater or lesser extent the importance for each country of exports to the respective
 neighbouring countries/region. For Egypt, for example, 45 percent of its processed food
 exports are destined to the Gulf Region and S.E. Mediterranean. At the same time, in
 value terms, Turkey, Spain and even China export more to this region than Egypt.

 If we consider the level and share of exports going to the most economically developed
 regions of Europe and America, it is noticeable that a lower share of Egypt’s total
 processed food exports are destined to the EU that any of the other countries except
 China; though China’s exports to the EU dwarf those of Egypt in value terms. By
 contrast, Egypt has the highest proportion of its total processed food exports going to the
 North American market, although because of the low overall value of Egyptian exports
 all of the other countries have a higher value of processed food exports to North America.

 The data shown in Table 5.1, further support the analysis of the trade position indicators
 of market diversification shown earlier in Table 3.12. In particular they demonstrate the
 geographical spread achieved by Turkey, which manages not only to achieve high exports
 to the European Union (15 members) and America but also has relatively important
 shares of exports going to Central and Eastern Europe, the former Soviet Union and
 Central Asia.

 Table 5.2 and Table 5.3 show the main products exported to key geographical markets.
 Taking the European Union as an example, the data indicate a lack of product
 diversification of Egyptian exports: the leading 4 product categories account for 85
 percent of Egypt’s exports to the EU, whereas for Turkey they account for only 56
 percent, 61 percent for China, and 74 percent for South Africa. Egypt’s position in the
 Americas is somewhat better, with a more balanced composition and lower concentration

 122
       The tables cover exports of processed food products for 39 product categories. The products covered can be seen in
       Error! Reference source not found. to Table 0.5, which show more detailed information by product category for each of
       the benchmark countries.




 Egyptian Processed Food Sector Review                                                                                      177
              of its leading export product categories. By contrast Morocco and South Africa exports of
              processed food are more concentrated with the top four product categories accounting
              respectively for 94 percent and 87 percent of processed food exports.

              The tables can also be used to identify important product categories for which the
              benchmark countries are in competition with Egypt in particular geographical markets.
              For example, the Gulf & S.E. Mediterranean region is an important market for exports of
              Cheese & curd for Egypt, Morocco and Turkey, while America is an important market for
              fruit juices for Egypt, South Africa and China.

Table 5.1     Geographical composition of processed food exports, $US million 2002.

                                      Egypt       Morocco          Turkey        S. Africa        Spain           China
     Gulf & S.E. Med               68.6   45.0%   45.2   9.3%    160.2   12.7%   29.8    6.1%   165.1   2.9%     88.9   1.4%
     - Gulf States                 64.1   42.1%   38.3   7.9%    111.4    8.9%   17.5    3.6%    81.8   1.5%     75.6   1.2%
     - S.E. Mediterranean           4.4    2.9%    7.0   1.4%     48.8    3.9%   12.3    2.5%    83.3   1.5%     13.2   0.2%

     N & N.E. Africa               19.9   13.1%   22.7   4.7%     29.9   2.4%     1.9    0.4%   113.2   2.0%      7.6   0.1%
     - N . Africa                  17.4   11.4%   21.7   4.5%     25.6   2.0%     1.0    0.2%   112.2   2.0%      5.5   0.1%
     - N.E. Africa                  2.5    1.6%    1.0   0.2%      4.2   0.3%     0.9    0.2%     0.9   0.0%      2.1   0.0%

     W., Cent. & Southern Africa    1.8    1.2%   81.2   16.8%    24.0   1.9% 186.4     38.5%   100.0   1.8%     18.2   0.3%
     - N. W. Africa                 0.1    0.0%   66.0   13.6%    18.2   1.4% 25.5       5.3%    84.9   1.5%      7.4   0.1%
     - E. Africa                    0.7    0.4%    4.9    1.0%     0.2   0.0% 21.2       4.4%     0.7   0.0%      0.2   0.0%
     - S. Africa                    1.1    0.7%   10.2    2.1%     5.5   0.4% 139.6     28.9%    14.4   0.3%     10.5   0.2%

     European Union (15+)          26.5   17.4% 265.8    54.9%   585.5   46.5% 120.7    24.9% 4,062.0   72.4%   558.6   8.9%
     - EU Mediterranean             8.7    5.7% 181.6    37.5%   159.0   12.6% 21.7      4.5% 2,909.5   51.9%   207.7   3.3%
     - EU Continental              13.1    8.6% 64.5     13.3%   319.9   25.4% 57.8     11.9%   713.8   12.7%   278.5   4.5%
     - EU Scandinavian              0.9    0.6%   3.2     0.7%    25.6    2.0%   2.8     0.6%    81.9    1.5%    16.4   0.3%
     - EU non-Cont.                 3.9    2.5% 16.5      3.4%    81.1    6.4% 38.4      7.9%   354.8    6.3%    56.1   0.9%

     Other Europe                   0.2   0.1%     2.8   0.6%     15.2   1.2%     9.5    2.0%    67.8   1.2%      8.6   0.1%

     Central & E. Europe            4.2    2.8%    2.8   0.6%     94.0   7.5%     1.5    0.3%   119.8   2.1%     32.8   0.5%

     Former Soviet Union            2.0   1.3%     0.6   0.1%     46.5   3.7%     2.4    0.5%    96.0   1.7%    107.9   1.7%

     Central Asia                   0.0    0.0%    0.1   0.0%     40.6   3.2%     0.0    0.0%     5.6   0.1%     12.0   0.2%

     Americas                      19.6   12.9%   55.4   11.4%   130.3   10.4%   61.7   12.8%   682.8   12.2%   804.8   12.9%
     - N. America & Mexico         19.0   12.5%   52.7   10.9%   114.0    9.1%   56.0   11.6%   566.1   10.1%   789.5   12.6%
     - Cent. America & Caribbean    0.1    0.1%    1.4    0.3%     4.8    0.4%    1.9    0.4%    50.4    0.9%     4.2    0.1%
     - S. America                   0.5    0.3%    1.2    0.3%    11.6    0.9%    3.8    0.8%    66.3    1.2%    11.1    0.2%

     Far East & Oceania             9.2    6.1%    7.1   1.5%     72.6   5.8%    67.2   13.9%   195.0   3.5% 4,615.3    73.8%
     - S. & S.E. Asia               1.2    0.8%    0.4   0.1%     15.2   1.2%    11.0    2.3%    25.8   0.5%   363.7     5.8%
     - Japan, Taiwan & Korea        7.3    4.8%    4.5   0.9%     35.2   2.8%    36.3    7.5%    92.9   1.7% 3,305.7    52.8%
     - China, H.K., Mongolia        0.2    0.1%    0.2   0.0%      3.9   0.3%     9.0    1.9%     8.6   0.2%   853.5    13.6%
     - Australia, N.Z. & Pacific    0.6    0.4%    2.0   0.4%     18.4   1.5%    10.9    2.3%    67.7   1.2%    92.4     1.5%

     Free Zones                     0.0    0.0%    0.0   0.0%     55.4   4.4%     0.0    0.0%     0.0   0.0%      0.0   0.0%

     Not allocated                  0.2    0.1%    0.4   0.1%      4.6   0.4%     2.7    0.6%     3.3   0.1%      1.6   0.0%
     Total (of the above)          152.3 100.0% 484.1 100.0% 1,258.9 100.0% 483.9 100.0% 5,610.5 100.0% 6,256.5 100.0%

     Source: Author’s calculations based on COMTRADE




              178 Egyptian Processed Food Sector Review
Table 5.2   Main processed food exports by region: Egypt, Morocco, Turkey (2002)

             Region                   Egypt                             Morocco                           Turkey
                          HS        Product          Share    HS       Product         Share    HS        Product        Share
            Gulf &       2106   Food                 28%     406    Cheese and curd    52%     1905   Biscuits etc.      22%
            S.E. Med.           preparations nes
                         406    Cheese and curd      19%     1604   Prepared or        42%     1806   Chocolate etc.     13%
                                                                    preserved fish
                         710    Frozen               10%     1507   Soya-bean oil      2%      1704   Sugar              11%
                                vegetables                                                            confectionary
                         2004   Prepared or          9%      2101   Coffee & tea       2%      406    Cheese and         11%
                                preserved veg                       extracts                          curd
                                nes - incl. frozen
                                Total of above       65%            Total of above     97%            Total of above     57%
            N. & N.E     2106   Food                 74%     2005   Prepared or        24%     1905   Biscuits etc.      26%
            Africa              preparations nes                    preserved veg.
                                                                    nes - not frozen
                         904-   Herbs and spices     13%     2101   Coffee & tea       21%     1704   Sugar              17%
                         910                                        extracts                          confectionary
                         2101   Coffee & tea         2%      406    Cheese and curd    17%     1806   Chocolate etc.     16%
                                extracts
                         402    Milk and cream       2%      2106   Food               11%     2002   Prepared or        13%
                                                                    preparations nes                  preserved
                                                                                                      tomatoes
                                Total of above       91%            Total of above     74%            Total of above     71%
            European     712    Dried vegetables     52%     1604   Prepared or        53%     2008   Preserved fruits   27%
            Union                                                   preserved fish                    nes
            (15+)        710    Frozen               15%     2005   Prepared or        19%     2001   Pickles            12%
                                vegetables                          preserved veg.
                                                                    nes - not frozen
                         904-   Herbs and spices     11%     811    Frozen fruit and   6%      813    Dried fruit        10%
                         910                                        nuts
                         2202   Beverages (non-      7%      2008   Preserved fruits   5%      2007   Jams etc.          5%
                                alcoholic)                          nes
                                Total of above       85%            Total of above     84%            Total of above     56%
            Americas     2009   Fruit juices         28%     2005   Prepared or        42%     813    Dried fruit        26%
                                                                    preserved veg.
                                                                    nes - not frozen
                         904-   Herbs and spices     23%     1604   Prepared or        38%     904-   Herbs and          18%
                         910                                        preserved fish             910    spices
                         710    Frozen               12%     712    Dried vegetables   11%     1509   Olive oil          10%
                                vegetables
                         712    Dried vegetables     7%      2001   Pickles            2%      2008   Preserved fruits   8%
                                                                                                      nes
                                Total of above       71%            Total of above     94%            Total of above     63%
            Far East &   2007   Jams etc.            30%     1604   Prepared or        37%     2002   Prepared or        38%
            Oceania                                                 preserved fish                    preserved
                                                                                                      tomatoes
                         2101   Coffee & tea         28%     904-   Herbs and spices   35%     813    Dried fruit        16%
                                extracts                     910
                         904-   Herbs and spices     13%     2002   Prepared or        23%     904-   Herbs and          14%
                         910                                        preserved                  910    spices
                                                                    tomatoes
                         712    Dried vegetables     12%     712    Dried vegetables   3%      2008   Preserved fruits   6%
                                                                                                      nes
                                Total of above       84%            Total of above     98%            Total of above     74%

            Source: Author’s calculations based on COMTRADE




            Egyptian Processed Food Sector Review                                                                         179
Table 5.3   Main processed food exports by region: S. Africa, Spain, China (2002)

             Region                 S. Africa                            Spain                            China
                           HS      Product         Share    HS         Product        Share    HS        Product        Share
            Gulf & S.E.   1806   Chocolate etc.    35%     2005   Prepared or         15%     2002   Prepared or        22%
            Med                                                   preserved veg.                     preserved
                                                                  nes - not frozen                   tomatoes
                          2009   Fruit juices      17%     1507   Soya-bean oil       14%     904-   Herbs and          16%
                                                                                              910    spices
                          2008   Preserved         16%     1509   Olive oil           11%     402    Milk and cream     16%
                                 fruits nes
                          2106   Food              15%     1704   Sugar               10%     2008   Preserved fruits   14%
                                 preparations                     confectionary                      nes
                                 nes
                                 Total of          83%            Total of above      51%            Total of above     67%
                                 above
            N. & N.E      2106   Food              24%     1507   Soya-bean oil       27%     904-   Herbs and          38%
            Africa               preparations                                                 910    spices
                                 nes
                          2009   Fruit juices      23%     1604   Prepared or         14%     2008   Preserved fruits   22%
                                                                  preserved fish                     nes
                          1806   Chocolate etc.    13%     402    Milk and cream      8%      2002   Prepared or        18%
                                                                                                     preserved
                                                                                                     tomatoes
                          2202   Beverages         12%     2106   Food preparations   7%      1902   Pasta and          6%
                                 (non-alcoholic)                  nes                                couscous
                                 Total of          72%            Total of above      56%            Total of above     85%
                                 above
            European      2008   Preserved         44%     1509   Olive oil           25%     2005   Prepared or        21%
            Union                fruits nes                                                          preserved veg.
            (15+)                                                                                    nes - not frozen
                          2009   Fruit juices      19%     1604   Prepared or         7%      2002   Prepared or        16%
                                                                  preserved fish                     preserved
                                                                                                     tomatoes
                          406    Cheese and        7%      2009   Fruit juices        7%      2008   Preserved fruits   14%
                                 curd                                                                nes
                          904-   Herbs and         5%      1905   Biscuits etc.       6%      712    Dried vegetables   10%
                          910    spices
                                 Total of          74%            Total of above      45%            Total of above     61%
                                 above
            Americas      2009   Fruit juices      45%     2005   Prepared or         38%     1605   Prepared or        40%
                                                                  preserved veg.                     preserved
                                                                  nes - not frozen                   seafood
                          2008   Preserved         33%     1509   Olive oil           19%     2008   Preserved fruits   12%
                                 fruits nes                                                          nes
                          904-   Herbs and         5%      1704   Sugar               8%      2009   Fruit juices       9%
                          910    spices                           confectionary
                          402    Milk and          4%      2008   Preserved fruits    5%      712    Dried vegetables   6%
                                 cream                            nes
                                 Total of          87%            Total of above      69%            Total of above     68%
                                 above
            Far East &    2008   Preserved         46%     1509   Olive oil           44%     1604   Prepared or        18%
            Oceania              fruits nes                                                          preserved fish
                          2009   Fruit juices      24%     1704   Sugar               18%     1602   Prepared or        14%
                                                                  confectionary                      preserved meat
                          1605   Prepared or       5%      2005   Prepared or         9%      1605   Prepared or        9%
                                 preserved                        preserved veg.                     preserved
                                 seafood                          nes - not frozen                   seafood
                          813    Dried fruit       4%      2009   Fruit juices        7%      2008   Preserved fruits   7%
                                                                                                     nes
                                 Total of          79%            Total of above      78%            Total of above     48%
                                 above

            Source: Author’s calculations based on COMTRADE




            180 Egyptian Processed Food Sector Review
      6 Export situation and position by product
        group



6.1    Cheese & curd

       This section provides an analysis of trade in cheese and curd products (HS code 0406) for
       the benchmark countries. The main focus of the analysis is on unit values, as these
       provides an indication of the positioning of Egyptian exports in terms of cost/quality
       relative to the other benchmark countries. Table 6.1 and Table 6.2 show the value and
       volume of cheese exports for the benchmark countries, with a breakdown by type of
       cheese.

       Table 6.3 shows the average unit values for each of the benchmark countries. Figure 6.1
       provides a plot of the (cumulative) volume of exports against unit values. Each data point
       represents the volume of exports and average unit value to an individual country/market,
       with the data for each benchmark country ordered from highest to lowest unit value,
       moving from left to right; for Egypt, for example, the highest unit value is $US 2,500
       (with a volume of approximately 1 thousand tonnes), and the lowest unit value is roughly
       $US 1,300 (with a volume of approximately 6 thousand tonnes)123. In a sense, the plotted
       lines for each country can be interpreted as a pseudo-demand curve for the countries
       exports, mapping demand (cumulative quantity) against price (unit value).

       What is immediately striking is the low unit value of Egypt’s cheese exports when
       compared to the other benchmark countries; with the exception of the category Cheese
       nes124 (HS 040690) for China, which is not a major exporter. Both in terms of average
       values (Table 6.3) and as shown by the pseudo-demand curve (Figure 6.1)125, the unit
       values of Egypt’s exports are systematically below those of the other countries126. On the
       one hand, this points to the price competitiveness of Egyptian exports of cheese products.
       On the other, it tends to suggest that Egyptian exports are of a lower quality than those of
       the other benchmark countries.

       On key markets for Egyptian cheese exports, namely Saudi Arabia and Jordan, for which
       Morocco is also a key supplier (see Table 6.4 and Table 6.5), it is striking that the unit
       values of Moroccan exports of cheese products are double those achieved by Egypt.
       Overall, the data tend to suggest that there is considerable scope for Egypt to increase the

       123
             These are the exports to Saudi Arabia shown in Table 6.4.
       124
             Not elsewhere specified.
       125
             Spain is not shown in Figure 6.1 as the volume of its exports dwarf those of the other countries shown. China is not shown
             as it is not an important exporter of cheese products.
       126
             Average unit values of Morocco and South Africa are some 50 percent higher, and Turkey some 75 percent higher than
             those of Egypt




       Egyptian Processed Food Sector Review                                                                                        181
            quality (unit value) of its exports of cheese and/or to increase the volume of exports by
            positioning itself as a low cost supplier. However, given Egypt’s structural trade
            imbalance in dairy products, it would seem logical to focus on raising the quality of its
            exports of cheese.

Table 6.1   Cheese and curd: value of exports and imports in 2002, $US million

                                              Egypt           Morocco             Turkey              S. Africa                     Spain          China
                                            Exp      Imp      Exp        Imp     Exp           Imp    Exp           Imp      Exp        Imp       Exp    Imp
            0406      Total                 13.1     35.5     32.1       11.1    19.7          8.7    10.5           8.9    147.1      456.5      1.6     5.7
            040610    Fresh                  0.4      0.7        -        0.5     0.1          2.0     7.1           0.2      33.0      56.1      1.6     0.8
                      Grated or
            040620    powdered               0.1      0.5        -        0.1          -       0.5     0.0           0.7        2.7     28.0        -     0.4
            040630    Processed              7.4      3.5     32.0        0.6    14.9          0.7     0.3           4.5      13.2      41.0        -     1.3
            040640    Blue-veined            0.0      1.9        -        0.1          -       0.2          -        0.3        1.3     30.7        -     0.0
            040690    Cheese nes             5.3     28.9      0.0        9.8     4.8          5.3     3.0           3.2      96.9     300.7      0.0     3.2
            Source: COMTRADE


Table 6.2   Cheese and curd: volume of exports and imports in 2002, thousand tons

                                                   Egypt        Morocco                Turkey           S. Africa                   Spain          China
            HS code                           Exp      Imp     Exp        Imp     Exp           Imp    Exp           Imp      Exp       Imp       Exp    Imp
            0406       Total                   8.7    16.1     14.1        4.4     7.5          4.4     4.6           3.1     52.2     145.1      0.6     2.5
            040610     Fresh                   0.2      0.3          -     0.2     0.0          1.8     3.0           0.0     15.8      24.9      0.6     0.3
            040620     Grated or powdered      0.0      0.1          -     0.0             -    0.1     0.0           0.2      0.8          8.0     -     0.1
            040630     Processed              4.8       0.9    14.1        0.2     5.6          0.1     0.1           2.0      4.3      15.0        -     0.5
            040640     Blue-veined             0.0      0.5          -     0.0             -    0.1             -     0.1      0.2          9.1     -     0.0
            040690     Cheese nes              3.7    14.2       0.0       4.0     1.9          2.3     1.5           0.9     31.1      88.1      0.0     1.6
            Source: COMTRADE


Table 6.3   Cheese and curd: unit value of exports in 2002, $US per ton

                                                      Egypt              Morocco               Turkey               S. Africa          Spain        China
            0406       Total                            1,508                  2,270             2,622                     2,281        2,821           2,647
            040610     Fresh                            1,581                      -             2,032                     2,386        2,081           2,709
            040620     Grated or powdered               1,767                      -                    -                  2,875        3,641               -
            040630     Processed                        1,548                  2,270             2,674                     2,846        3,041               -
            040640     Blue-veined                      1,091                      -                    -                       -       8,263               -
            040690     Cheese nes                       1,449                  2,438             2,477                     2,028        3,120           1,200
            Source: COMTRADE




            182 Egyptian Processed Food Sector Review
Figure 6.1              Curd & cheese: volume of exports (tons) and unit values ($ per ton)

                       5000


                       4500


                       4000


                       3500
      Unit value ($)




                       3000


                       2500


                       2000


                       1500


                       1000


                       500


                          0
                              0          2                4              6               8            10             12               14           16

                                                              Cumulative quantity of total exports (thousand tons)

                                                               Egypt         Morocco         Turkey    S. Africa



Table 6.4               Saudi Arabia, imports of cheese & curd, 2002

                                                                                                                      Import trend         Import trend
                                                                 Share in                                                  in value        in quantity
                                             Imported              Saudi           Imported                                between          between
                                             value, US$          Arabia’s          quantity,          Unit value          1998-2002,       1998-2002,
                              Exporter       thousand           imports, %             tonnes         (US$/unit)           %, p.a.           %, p.a.
                        World                   211,770                  100             75,360             2,810                     3                 4
                        Morocco                   8,576                       4              3,100          2,766                    16                 9
                        Egypt                     7,627                       4              5,964          1,279                    64                32
                        Turkey                      345                       0               214           1,612                 56                   82
                        Spain                        23                       0                  3          7,667                -59               -72
                        Source: COMTRADE


Table 6.5               Jordan, imports of cheese & curd, 2002

                                                                                                                      Import trend         Import trend
                                                                 Share in                                                  in value        in quantity
                                             Imported              Saudi           Imported                                between          between
                                             value, US$          Arabia’s          quantity,          Unit value          1998-2002,       1998-2002,
                              Exporter       thousand           imports, %             tonnes         (US$/unit)           %, p.a.           %, p.a.
                        World                    23,658                  100                 9,630          2,457                     5                 9
                        Morocco                   4,618                      20              1,346          3,431                      -                 -
                        Egypt                     2,803                      12              1,606          1,745                    48                66
                        Turkey                      126                       1                 48          2,625                      -                 -
                        Source: COMTRADE




                        Egyptian Processed Food Sector Review                                                                                      183
6.2   Fruit Juices

      This section provides an analysis of trade in fruit juices (HS code 2009) for the
      benchmark countries. The main focus of the analysis is on unit values, as these provides
      an indication of the positioning of Egyptian exports in terms of cost/quality relative to the
      other benchmark countries, Table 6.6 and Table 6.7 show the value and volume of fruit
      juice exports for the benchmark countries, with a breakdown by type of juice.

      Table 6.8 shows the average unit values for each of the benchmark countries. Figure 6.2
      provides a plot of the (cumulative) volume of exports against unit values for the sub-
      category “fruit and vegetable juice nes” (HS 200980)127, which is the main export
      category for Egypt. Figure 6.3 is based on the same data as Figure 6.2, but rather than
      plotting the absolute quantity of exports, the cumulative share of total export volumes is
      shown128.

      With regard to the main fruit juice export category for Egypt, “fruit and vegetable juice
      nes”, Egypt is positioned in terms of unit values in a mid-way point, with higher average
      unit values than Turkey and South Africa, but lower than those for Spain and China. In
      fact, it appears that Egypt has been quite successful in achieving a premium price for its
      export’s of this juice category. The most important market for Egyptian exports of fruit
      juice is the Americas (see Table 6.9), essentially the USA, which accounts for three-
      quarters of Egypt’s exports. As shown in Table 6.10, Egypt is the largest supplier
      amongst the benchmark countries to the USA of this juice category, and only Spain –
      with a much smaller level of exports – achieves a higher average value. At the same time,
      the data indicate the rapid increase in the value of China’s exports to the USA, which are
      estimated to have increased by 165 percent per annum over the period 1998-2002. Given
      that the average unit value of US imports from China is only 40 percent of that of Egypt,
      it suggests that Chinese exports may represent a considerable competitive threat to
      Egyptian fruit juice exports.




      127
            This covers “exotic” fruit juices.
      128
            Morocco is not included as it is not a major exporter of this product category.




      184 Egyptian Processed Food Sector Review
Table 6.6   Fruit and vegetable juices: value of exports and imports in 2002, $US million

                                                Egypt        Morocco         Turkey            S. Africa          Spain             China
                                              Exp     Imp    Exp    Imp     Exp    Imp         Exp     Imp    Exp       Imp      Exp       Imp
                 2009    Total                8.03    0.99   6.80   3.63   36.25   5.38       92.03    4.11   321.99   133.97    199.31    55.45

            200911       Orange juice         0.06    0.03   3.51   0.97    0.15   2.04       13.12    0.03    14.91    26.96      2.48    43.24
            200919       Orange juice nes     0.34    0.07   3.18   0.08    1.02   1.49        2.59    0.03   108.29    38.14      0.70     1.92
            200920       Grapefruit juice     0.02    0.02   0.07   0.02    0.02    0.43       7.67    0.00     5.64      4.64     0.19     0.59
                         Citrus fruit juice
            200930       nes                  0.16    0.07   0.02   0.15    0.48   0.43        1.22    0.02    27.92      5.06     0.29     0.34
            200940       Pineapple juice      0.04    0.01      -   0.19    0.05    0.20       6.15    0.06     5.49    21.44      2.08     0.16
            200950       Tomato juice             -   0.01      -   0.05    0.45          -    0.02    0.02     1.26      4.09         -    0.11
            200960       Grape juice              -   0.30      -   0.04    0.62          -    9.44    0.38    79.54      1.67     0.39     4.79
            200970       Apple juice              -   0.23      -   0.61   22.27   0.03        7.61    1.87    17.35      6.82   173.07     0.37
                         Fruit & veg. juice
            200980       nes                  7.02    0.12      -   0.91   10.39   0.29       19.95    1.63    15.67    10.43     18.65     2.72
            200990       Mixtures of juices   0.33    0.08      -   0.62    0.81    0.49      24.26    0.07    45.91    14.73      1.46     1.21

            Source: COMTRADE


Table 6.7   Fruit and vegetable juices: volume of exports and imports in 2002, thousand tonnes

                                                Egypt        Morocco        Turkey             S. Africa         Spain              China
                                              Exp     Imp Exp Imp          Exp     Imp        Exp      Imp    Exp      Imp       Exp       Imp
                 2009 Total                   10.87   1.08   8.03   7.88   55.02   3.97       140.64   5.20   518.42   160.35    323.35    47.30
                        - tonnes               4.73

                        - cubic meters         6.14

            200911 Orange juice                0.04   0.03   2.89   0.84    0.21   1.43        12.41   0.02    30.31    24.13      2.32    34.69

            200919 Orange juice nes            0.65   0.07   5.00   0.20    2.22   0.90         4.59   0.06   210.13    55.99      0.82     2.43

            200920 Grapefruit juice            0.00   0.04   0.05   0.03    0.02   0.25         9.74   0.00     7.55      7.57     0.17     0.46

            200930 Citrus fruit juice nes      0.20   0.08   0.04   0.17    0.82   0.22         1.72   0.02    44.88      6.55     0.41     0.38

            200940 Pineapple juice             0.01   0.03      -   0.50    0.12   0.18         8.23   0.12     8.21    21.76      2.31     0.21

            200950 Tomato juice                   -   0.03      -   0.08    0.73      -         0.03   0.05     2.76      5.58         -    0.25

            200960 Grape juice                    -   0.30      -   0.05    0.98      -        13.64   0.84   103.89      1.58     0.27     4.04

            200970 Apple juice                    -   0.23      -   0.58   32.71   0.58        10.91   3.19    24.53    12.14    296.57     0.57
                        Fruit & veg. juice

            200980 nes                         9.44   0.11      -   3.80   15.55   0.14        31.97   0.78    17.33    13.88     18.55     3.16
                        - tonnes               3.44
                        - cubic meters         6.01

            200990 Mixtures of juices          0.53   0.12      -   1.63    1.67   0.26        47.40   0.13    68.83    11.18      1.93     1.11
                        - tonnes               0.40

                        - cubic meters         0.13
            Notes:
            1.     For Egypt, selected export data (mirror estimates) are reported in cubic meters. Where this occurs separate figures are
                   given. Aggregate figures are estimated assuming 1 cubic meter = 1 ton.

            Source: COMTRADE and author’s calculations




            Egyptian Processed Food Sector Review                                                                                           185
Table 6.8                     Fruit Juice: unit value of exports in 2002, $US per ton

                                                                          Egypt              Morocco            Turkey        S. Africa     Spain     China
                              2009       Total                                    730               847               659           654         621         616
                                         - tonnes                                 590
                                         - cubic meters                           839
                              200911     Orange juice                        1,730                 1,214              704          1,058        492        1,068
                              200919     Orange juice nes                         523               636               459           565         515         848
                              200920     Grapefruit juice                    4,250                 1,327             1600           787         747        1,130
                              200930     Citrus fruit juice nes                   787               465               589           708         622         718
                              200940     Pineapple juice                     4,375                                    395           747         669         901
                              200950     Tomato juice                                                                 611           676         458
                              200960     Grape juice                                                                  636           692         766        1,443
                              200970     Apple juice                                                                  681           698         707         584
                              200980     Fruit & veg. juice nes                   741                                 668           624         904        1,005
                                         - tonnes                                 570
                                         - cubic meters                           839
                              200990     Mixtures of juices                       619                                 483           512         667         755
                                         - tonnes                                 548
                                         - cubic meters                           838
                          Notes:
                          1.   For Egypt, selected export data (mirror estimates) are reported in cubic meters. Where this occurs separate figures are
                               given. Aggregate figures are estimated assuming 1 cubic meter = 1 ton.

                              Source: COMTRADE and author’s calculations


Figure 6.2                    Fruit & vegetable juice nes: volume of exports (tons) and unit values ($ per ton)

                   1600



                   1400



                   1200



                   1000
  Unit value ($)




                   800



                   600



                   400



                   200



                      0
                          0          2   4       6     8      10     12      14         16    18      20        22     24     26    28     30   32    34

                                                             Cumulative quantity of total exports (thousand tons)

                                                           Egypt     Spain         Turkey           S. Africa         China




                              186 Egyptian Processed Food Sector Review
Figure 6.3                 Fruit & vegetable juice nes: volume of exports (share in %) and unit values ($ per ton)

                   1600



                   1400



                   1200



                   1000
  Unit value ($)




                   800



                   600



                   400



                   200



                      0
                          0%                   20%                 40%                     60%                   80%               100%

                                                             Cumulative share of total export volume

                                                     Egypt      Spain      Turkey      S. Africa       China



Table 6.9                  Geographical composition of exports of fruit and vegetable juice nes, $US million, 2002

                                                        Egypt              Turkey            S. Africa            Spain           China
                           Gulf & S.E. Med            0.81   11.5%        1.05   10.1%      0.79       4.0%     0.08   0.5%     0.14      0.8%
                           N. & N.E Africa            0.02    0.3%        0.06      0.6%    0.05       0.3%     0.16   1.0%     0.00      0.0%
                           W., Central & S
                           Africa                     0.16    2.3%        0.03      0.3%    3.72       18.6%    0.11   0.7%     0.16      0.9%
                           European Union
                           (15+)                      0.59    8.4%        4.85   46.7%      2.48       12.5%   14.27   91.1%    1.84      9.9%
                           Other Europe                  -         -      0.09      0.9%    0.15       0.8%     0.08   0.5%        -         -
                           Cent. & E. Europe             -         -      0.44      4.3%           -       -    0.36   2.3%     0.06      0.3%
                           Former Soviet Union           -         -      0.82      7.9%           -       -       -       -    0.13      0.7%
                           Central Asia                  -         -      2.30   22.2%             -       -       -       -       -         -
                           America                    5.41   77.0%        0.37      3.6%    8.77       44.0%    0.25   1.6%     2.96   15.9%
                           Far East & Oceania         0.02    0.3%        0.15      1.4%    3.94       19.7%    0.18   1.2%    13.31   71.4%
                           Total                      7.02 100.0%        10.39 100.0%      19.95 100.0%        15.67 100.0%    18.65 100.0%
                               Source: Author’s calculations based on COMTRADE




                           Egyptian Processed Food Sector Review                                                                           187
Table 6.10   United States, imports of fruit & vegetable juices nes, 2002

                                                                                                             Import trend      Import trend
                                                                         Imported                               in value       in quantity
                                   Imported           Share in           quantity,                             between          between
                                  value, US$            USA’s              cubic           Unit value         1998-2002,       1998-2002,
               Exporter            thousand          imports, %           meters           (US$/unit)           %, p.a.          %, p.a.
             World                     107,677                 100           228,957                 470                   4           N.A.
             Egypt                        5,017                   5             5,976                840                  26           N.A.
             China                        3,096                   3             9,710                319               165             N.A.
             South Africa                 2,803                   3             5,717                490                   0           N.A.
             Turkey                         319                   0               449                710                  -6           N.A.
             Spain                          166                   0               169                982                -19            N.A.
             Source: COMTRADE




     6.3     Tomato Products

             This section provides an analysis of trade in tomato-based products. The analysis covers 3
             product categories: (1) prepared or preserved tomatoes – whole or in pieces (HS code
             200210); (2) prepared or preserved tomatoes – other (HS code 200290); and (3) tomato
             ketchup and other tomato sauces (HS code 210320). The main focus of the analysis is on
             unit values, as these provide an indication of the positioning of Egyptian exports in terms
             of cost/quality relative to the other benchmark countries. It should be noted, however, that
             the recorded value and volume of Egypt’s exports of the prepared or preserved categories
             of tomato products is very small and so it is difficult to be certain to what extent the
             position and potential of Egypt can be evaluated from the available data. Table 6.11 and
             Table 6.12 show the value and volume of tomato product exports for the benchmark
             countries.

             Table 6.13 shows the average unit values for each of the benchmark countries. Figure 6.4
             provides a plot of the (cumulative) volume of exports of prepared and preserved tomato
             products (HS 2002). Figure 6.5 is based on the same data as Figure 6.4, but rather than
             plotting the absolute quantity of exports, the cumulative share of total export volumes is
             shown129. Figure 6.6 provides a plot of the (cumulative) volume of exports of tomato
             ketchup and other tomato sauces (HS 210320). Figure 6.7 is based on the same data as
             Figure 6.6 but rather than plotting the absolute quantity of exports, the cumulative share
             of total export volumes is shown130.

             The recorded volume of Egyptian exports of prepared tomatoes is low (see Table 6.12
             and Figure 6.4), but when the cumulative share of exports is plotted against unit values,
             the general pattern is similar to that shown for the other benchmark countries (Figure
             6.5). Prepared or preserved tomatoes are basically a standard commodity with only
             limited variation across countries in unit values of exports.


             129
                   Morocco is not included as it has recorded unit values far beyond those recorded for the other countries.
             130
                   Morocco is not included as it is not a major exporter of this product category.




             188 Egyptian Processed Food Sector Review
             The situation for tomato ketchup and other tomato sauces is somewhat different, with the
             data suggesting that Egypt achieves the highest unit values among the benchmark
             countries for its exports of this product category.

Table 6.11   Tomato products: value of exports and imports in 2002, $US million

                                                Egypt         Morocco            Turkey       S. Africa          Spain              China
                                             Exp     Imp     Exp     Imp       Exp     Imp    Exp     Imp     Exp        Imp      Exp      Imp
             N.A.     Tomato products         2.12    1.53    4.07    0.86     92.24   0.94   1.79    2.73    197.16     23.00   191.44    3.66
             200210   Tomatoes, prepared      0.03    0.08    0.08    0.12     12.31      -   0.48    1.43     24.81      0.67     0.85    0.13
                      or preserved (whole
                      or pieces)
             200290   Tomatoes, prepared      0.13    1.33    3.96    0.24     77.30   0.75   0.78    0.67    113.64     11.40   188.62    0.93
                      or preserved (other)
             210320   Tomato ketchup and      1.95    0.12    0.04    0.50      2.64   0.19   0.54    0.62     58.71     10.93     1.97    2.61
                      other tomato sauces

             Source: COMTRADE and author’s calculations


Table 6.12   Tomato products: volume of exports and imports in 2002, thousand tonnes

                                              Egypt          Morocco            Turkey        S. Africa          Spain              China
                                             Exp     Imp     Exp     Imp      Exp      Imp    Exp     Imp     Exp        Imp      Exp      Imp
             N.A.     Tomato products        1.70    2.20    1.68    0.89     153.26   1.10   2.22    6.39    264.23     27.07   377.83    4.40
             200210   Tomatoes, prepared     0.04    0.17    0.01    0.21      24.90      -   0.41    4.02     67.54      1.14     2.07    0.28
                      or preserved (whole

                      or pieces)
             200290   Tomatoes, prepared     0.22    1.94    1.63    0.19     124.22   0.86   1.09    1.01    138.49     17.72   373.42    2.11
                      or preserved (other)
             210320   Tomato ketchup and     1.44    0.09    0.04    0.49       4.14   0.24   0.72    1.36     58.19      8.21     2.34    2.01
                      other tomato sauces

             Source: COMTRADE and author’s calculations


Table 6.13   Tomato products: unit value of exports in 2002, $US per ton

                                                                                                                    S.
                                                                            Egypt      Morocco       Turkey     Africa       Spain        China
             200210   Tomatoes, prepared or preserved (whole or

                      pieces)                                                 714         6,818         494       1,161          367        411
             200290   Tomatoes, prepared or preserved (other)                 594         2,426         622         713          821        505
             210320   Tomato ketchup and other tomato sauces                 1,361        1,056         638         747        1,009        843
             Source: COMTRADE and author’s calculations




             Egyptian Processed Food Sector Review                                                                                         189
Figure 6.4                   Prepared & preserved tomatoes: volume of exports (tons) and unit values ($ per ton)

                      1600



                      1400



                      1200



                      1000
   Unit value ($)




                       800



                       600



                       400



                       200



                         0
                             0          50            100            150            200            250             300         350   400

                                                            Cumulative quantity of total exports (thousand tons)

                                                        Egypt       Spain        Turkey      S. Africa     China



Figure 6.5                   Prepared & preserved tomatoes: volume of exports (share in %) and unit values ($ per ton)

                      1600



                      1400



                      1200



                      1000
     Unit value ($)




                       800



                       600



                       400



                       200



                         0
                             0%                 20%                        40%                  60%                      80%         100%

                                                                 Cumulative share of total export volume

                                                        Egypt       Spain        Turkey      S. Africa     China




                             190 Egyptian Processed Food Sector Review
Figure 6.6                   Tomato ketchup and other tomato sauces: volume of exports (tons) and unit values ($ per ton)

                      1600



                      1400



                      1200



                      1000
   Unit value ($)




                      800



                      600



                      400



                      200



                         0
                             0         0.5            1           1.5            2            2.5           3           3.5     4    4.5

                                                           Cumulative quantity of total exports (thousand tons)

                                                              Egypt         Turkey        S. Africa       China




Figure 6.7                   Tomato ketchup and other tomato sauces: volume of exports (share in %) and unit values ($ per ton)

                      1600



                      1400



                      1200



                      1000
     Unit value ($)




                       800



                       600



                       400



                       200



                         0
                             0%                 20%                        40%                      60%                   80%       100%

                                                                  Cumulative share of total export volume

                                                          Egypt         Spain        Turkey    S. Africa        China




                             Egyptian Processed Food Sector Review                                                                         191
     6.4     Frozen Vegetables

             This section provides an analysis of trade in frozen vegetables (HS code 0710) for the
             benchmark countries. The main focus of the analysis is on unit values, as these provides
             an indication of the positioning of Egyptian exports in terms of cost/quality relative to the
             other benchmark countries, Table 6.14 and Table 6.15 show the value and volume of
             frozen vegetable exports for the benchmark countries, with a breakdown by type of
             vegetable. Table 6.16 shows the average unit values for each of the benchmark countries.

             In terms of relative unit values, the position of Egypt is variable depending on the
             category of vegetable. Average unit values of Egyptian exports are relatively high
             (compared to the other benchmark countries) for frozen potatoes and “other” vegetables
             but low for spinach and mixed vegetables and other leguminous vegetables. For beans,
             Morocco and Spain have higher unit vales but China achieves lower unit values. Overall,
             Egypt achieves the second highest average unit value for frozen vegetables amongst the
             benchmark countries. China, has the highest average unit value, which is almost certainly
             a reflection of the high value/cost of frozen vegetables in its principal export market,
             namely Japan.

Table 6.14   Frozen vegetables: value of exports and imports in 2002, $US million

                                            Egypt        Morocco        Turkey        S. Africa           Spain             China
                                          Exp     Imp    Exp    Imp    Exp     Imp    Exp    Imp      Exp       Imp      Exp      Imp
             0710     Frozen vegetables   14.01   0.03   5.41   0.04   27.81   0.90   5.40   2.32     176.36   100.68    299.02   11.05
             071010   Potatoes             0.77      -   0.13      -    0.04   0.08   0.82        -     6.05    41.85      0.88    0.07
             071021   Peas                 0.47      -      -   0.03    0.28      -   0.07   0.73       4.70    10.70      2.66    1.46

             071022   Beans                1.51      -   3.03      -    0.23      -   0.01   0.19       3.98      7.73     7.22    0.05
             071029   Other leguminous     0.50      -      -      -    0.04      -   0.05   0.07       1.70      2.54    76.42    2.49
                      vegetables
             071030   Spinach              0.58      -      -      -    0.09      -      -        -     7.87      1.92    17.00       -
             071040   Sweetcorn            0.04   0.02   1.17      -       -   0.66   0.16   0.30       6.41      2.34     0.96    6.44
             071080   Other vegetables     8.42      -   0.81      -   27.10   0.15   3.76   0.39     141.49    28.68    161.72    0.49
             071090   Mixed vegetables     1.62      -   0.28      -    0.02      -   0.53   0.64       4.16      4.92    32.17    0.04

             Source: COMTRADE and author’s calculations




             192 Egyptian Processed Food Sector Review
Table 6.15   Frozen vegetables: volume of exports and imports in 2002, thousand tons

                                               Egypt         Morocco           Turkey           S. Africa            Spain                  China
                                             Exp     Imp     Exp    Imp       Exp     Imp       Exp     Imp       Exp         Imp      Exp      Imp
             0710      Frozen vegetables     16.25   0.04    7.60    0.14     52.41   1.26      9.18    4.17     229.09   159.67      341.29    16.09

             071010    Potatoes               1.18       -   0.32         -    0.24   0.19      1.83         -    17.86       72.51     1.57     0.04
             071021    Peas                   0.64       -      -    0.13      0.55         -   0.27    1.12       7.38       19.99     2.85     2.06
             071022    Beans                  2.29       -   3.33         -    0.41         -   0.02    0.41       5.21       15.18    15.02     0.06
             071029    Other leguminous       0.78       -      -         -    0.04         -   0.05    0.15       2.27        2.80    81.37     6.24
                       vegetables
             071030    Spinach                0.96       -      -         -    0.13         -      -         -    12.18        3.12    22.65        -
             071040    Sweetcorn             N.A..   0.02    2.65         -    0.00   0.94      0.47    0.37       8.93        6.41     1.65     7.07
             071080    Other vegetables       6.66       -   0.93         -   51.01   0.13      5.53    0.79     171.38       33.99   186.07     0.57
             071090 Mixed vegetables        3.60        - 0.36         -     0.03       - 1.00 1.33        3.90       5.69    30.11              0.06
             Notes:
             1.   For Egypt, no export volume data are given for exports to Israel. Hence the volume of exports are underestimated.

             Source: COMTRADE and author’s calculations


Table 6.16   Frozen vegetables: unit value of exports in 2002, $US per ton

                                                               Egypt          Morocco           Turkey           S. Africa       Spain         China
             0710        Frozen vegetables                          781               713              531              589           770        876
             071010      Potatoes                                   651               397              156              448           339        564
             071021      Peas                                       689                0               508              270           637        933
             071022      Beans                                      657               910              556              600           765        480
             071029      Other leguminous vegetables                545                0               932              904           751        939
             071030      Spinach                                    600                0               722                0           646        750
             071040      Sweetcorn                                    0               443                0              331           718        582
             071080      Other vegetables                       1,100                 863              531              680           826        869
             071090     Mixed vegetables                          450               769           815            528       1,068               1,069
             Notes:
             1.   For Egypt, unit values are estimated excluding exports to Israel, for which no export volumes are given.

             Source: COMTRADE and author’s calculations




     6.5     Olive Products

             This section provides an analysis of trade in olive products for the benchmark countries.
             The analysis covers 4 product categories: (1) virgin olive oil (HS code 150910); (2) other
             olive oil (HS code 150990; (3) prepared or preserved olives (HS code 200570); and (4)
             provisionally prepared or preserved olives not fit for immediate consumption (HS code
             071120). The main focus of the analysis is on unit values, as these provide an indication
             of the positioning of Egyptian exports in terms of cost/quality relative to the other
             benchmark countries, Table 6.17 and Table 6.18 show the value and volume of olive
             product exports for the benchmark countries. Table 6.19 shows the average unit values
             for each of the benchmark countries.

             With regard to the unit values of export, the most obvious feature of the data is that Egypt
             systematically has the lowest unit values among the benchmark countries.




             Egyptian Processed Food Sector Review                                                                                               193
Table 6.17   Olive products: value of exports and imports in 2003, $US million

                                                        Egypt             Morocco              Turkey         S. Africa        Spain            China
                                                    Exp       Imp         Exp        Imp     Exp      Imp    Exp     Imp     Exp      Imp     Exp      Imp
                        Olive products - total          5.6       0.5     81.8       20.4    206.8     2.1     0.9   11.1   1,905.5    97.0     0.2     2.3


             1509       Olive Oil                       1.7       0.3      7.0       20.4    162.0     1.9     0.7   10.4   1,403.4    92.4     0.2     2.0
             150910     - Virgin oil                    1.6       0.2      5.8       13.8     96.0     1.9     0.3    6.9   1,128.7    66.1       -     1.0
             150990     - Other oil,                    0.0       0.2      1.2        6.6     66.0       -     0.4    3.5     274.7    26.3     0.2     0.9


             200570     Olives – prepared or            3.4       0.2     74.8        0.0     44.8     0.2     0.1    0.6     472.2     4.0       -     0.1
                        preserved
             071120     Olives – provisionally          0.5         -      0.1        0.0      0.0       -     0.1    0.1      30.0     0.6       -     0.2
                        preserved

             Source: COMTRADE and author’s calculations


Table 6.18   Olive products: volume of exports and imports in 2003, thousand tons

                                                   Egypt                Morocco               Turkey          S. Africa        Spain            China
                                                 Exp      Imp       Exp          Imp        Exp       Imp    Exp     Imp    Exp       Imp     Exp      Imp
                        Olive products - total   3.94     0.17      55.39       10.58       115.03    1.24   0.20    3.99   860.28    48.79    0.03    0.92


             1509       Olive Oil                0.56     0.10          3.07    10.53        75.19    1.11   0.12    3.49   532.01    43.25    0.03    0.76
             150910     - Virgin oil             0.54     0.05          2.52     7.32        42.98    1.11   0.06    2.12   433.42    32.01       -    0.36
             150990     - Other oil,             0.02     0.05          0.55     3.21        32.21       -   0.07    1.37    98.59    11.24    0.03    0.40


             200570     Olives – prepared or
                        preserved                2.81     0.07      52.25        0.02        39.82    0.13   0.05    0.38   299.25     3.67       -    0.05
             071120     Olives – provisionally
                        preserved                0.58         -         0.07     0.02         0.02       -   0.03    0.12    29.01     1.87       -    0.10
             Notes:
             1.     For Egypt, no export volume data are given for exports to Israel. Hence the volume of exports is underestimated.

             Source: COMTRADE and author’s calculations


Table 6.19   Olive products: unit value of exports in 2003, $US per ton

                                                                         Egypt          Morocco          Turkey        S. Africa      Spain       China
             1509         Olive Oil                                       1,941               2,280          2,155          5,813      2,638          5,207
             150910       - Virgin oil                                    1,947               2,281          2,234          6,036      2,604              -
             150990       - Other oil,                                    1,733               2,270          2,049          5,632      2,786          5,207


             200570       Olives – prepared or preserved                  1,046               1,431          1,125          2,128      1,578              -
             071120       Olives – provisionally preserved                     894            1,014          1,313          2,188      1,034              -
             Notes:
             2.     For Egypt, unit values are estimated excluding exports to Israel, for which no export volumes are given.

             Source: COMTRADE and author’s calculations




             194 Egyptian Processed Food Sector Review
V General Strategy




 Egyptian Processed Food Sector Review   195
 1 Introduction




      The Egyptian food processing industry has the underlying strengths and capabilities to
      succeed in the competitive environment that it will confront when it enters into Arab free
      trade agreements. But, it is less prepared to compete in global markets where it will face
      full competition from developed countries. Yet, it is global competitiveness that will
      provide the ultimate test of its ability to increase export earnings and also to use resources
      productively in domestic and regional markets.

      A competitive food processing industry is one that, by definition, is ‘efficient’ in terms of
      providing products of good quality and low prices with the minimal use of inputs, capital
      and labour. It is also one that is able to raise productivity in line with changing
      technologies. Competitiveness must be the final objective of the Egyptian food processing
      industry.

      This chapter provides a strategy for the Egyptian food-processing sector. While
      exhaustive analysis cannot be done due to lack of reliable data for a detailed action plan,
      the information collected by the study team about the current situation of the Egyptian
      food processing industry is enough to start with broad policy initiatives.
      Time is of the essence in strategy for the food processing industry in the current
      setting of intensifying competition and rapid technical change, and delay will
      impose additional costs.

      Mounting strategy for the food processing industry is very demanding on the
      government. It calls for a coherent vision and consistent inter-agency
      coordination. It also calls for considerable building of consensus among the major
      stakeholders (enterprises, employees, associations, ministries and institutions).


1.1   Stages in the industrial strategy process

      The development of industrial strategies in general and of food industries in particular
      involves five main steps (Figure 1.1).

      The first stage is a detailed assessment of the industrial sector and main sub-sectors. This
      involves evaluating industrial performance in domestic and export markets and the main
      drivers of performance. During the study, the team has, whenever possible used
      quantitative measurements and benchmarks against selected countries within the region
      (Morocco, Turkey), other developing countries that are likely to offer direct competition
      to Egypt (South Africa, China), and more advanced countries that serve as role models
      (Spain).



          Egyptian Processed Food Sector Review                                                  197
             The second stage is consensus building among the stakeholders, identifying the critical
             problems and defining the vision and objectives. The study team in consultation with
             stakeholders in the industry developed a proposal for the national strategic vision for the
             food-processing sector. In the proposal, the overall goals that the government needs to
             define for short and long-term implementation and how to strengthen or create the
             capabilities to reach those goals are outlined.

             The third stage is designing policies and programmes.

             The fourth is the implementation of these policies and programmes.

             The fifth is monitoring the progress of the strategy, assessing their success and adjusting
             them as necessary. The third, fourth and fifth stages will be implemented (if the proposal
             is agreed on) by the government (IMC or the MOFTI, in collaboration with all stake
             holders).

             The study of the Egyptian food-processing sector shows a complex set of interrelated
             opportunities and constraints, some of which apply to all economic activities, while
             others are more specific to the manufacturing sector. Since some issues are specific to
             food processing, a sector-focused approach does provide a basis upon which to move
             forward, rather than being overwhelmed by the magnitude of needs at the national
             manufacturing level.

Figure 1.1   Stages in the industrial strategy process




                                                      2. Building
                                                    Strategic Vision
                                                    and Consensus
                                                                              3. Design Action
                       1. Assessment                                           Programs and
                      of performance                                             Policies
                        and drivers




                                    5. Monitoring                       4. Implement
                                                                       Action Programs
                                                                         and Policies




             For this reason four product groups within the food processing sector (namely, fruit
             juices, processed vegetables, cheese and olive products) were selected for further in depth
             analysis and formulation of the development strategy proposal, while the cross cutting
             issues that are relevant for the food-processing sector are described in general.




             198 Egyptian Processed Food Sector Review
             In arriving at the above mentioned selection of product groups for further analysis, the
             study team set out some criteria for selection. Broadly speaking the criteria were based on
             the performance and potential of the products in the domestic, regional and international
             markets, the level of compliance of the product to international standards, the competitive
             advantage of the product/product-group, the supply of raw materials, level of value
             addition etc. The range of selection criteria were presented to the Project Steering
             Committee and approved prior to the in-depth analysis of each selected product/product-
             group.


     1.2     Value chain of the Egyptian food processing industry

             Generic value chain of the Egyptian food processing and market chain can be presented
             schematically, as shown in Figure 1.2

             As can be seen from the schematic diagram, there are many different entities involved in
             the value chain of Egyptian food processing industries from the farmers to the consumers.
             Therefore, a meaningful partnership, network and coordination between producers,
             processors, retailers, and support industries such as packaging and transport companies
             must be established to maximise the economic benefit to all partners. This strategic
             network, between numbers of independent business organizations within the value chain,
             should have a shared vision and common goals.

Figure 1.2   Schematic diagram of the Egyptian food processing value chain


                     Domestic                                                                     Restaurants
                      supply                                                                         bulk
                        of                                                                        consumers
               S                    Collection
                       Raw
                                    wholesale
                     materials                               Food
               U                      trade
                                                           industry          FOOD    FOOOD    D
                                                                             WHOLE   RETAIL
                                                                                                  Private
               P
                                                                             SALE
                                                                                              E   consumption
                                                                                     SALE
                                                                                              M
               L
                                                                                              A
               Y                                                                              N
                                                                                              D
                     Import

                                                                                                   Exports




             The Egyptian food processing industries are under great pressure from the changing
             situation in the global environment, probably more than any sector in the manufacturing
             industry. The four most important conditions that create pressure on the Egyptian industry
             can be schematically presented as in figure 1.3




                   Egyptian Processed Food Sector Review                                                     199
Figure 1.3   Pressures faced by the Egyptian food industry from the changing international situation


                     Internationalization                                                        changes in food trade
                          of markets                                                              concentration of market
                         Increased                                                                centralized global sourcing
                         competition                                                              growing private labels
                         Integration and
                         globalization of
                         markets


                                                              Egyptian food
                                                            processing industry
                                                                                                       changes in food
                  Harmonization of laws                                                                   demand
                                                                                                        attitudes and
                       food laws                                                                        behaviours of
                     Trnasporation laws,                                                                consumers
                     environmental law                                                                  desire for diversity
                     tax laws.                                                                          development of new
                     product liability laws                                                             products




             200 Egyptian Processed Food Sector Review
 2 SWOT Analysis




      The strengths, weaknesses, opportunities and threats of the Egyptian food processing
      industry that are mainly based on the local conditions are presented below.


2.1   Strengths

      •   Capability of Egyptian agriculture to produce different varieties of fruits and
          vegetables in different seasons all year round.
      •   The ability to utilize indigenous inputs in order to produce innovative speciality
          products for local and regional markets.
      •   Access to packaging materials at competitive prices domestically (but may be of low
          quality).
      •   Industry has had a proven track record of export performance, especially the fruit and
          vegetable sub-sector.
      •   Key geographical location; proximity to Gulf Arab countries and Europe; two to three
          days and less than a week to reach the Gulf and European sea ports respectively.
      •   Low labour cost compared to regional and developed countries, and increased
          availability of skilled labour.
      •   Direct sea and air shipping services to Europe for enhanced export performance.
      •   A growing tourism industry.
      •   Improved quality and HACCP system in the food industries in the last four years has
          reduced trade barriers in the trade of fruit and vegetables while some improvement is
          required in the dairy, meat and fish sector.
      •   Increasingly improving business environment such as tax incentives to exporters and
          investors, improved customs regulations etc.
      •   Issuance of the new unified food law will facilitate and clarify the misunderstanding
          between traders, processors and food law enforcement agencies; also the
          establishment of a new National Food Authority.


2.2   Weaknesses

      •   Due to the inability of the majority of companies to invest in research and
          development, there is a low level of innovation within the sector and therefore a lack
          of new products.
      •   The agriculture system is underdeveloped, fragmented and the use of local raw
          materials on a commercial scale is hampered by an inconsistent supply of raw
          material to the industries due to the lack of contract farming and the often very weak
          relations between the growers and processors.


          Egyptian Processed Food Sector Review                                               201
      •   Poor logistics such as cold store chains, refrigerated transport system, and air cargo
          space, lack of knowledge of the post harvest handling of perishable products from the
          farm to factory to ports, and consequently high post harvest losses.
      •   Traditional management system in many of small and medium food industries
          inhibits new products and new market requirements.
      •   The majority of the companies operating in the sector are classified as micro, small
          and medium sized, these industries are not organized and therefore can not benefit
          from economies of scale and export marketing.
      •   Weak domestic market and under developed distribution channels, such as
          supermarkets and hypermarkets.
      •   Slow technological development due to difficulties of access to and high cost of
          capital; also poor relations with R & D Centres.
      •   Administrative and bureaucratic burdens (especially lack of transparency in the
          customs regulations in imported items) and a very long clearing time required due to
          bureaucracy has made the industries relying on the imported inputs uncompetitive.


2.3   Opportunities

      •   High potential to attract foreign direct investments in food processing sector and to
          become a regional hub for multinationals for their regional offices in marketing,
          R&D and operation in the Middle East.
      •   Scope for the introduction of enabling structures, such as cooperatives and contract
          farming, which could allow the small scale farmers to serve the European markets
          (especially on the fruit and vegetable sector).
      •   A huge potential derived from the growing distribution channels, such as local
          supermarkets chains, which can serve in the marketing of speciality products from
          small and medium scale factories for niche products and ready to cook food.
      •   Increased marketing opportunities through the new preferential access agreements
          with the Arab countries and other regional markets.
      •   There is a considerable potential for the increased product development by
          complementing the range of products already established.
      •   In fruit and vegetable sector, there is an evident demand for frozen, pureed and
          canned products.
      •   There is a high potential to attract multinationals in the food sector, with Egypt
          serving as their regional hub and operation centre, in addition to their direct
          investment.
      •   There is a huge and expanding market in Europe for organic products that creates
          opportunities for Egyptian producers.
      •   A massive growth in supermarket “own” label market segment - estimated at present
          to be 20% of the super market trade in Europe - provides an opportunity for the
          Egyptian processors (especially those in fruit and vegetable sector).




      202 Egyptian Processed Food Sector Review
2.4   Threats

      •   In the long run, there will be an erosion of the Egyptian domestic and export markets
          by multinationals who posses large economies of scale and the ability to support
          expensive advertising (promotion) campaigns.
      •   Delay in the implementation of international specifications and requirements in food
          safety and traceability, such as HACCP and EurepGap, will hamper the export
          performance of the food-processing industries.
      •   Regional instability may affect FDI and the export performance of Egyptian FPI in
          the region




          Egyptian Processed Food Sector Review                                              203
3 Proposed strategic vision for Egyptian food
  processing industry




  There are many ways to formulate strategy and vision for the sector. The final choice in a
  country should reflect the level of industrial development, the trade situation, the resource
  base, the level of development of markets and institutions, the structure of ownership
  (public, private and foreign) and the ability of the government to mount industrial policy.

  Industrial strategy must start with the building block of industry: the individual
  enterprise. During the meetings with the managers within food industries, the study team
  learned that industrialists, in general, point out that most of the problems faced by the
  sector result from a failure of the government to coordinate activities and create suitable
  business environment.

  However, the study team believes that while the government can support and assist the
  enterprises within the sector, it cannot reach inside each enterprise and direct its actions.
  What it can and should do is to provide the conditions that encourage and support
  enterprises in investing in capabilities. This means setting the right signals for it to
  respond to (creating the ‘demand’) and supporting the markets and institutions for
  information, skills, technology, finance, infrastructure, supplies and so on, that it needs
  (strengthening the ‘supply’).

  No enterprise builds capabilities on its own – each operates in a dense cluster of
  interactions with other firms, markets, institutions and government departments. Each
  industrial cluster is different from others, with its own particular needs for market
  incentives, factor inputs and institutions. This is why many industrial strategies are
  formulated and implemented at the cluster level.




      Egyptian Processed Food Sector Review                                                  205
   Based on the assessment of the study team and discussion with stakeholders the
  strategic development of the Egyptian processed food industry is built on a three-
                              tiered vision as follows:-




                                            Vision one
         To make the Micro, Small, Medium food processing Enterprises (MSME)
         operating in the sector competitive in the domestic market, profitable and
         compliant to international food handling requirement to provide safe and
                    processed food for the domestic and regional market
   To make the cottage, Micro, Small and Medium scale food processing and marketing
   enterprises in the sector operate in a healthy, sustainable and competitive way such that
   international health and food standards are met and sound business management
   practices are implemented using up-to-date information and management techniques,
   by supporting and encouraging them in the form of access to finance, training in
   management and technology, and enforcing stricter food safety laws.
                                            Vision two
    To make Egypt the regional leader in the production and marketing of processed
                           food in the Middle East in 2009
   To take the industry to the next level of industrial development by encouraging
   potential leaders to build on such competitive strengths as favourable agro-climatic
   conditions, proximity and cultural ties to the region, and highly skilled manpower,
   while eliminating such weaknesses as low product innovation, marketing strategy,
   under-developed value chain and management with aim of being leader in production
   and marketing of fresh and high value added processed food to the Middle East and
   North Africa.
                                            Vision three
     To make Egypt the winter garden of Europe and North America by supplying
   fresh, frozen and processed fruit and vegetables all round the year in sustainable
   way by developing forward and backward linkages and doubling the export to EU
                             and North America by 2010
   To improve the supply chain of the fruit and vegetables sector, reduce the post harvest
   losses through reform in the commercialisation of agriculture, improved transport and
   cold storage facilities and acquisition of technology, and a developed marketing
   strategy to supply the traditional and exotic fruits and vegetables to Europe and North
   America.




206 Egyptian Processed Food Sector Review
4 Overall Goal




  The broad objectives of the indigenous Egyptian food-processing sector are proposed as
  follows (and should be agreed upon by stake-holders and IMC, PSC etc.):

  •   To improve the supply of raw materials of appropriate quality and in sufficient
      quantities through efficient policy in the utilization of natural resources such as land
      and water, and improved post harvest handling of raw materials.
  •   To improve labour productivity and management efficiency through continuous
      training of the labour force and business development and operational management.
  •   To facilitate easy access to capital finance and working capital for Micro, Small and
      Medium scale Enterprises (MSME) involved in food processing and marketing,
      through commercial and development banks.
  •   Attract foreign direct investment through creating a better investment environment
      than its competitors in the Middle East, and through aggressive marketing of Egypt as
      a regional hub for trans-national corporations.
  •   To minimize the huge processed food trade deficit by increased domestic supply of
      safe processed food from micro and cottage industries and the informal sector
      through incentives, training and legislation.
  •   To develop modern domestic retail system through incentives and training of the
      existing (traditional) food outlets, and legislation and enforcement of food
      distribution and marketing laws.
  •   To assist small and medium scale enterprises to increase the role they play in
      domestic and regional markets through provision of support to develop niche
      markets, cooperation with larger industry and improving the efficiency and quality of
      their products.
  •   To increase the export performance of the Egyptian food processing industry by
      strengthening its marketing strategy, improving infrastructure and cold store
      facilities, and improving the efficiency and cost of the air and sea cargo transport.
  •   To improve the coordination of the activities of professional and public institutions
      supporting the food processing sector through establishing a coordination body, and
      defining tasks to avoid duplication of activities and saving resources.
  •   To build strong strategic relationships between universities, research institutes and
      the food processing industry so as to facilitate the smooth transfer of technology and
      provision of young trained workers, and focused to the need of the Egyptian food
      processing industry
  •   To improve the value chain network in the sector through establishing a network of
      businesses associated with food processing marketing and logistics, including
      producers, processors, retailers, and support institutions for each product group.

  These are broad objectives that it may be difficult to pursue in a coherent manner. For
  practical and operational purposes, it is useful to narrow down the above goals into one

      Egyptian Processed Food Sector Review                                                207
objective that captures most of the desired elements: raise the competitiveness of
Egyptian Food processing industrial enterprises by improving their productivity and
promoting diversification into more complex activities to improve the domestic supply
and export performance. This would promote growth, exports, technological upgrading,
employment and other spillovers.

Figure 4.1    Summary of Vision and recommended measures to be taken.




             Vision                                                     Measures
                                                          Meeting international food / health standards
                                                          Develop sound business management
 Competitive SME in                                       techniques
 domestic and regional                                    Support through access to finance, training,
 market within 5 to 10 years                              and enforcement of stricter food safety laws




                                                          Building on competitive strengths: e.g.
                                                          favorable agro-climatic conditions, proximity
 Regional leader in                                       & cultural ties, labour availability
 production of processed                                  Elimination of weaknesses: e.g. low product
 food within 10 to 15 years                               development, marketing strategy, under-
                                                          developed value chain and management



                                                          Improve supply chain of fruit and vegetables
                                                          sector to reduce post-harvest losses by
 Fully integrated exporter of
                                                          greater commercialisation of agriculture and
 fruit and vegetable
                                                          improved logistics and technology
 products to Gulf, Europe
                                                          Development of coordinated marketing
 and N. America
                                                          strategy to supply processed foods to the
                                                          Gulf, Europe and N. America

               Sustained
             Export Growth




208 Egyptian Processed Food Sector Review
5 Competitiveness and competitiveness drivers




  Since most of the development of strategy revolves around competitiveness, we believe it
  is appropriate to outline our understanding of the concept of competitiveness and
  competitiveness drivers as applied to this study. This will help the understanding of the
  approach used by the study team to develop a strategy.

  There has been an explosion of interest in the concept of competitiveness in the past
  decade but there is also considerable confusion in the usage of this term. This causes
  problems for policymakers because of inconsistencies of approach and recommendations.
  Competitiveness can be defined in different ways depending on the level or context
  considered.
  •    At the country level competitiveness is defined as “ability of a nation to meet the test
       of free international markets while expanding real incomes at home”
  •    At the industry level: collective capacity of the stake holders to anticipate, cause or
       exploit changes in products, processes, the enabling environment, and the
       marketplace
  •    At the firm level it is defined as: ability to protect and expand market share while
       maintaining an acceptable return on investment. (Porter, 1990)
  Analyses of competitiveness are broken down into two main groups i) Analyses of
  competitive performance which measures profitability, growth, market share, trade, etc
  (ii) Analyses of competitive potential which is concerned with explaining why
  performance is good or bad.

  We have identified 8 major competitiveness drivers for the Egyptian food processing
  industry and these are listed below.

  Competitiveness drivers of Egyptian food processing industry
  Driver 1      Supply of raw material at desired quantity, quality and price
  Driver 2      labour productivity and improved management
  Driver 3      Access to finance
  Driver 4      Increased supply of processed food to the domestic market
                4a. Integration of micro and cottage industries mostly informal (into the
                      formal sector)
                4b. develop the domestic retail market system
                4c. Increased role of the SME in the domestic and regional market
  Driver 5      Support institutions coordination
  Driver 6      Strategic alliance between university R&D and industry
  Driver 7      FDI attraction
  Driver 8      Increased export performance




      Egyptian Processed Food Sector Review                                                 209
             Diagrammatically this can be represented as follows:

Figure 5.1   Competitiveness Drivers for the Egyptian FPI



                                                                                                                                     Raw material
                          Labour productivity                             Support institutions



                              FDI
                                                                                                                                Access to finance
                                                                             Increased
                                                                        competitiveness of
                                                                         the Egyptian food
                           Domestic market                              processing industry
                          MCI, Retail-market,
                                SME

                                                                                                             Alliance         with        Univ.           &
                           Value chain network                           Export                              R&D




     5.1     Path way to competitiveness

             As mentioned above, the main theme for development of a strategy in the Egyptian food
             sector is improved competitiveness. The pathway for improved competitiveness is shown
             in Figure 5.2

Figure 5.2   Pathway to international competitiveness



                                                                                                              Competitiveness
                      Pathway to international
                       trade competitiveness                                                     T rade Framework                       FTA s



                                                                                                                                P ro -e xpo rt B ia s ,
                                                                                   National Policies
                                                                                                                              S e c to ra l S uppo rt,
                                                                                                                                    o pe nne s s

                                                                      Enabling Environment                          B usiness, legal, regulato ry



                                                   Industry Organization                    Size, structure, co o peratio n, perfo rmance




                                       Enterprise Productivity               Strategy, M anagement, Inno vatio n
                                                                             Human reso urces o rganizatio n



                       Raw Material Supply         A vailability, quality, P rice/co st, Organizatio n Transpo rt




             210 Egyptian Processed Food Sector Review
      The steps in the pathway can be stimulated by activating the development drivers
      mentioned above. A proper study of the drivers and their impact on the development of
      the sector could lead to formulation of a national food sector policy. Implementation of
      this national sector-based policy and favourable global trade environment will lead to
      global competitiveness.

      Due to the continuously changing nature of the industry, constraints and opportunities
      exist at all times in each step in the pathway. That means that development interventions
      are also needed at each and every step, Interventions that are limited to a single step, or
      particular elements in a given step, will have limited impact because the rest of the
      pathway remains unchanged and could offset the effects of change. All interventions
      should be designed with a view toward upgrading the competitiveness of the food sector
      as whole, rather than a certain sub-sector or institution, and requires a strong coordination
      of the activities of the government and the industry.

      It is also wise to remember that since competing countries and industries are involved in
      essentially the same process, the need to upgrade the competitiveness and revision of the
      strategy never ends.


5.2   The approach of the study team for development strategy proposal.

      Sector level
      Based on the global assessment and local assessment, and benchmarking exercises, the
      Egyptian food processing industry was positioned against the selected benchmark
      countries, mainly based on its trade performance as this is the only available way to
      measure its competitiveness.
      •   The global value chain analysis of the sector highlighted the constraints at each level
          of the chain in the sector. These are general issues cutting across the sector
          irrespective of which product group.
      •   The analysis of the constraints and opportunities (potentials) in the value chain lead
          to identification of the competitiveness drivers that have to be stimulated to mitigate
          the constraints and exploit the potential of the Egyptian FPI.
      •   The proposed activities/measures to be undertaken, and the expected outputs
          associated to the activities are presented.
      •   The relationship between the activities and outputs will be related to the objectives,
          and goals (improved competitiveness of the Egyptian food processing industry) are
          summarised in a LOGFRAME (logical framework).

      Product group level
      •  Value chain analysis was conducted for each product group by analysing the
         collected data and discussion with stakeholders.
      •  The constraints and potentials specific to the product were determined at each value
         chain.
      •  The constraints and potentials will then be linked to listed competitiveness drivers.
      •  Activities to be performed the outputs expected and the role of stakeholders will then
         be summarized in the LOGFRAME for easy reference.




          Egyptian Processed Food Sector Review                                                 211
212 Egyptian Processed Food Sector Review
  6 Proposal for Sector level strategy




 6.1    Supply of raw material at desired quantity, quality and price (Driver 1)

6.1.1   Current status

        Egypt has a reasonable endowment of high-quality, indigenous raw materials (such as
        exotic fruits and wide variety of vegetables), which forms the basis for the important food
        sector. The ability of the Egyptian agriculture to provide different varieties of fruits and
        vegetables in off-season is an important comparative advantage at the national level.

        Egypt also has highly potentially productive agricultural base as measured by computing
        the domestic resource cost of production (DRCs). A country has a comparative advantage
        if the DRC is less than one. According to the USAID study, the two horticulture crops,
        potato and tomato, undoubtedly are representative of a wide range of vegetables and
        fruits, reflecting extremely high comparative advantage. Egypt has also the highest olive
        yields in the region, which is 6.38 ton/ha compared to a world average of 1.67 and yields
        for Italy and Turkey of 2.39 and 2.63 respectively131. Hence, the future is bright for major
        expansion in these commodities as the proportion of area planted to potato and tomato is
        only 15 percent, and for olives only 0.6%, of the total cropped area under vegetables and
        orchards.

        For milk production, although a DRC of one or less indicates a comparative advantage in
        livestock development potential, the levels of efficiency and productivity in the sub-
        sector are low. There is immense scope to reduce costs of production and increase
        competitiveness. However, organization of milk producers groups, increased involvement
        of the private sector in marketing and feed distribution channels and facilities including
        chilling plants, provision of credit and advisory services to smallholders are essential to
        achieve such an improvement.

        Lack of a policy focus on the productivity and competitiveness of smallholders is a
        serious shortcoming. It requires that small farmers should get extensive technical
        assistance, form a viable producers association, be provided with intensive extension
        services and training, and be linked to the larger commercial farms as out growers so as to
        meet market standards, increasing productivity, create value-added opportunities, and so
        enhance the overall competitiveness of farms.

        There is a slow but steady growth of commercial farms (in the desert areas) that are
        directly connected to the processing industries. The government is encouraging the

        131
              ALEB 2003.




               Egyptian Processed Food Sector Review                                             213
        establishment of commercial farms by allocating lands for export related crops. The lack
        of farm insurances and credit facilities for commercial farming are, however, amongst the
        problems emphasized by industrialists.

        The Egyptian perishable products sector, mainly the fruit and vegetables and the dairy
        sector, is constrained by a transportation and storage system that is very damaging to
        product quality. It is estimated that up to 40 percent of total production of highly
        perishable products are damaged or lost in transit and handling. According to industry
        sources, estimates of tomato losses run as high as 60 percent. This is the result of poor
        packaging, lack of cold chain facilities, rough transport, and multiple handling. The
        impact of this on the food industries is inconsistent and poor quality supply. The impact
        on consumers is higher retail prices and lower quality than would be the case with proper
        post-harvest handling.


6.1.2   Critical problem to be addressed:

        •   Fragmented agriculture system dominated by small holders.
        •   Very high post harvest losses (especially in fruit and vegetable sub-sector).
        •   Inconsistent supply of raw material in terms of quality and quantity.


6.1.3   Proposed activities to improve the supply of raw materials

        It is beyond the scope of this study to analyse the constraints faced in the agriculture
        sector and recommend improvements. But, since the supply of raw material of
        appropriate quality and quantity is the critical stage in the supply chain, and has huge
        impact on the performance of the food processing industry, the team recommends the
        following:
        •    Establishment of an industry-agriculture policy advisory group composed of MOFTI,
             MALR, food processing sector specialists, farmers association, professional
             associations, agricultural academic institutions, research and extension institutes etc.
             The advisory group will reflect on the constraints faced in supply of raw material to
             the industry and recommend/assist in the formulation of policy guidelines to address
             the issues mentioned above.
        •    Increased involvement of the private sector should be encouraged in the
             transportation and cooling/packaging shades to reduce post harvest loss in product
             and quality.
        •    Extensive training in post harvest handling of perishable items to the people involved
             in the supply chain.
        •    Create enabling environment to attract foreign and domestic investors in commercial
             modern farms.
        •    Encourage and organize contract farming practices between the industries and
             smallholder farmers.
        Please refer to the logical framework (activity 1.1).




        214 Egyptian Processed Food Sector Review
Figure 6.1   Summary of the strategy for the improved supply of raw material both in Quality and quantity


                                                 Strategy 1: Raw material supply

                 Objective                Improved supply of raw materials


                 Critical problem         Fragmented agricultural system, with high post-harvest losses, and
                                          inconsistent supply

                 Activities                  •     Advisory group to develop policy guidelines to remove
                                                   constraints to agricultural supply
                                             •     Develop solutions to improve post-harvest handling and
                                                   maintaining product quality
                                             •     Training in post-harvest handling throughout supply chain
                                             •     Develop enabling environment to attract domestic and foreign
                                                   investment in commercial farming
                                             •     Encourage organisation of contract farming



                 Outputs                  Better policy for efficient use of resources

                 Success indicators       Policy guidelines announced and implemented




     6.2     Labour productivity and improved management (Driver 2)

   6.2.1     Current situation

             The Egyptian food-processing sector as described in the local assessment part of this
             report has an estimated 313,000 employees of whom more than 250,000 are employed by
             micro and small-scale food processors. At the same time Egypt has the largest agro-food
             industry in terms of employment in the region, the second lowest average labour costs per
             worker in the manufacturing sector and lowest labour productivity.

             This is not surprising since the majority of the labour force is employed by small scale
             enterprises which cannot invest in proper incentive systems, proper systems for staff
             recruitment, training and employee development policy. Nevertheless, bigger companies
             and multinationals such as FarmFrites offer very competitive compensation packages,
             with a proper system in place for staff recruitment, training and development.

             There is also a lack of modern management system in the public and private sector to
             meet the current intensive competition in global and regional markets.


   6.2.2     Critical problems to be addressed

             •      Low labour productivity.
             •      Low level of human resources management.
             •      Underdeveloped and unfocused (to the sector) vocational training system.




                    Egyptian Processed Food Sector Review                                                         215
   6.2.3     Activities to improve the situation

             •      The first step for improving the situation is for industrialists to recognize (especially
                    the small and medium scale food industries) the low productivity of their labour
                    force, agree on the need for improvement through training and incentives. To this
                    end, the Ministry of Foreign Trade and Industry should organize awareness
                    workshops to the management of food industries on the need for improving the
                    labour productivity, followed by the training needs assessment.
             •      Since it is impossible for each individual small and medium scale food enterprise to
                    have a training and human resources development unit to deal with low labour
                    productivity, it is imperative to support the establishment of private human resources
                    development and training consultancy companies and institutes that can provide
                    common service in training needs assessment, preparation and conducting tailor-
                    made and product specific trainings for multiple companies.
             •      Strengthening and properly funding the training and human resources department of
                    the MOFTI to coordinate the activities of training and improving labour productivity
                    is also crucial. This unit should conduct researches and assessment on the
                    productivity of labour in the food sector and provide the outcomes of the studies to
                    key stakeholders (e.g. policy makers and representatives of the food processing
                    industry).
             •      It is now common practice that leading industries with best practices in each sub-
                    sector commercialise their success story by using their facilities and systems to
                    provide the basis for training centre(s) for newly established industries and newly
                    recruited employees engaged in similar practices/activities. The MOFTI can
                    encourage and license leading and best performing industries in each sector to certify
                    and encourage carrying out training activities.

Figure 6.2   Summary of strategy for improved labour productivity and firm level management


                                                Strategy 2: Labour productivity

                 Objective               Improved labour productivity

                 Critical problem        Low labour productivity, lack of modern management systems,
                                         underdeveloped and unfocussed vocational training


                 Activities                 •     Awareness program to highlight productivity problems and
                                                  encourage EFPI companies to promote training etc.
                                            •     Develop capacity for training needs assessment and tailored
                                                  training programs
                                            •     Strengthen public sector capacity to undertake productivity
                                                  analysis and coordinate actions towards improving productivity
                                            •     Promote ‘best practice’ and within industry cooperation on




                 Outputs                 Trained, motivated and productive labour force in EFPI

                 Success indicators      Increase in labour productivity (compared to benchmark countries /
                                         competitors)




             216 Egyptian Processed Food Sector Review
 6.3    Access to finance (Driver 3)

6.3.1   Current situation

        The availability and cost of capital are critical components of competitiveness. During the
        interviews conducted with the Egyptian food processing industries, the situation with
        regard to availability of finance for new technological investments and working capital is
        considered as one of the main problems. The management of the food industries
        complained that the commercial financing costs are high due to high interest rates.

        In January 2005 the government has announced the establishment of a € 50 million fund,
        aimed mainly to provide support and upgrade agro-food processing operations in Egypt
        and increase exports of processed foods. The Fund will increase to 100 million Euros by
        2006. International Donor loans are available at lower rates earmarked for SMEs seeking
        to purchase machinery, equipment and raw materials.

        Long-term industrial finance for the private sector in Egypt needs to be improved. Credit
        to the industrial sector as a whole from the specialised banks is very low. Venture capital
        and similar facilities for technology promotion are at a rudimentary stage. These
        deficiencies constitute fundamental constraints to the growth and upgrading of the private
        food processing and marketing sector. A financial system that collects, allocates and
        supervises the use of investment resources is crucial.

        On the other side, there is lack of information and knowledge on the food industries side
        about how to access finance for technology improvement, expansion and for working
        capital.


6.3.2   Critical problem to be addressed

        •   Lack of capital finance and credit for working capital, especially for the small and
            medium scale food processors.
        •   Lack of information on how to access finance.


6.3.3   Activities to improve the situation

        •   Proper training and technical assistance in preparation of business plans, as required
            by the banks, is essential. The Ministry of Foreign Trade and Industry, using its small
            and medium scale industries development unit and encouraging the private
            consultancy and business management companies, can assist the food industries in
            preparation of business plans.
        •   MOFTI in collaboration with sector-based associations can coordinate with
            development banks and international NGOs to provide a grant/ long-term loan with
            moderate interest rate.
        •   The MOFTI in collaboration with the development banks can set up a micro-finance
            scheme for the micro and cottage industries which are mostly operating in the




            Egyptian Processed Food Sector Review                                                  217
                    informal sector to develop their business by adapting appropriate technology,
                    acquiring production premises and training of their personnel.

Figure 6.3   Summary of strategy for improved access to finance for SMEs


                                                        Strategy 3: Access to finance

               Objective                        Improved access to finance for SMEs

               Critical problem                 Lack of finance for capital and technology investments and lack of
                                                information on access to capital

               Activities                           •    Training and technical assistance for the preparation of business
                                                          plans designed to secure bank financing
                                                    •    Coordination and development of loan facilities for capital
                                                          investments and modernisation
                                                    •    Creation of micro-finance schemes for micro / cottage

               Outputs                          Increased access of EFPI enterprises to finance for technology and
                                                working capital
               Success indicators               Level of finance made available to EFPI enterprises




     6.4     Increased supply of safe processed food to the domestic market
             (Driver 4)

             Driver 4 has three parts that contribute to the increased supply of safe food to the
             domestic market these are
             4a.     Integration of micro and cottage industries mostly (informal) into the
                     formal sector.
             4b      Development of the domestic retail market system.
             4c.     Increased role of SMEs in the domestic and regional market.


   6.4.1     Integration of micro and cottage industries (mostly informal) into the                                   formal sector
             (Driver 4a)

             Current situation
             Micro-enterprises in the informal sector (irrespective of their area of specialization) are
             the incubators for industrialisation. In most developing countries such as Egypt, outside
             of agriculture, most poor people depend on the informal sector for their livelihood.

             The production and marketing of food by the informal micro and cottage industries and
             street vendors in Egypt is estimated to contribute to more than 70% of the processed food
                                                                                  132
             production and more than 80 % of the employment in the food sector .

             The government has, however, tried to create an environment favourable to the
             development of these micro enterprises by providing free zone and industrial cities with

             132
                   Personal communication with senior national consultant (There is no systematic study to substantiate this information).




             218 Egyptian Processed Food Sector Review
        incentives such as tax holidays and modest land lease fee. But, there has rarely ever been
        any provision of financial assistance (of any form) and training to these enterprises. Due
        to the above, the informal sector continues to produce unregulated and unsafe processed
        food to the population, which could create a high financial loss to the health system. In
        addition, since the informal food processing industries neither pay taxes nor have costs
        related to food safety, quality and packaging, their products are of lower quality and cost
        and compete with the formal sector unfairly and hamper the development of the food
        processing industry.

        There are also planned structural policy reforms that include reduction of income taxes
        and extended credit services to SMEs, including start-ups by university graduates, at
        subsidized interest rates

        The Ministry of Foreign Trade and Industry ought to harness the dynamism and
        enthusiasm of the informal sector by removing the impediments to growth and provide an
        environment that is both supportive of micro and cottage industries development and
        trading activities. While effort must be exerted to formalize the informal sector, the new
        entry to the informal sector must be discouraged through legislation. In this regard,
        specific recommendations for activities to be undertaken are as follows:

        Activities to improve the situation
        •   Recognition of the informal sector as a policy focus.
        •   Design an appropriate policy in allocation of factory premises and adequate
            infrastructure, especially with respect to the provision of water, energy and roads for
            the informal sector wanting to register and work in the formal sector.
        •   Whenever possible, cluster a number of cottage and micro-industries in joint ventures
            to use common facilities and marketing structure. Extensive extension and advisory
            work is required for clustering to take place.
        •   Identify, register, and license all the micro and cottage industries including the
            informal sector.
        •   Facilitate access to finance through normal commercial banks, donor supported
            concession lending, venture capital funding etc.
        •   Provide technical advice through national business organizations such as Chamber of
            Food Industries (CFI)
        •   Conduct awareness campaigns and training in legislation in food safety and public
            health.
        •   Creation of appropriate food safety legislation and policies, and putting the necessary
            structures in place that will facilitate the implementation.
        •   The legal framework such as food traders and processors licensing, town planning,
            public health etc. should be streamlined and coordinated in order not to hamper the
            development of the informal sector.


6.4.2   Develop the domestic retail market system (driver 4b)

        Current situation
        The population bulge, the rise in female participation rates in the labour force, the rise in
        dual-income families, and growth in disposable incomes are all factors that have resulted


            Egyptian Processed Food Sector Review                                                  219
        in a "cash-rich, time-poor" consumer, and contributed to the rise of the processed food
        sector.

        The retail sector is developing in Egypt very slowly. Retailers could provide a very
        interesting niche markets. Small, niche companies could get shelf space to new products
        that are aimed at a narrow but growing demographic or lifestyle segment. (Sekem organic
        food producer is a good example).

        In Germany the retail sector dominated by 10 biggest retailers control more than 90% of
        processed food sales. The total number of retail outlets decreased from 161,359 to 74,577
        from 1960 to 1997 and 85% of these outlets are self-service.

        In South Africa 55% of the food trade is controlled by the hyper and supermarkets (by
        2752 supermarkets and 333 hypermarkets).

        In South America the super and hypermarkets were contributing only 20% of the sales in
        1990. In 2002 the share of the super and hypermarkets rose to 60% and is increasing.

        Egypt with only 493 supermarkets and 6 hypermarkets - which is 0.76 and 0.1 per million
        inhabitants respectively - has a long way to go in this sector.


        Critical problem to be addressed
        Under developed retail market system


        Activities to improve the situation
        •   Identify and register all food distribution and market channels including groceries
        •   Organize awareness campaigns in post production handling and marketing of
            processed food to all shop owners
        •   Introduce laws for food distribution and handling of processed food, and protection of
            public health
        •   Assist registered groceries, shops, and processed food traders in establishing
            /expanding their food section through access to finance, training, and technical advice
        •   License shops complying to the set of ‘official’ standards as official distribution
            centres for processed food
        •   Conduct awareness campaigns on public health issues and encourage the general
            public to buy from licensed shops


6.4.3   Increased role of the SME in the domestic and regional market (Driver 3)

        Current situation
        The feature of the Egyptian food industry is the existence of a dual market structure. The
        sector is characterised by a small number of “large” firms that operate over multiple
        product sectors for local and export market (examples are fruit juices, frozen, vegetables,
        and pasteurised milk). There is large number of SMEs (small and medium sized
        enterprises) that should focus on niche products for regional and local markets. It is


        220 Egyptian Processed Food Sector Review
estimated that more than 87% of the food processing industries in the formal sector are
either small scale or medium scale. This figure is similar to that of European countries
where the SMEs contribute to the production of more than 80% of processed food. The
main objectives of the focus on the small and medium scale food processors would be to:
•   build support industry services for the larger industries production requirements;
•   increase the competitiveness of the domestic market;
•   increase the diversification and specialization of the industrial base;
•   take advantage of niche market, and
•   accelerate adaptation to changing market demands.


Critical problems to be addressed
Weak marketing strategy, weak product innovation capability due to lack of finance,
weak linkages to larger industries.


Activities to improve the situation
•   Raising awareness of all stakeholders: the management of the small and medium and
    large industries, professional associations, government and other stakeholders on the
    important role of the SME to the Egyptian food processing industry.
•   Assist the SME’s and larger industries in reaching commercial agreements for the
    supply of services and goods.
•   Assist the SME’s in gaining access to capital finance and or joint-ventures with larger
    companies and retailers.
•   Formation of commodity/service based associations for collective activities to reduce
    costs such as (contract research, collective storage, purchasing).
•   Establish mechanism of providing market information to all small and medium scale
    food processors through their associations.




    Egyptian Processed Food Sector Review                                               221
Figure 6.4   Summary of strategy for improved performance of Egyptian food processing industries in domestic market


                                                  Strategy 4: Domestic market

                 Objective    Increase domestic supply of safe processed food from micro and cottage industries and
                              develop a sustainable retail market structure
                 Critical         •   Underdeveloped retail food market
                 problem          •   Large unregulated informal sector
                                  •   Poor intra-industry linkages between small and larger EFPI enterprises



                 Activities       •   Creation of business environment and support structures to encourage
                                      enterprises to join the formal sector
                                  •   Promotion of ‘clustering’ of micro-small enterprises around common facilities
                                      and marketing activities
                                  •   Promote awareness of food related public health issues and encourage
                                      consumers to used ‘licensed’ shops
                                  •   Develop collective approaches to reduce costs and raise innovation
                                  •   Assistance to SMEs in developing linkages (supplier role) to larger enterprises
                                      and retailers
                 Outputs      Upgrading of micro-small enterprises and their integration into formal sector.
                              Development of more modern and safety conscious retail food sector. Better integration
                              and collaboration of enterprises within EFPI
                 Success      Reduction in the size of the informal sector. Improved public health safety in food chain.
                 indicators




     6.5     Support institutions coordination (Driver 5)

   6.5.1     Current situation

             The study team has noticed that there is much duplication and lack of coordination of
             activities among the support institutions such as Chamber of Food Industries (CFI),
             Chamber of Cereals and Grains (CCG), Food Commodity Council (FCC) and
             Horticultural export improvement Association (HEIA). Though there are intentions of
             cooperation and signing of memorandums a clear structural and strategic cooperation and
             division of tasks is absent. This leads to fragmentation and diffusion of efforts across the
             industry. Thus, it is recommended that a study should be done with the aim of
             rationalization and streamlining of their activities.


   6.5.2     Critical problems to be addressed

             Lack of coordination of key professional institutions serving the sector.


   6.5.3     Activities to improve the situation

             •      Hosting a symposium or related event where all stakeholders can interact and
                    contribute their perception of the sector.



             222 Egyptian Processed Food Sector Review
             •      Establish a central board/federation of food producers, processors and traders, which
                    will discuss the sector’s needs and chart/propose the way forward for the sector.
             •      Encourage all members to sign and respect memorandum of understanding for
                    cooperation.
             •      Establish a central database for the most recent information on markets, trends, prices
                    and technological developments in the sector that could be accessed by all members.
             •      Publish newsletters/bulletins to disseminate information on export/import data,
                    market prices, position of Egypt in relation to competing countries etc.
             •      Organise trade fares, exhibitions, study tours and participation in international trade
                    fares.

Figure 6.5   Summary of strategy for improved coordination of support institutions in the EGFPI


                                                  Strategy 5: Support institutions

                 Objective     Improved organisation and coordination of stakeholder and support institutions
                               connected to the EFPI and food supply chain
                 Critical      Lack of coordination among key institutions serving and supporting the development of
                 problem       EFPI

                 Activities        •    Symposium of stakeholders to develop common perception of sub-sector and
                                        strategy to enhance support structures
                                   •    Establish and/or strengthen sector and sub-sector associations of ‘players’ in
                                        the value chain
                                   •    Dissemination of information relevant to the positioning and situation of the
                                        EFPI (e.g. international trade information, market prices, position of Egypt
                                        relative to competitors)
                                   •    Establish national coordination body for stakeholders and support institutions
                                        involved in food processing and food marketing sectors
                 Outputs       Coordination body for the activities of the associations and institutes. Greater
                               coordination of support institutions (e.g. universities, research institutes, government
                               ministries)
                 Success       National coordination body (board) for food processing and marketing established.
                 indicators    Increase in stakeholder support to the EFPI




     6.6     Strategic alliance between university-R&D and industry (Driver 6)

   6.6.1     Current situation

             In response to the pressures of globalisation, the food sector products often have to
             compete in a liberalized world market and be competitive against international food
             products promoted in the domestic market. The key success factor can be exploiting
             innovation and harnessing creativity in order to find viable niches.

             Finding and keeping niches on the international market can be achieved to a great extent
             by scientific progress and technology innovations, and updated research and development
             breakthroughs. The Egyptian food processing industries, with the exception of few
             multinational companies, give very little emphasis for product innovation and increasing




                    Egyptian Processed Food Sector Review                                                                 223
        productivity. The high failure rates of new food products make this form of innovation
        very high risk for individual businesses.

        In Egypt, knowledge and human capital are strong but unfocused. Overall, the academic
        institutions are not well linked to research and development efforts to support innovation
        and new product development in the food processing sector. Exceptions to this general
        rule are the National Research Centre (Cairo), which started contract research and is
        serving 45 industries, and The Food Technology Centre (FTC), which is being linked to
        IMC to serve the EGFPI and provides training on HACCP, ISO, GMP and GAP.

        The food processors interviewed also complained that the graduates from universities
        lack practical knowledge required by the industries.

        The low level of contract research and weak linkage between the food industry and R&D
        and academic institutes is understandable, since the provision of effective research
        services involves high fixed costs and is human capital intensive. Building such linkages
        requires not only ensuring that government ensures that R&D institutes and universities
        have the resources available to provide such services but, also, that they are provided in a
        manner in which they can meet the needs of industry. A mechanism must be created
        whereby R&D breakthroughs can be rapidly filtered through the value chain of the
        Egyptian food-processing sector in the following areas:
        •   product innovation, including new products and ingredients.
        •   process innovation, dealing with cost reduction or efficiency improvement through
            new equipment and process applications.
        •   packaging innovation, including the packing material itself and the process of
            packaging the product.
        •   transport and logistics innovation, often covering the distribution method and critical
            time for delivery.


6.6.2   Critical problems to be addressed

        Weak linkage between research and development efforts in the universities and R&D
        institutes and the requirements of EFPI; Strong human capital but not focused to the
        needs of EFPI.


6.6.3   Activities to improve the situation

        •   Identify universities with the capability to form strategic partnership with industry
            and discuss the modalities of cooperation.
        •   Assist universities to create internship programmes to link students to the FPI.
        •   Establish incentives to research centres to pro-actively contribute and disseminate
            information to the sector.
        •   Encourage and support contract research activities between the industry and the
            research centres and universities.




        224 Egyptian Processed Food Sector Review
Figure 6.6   Summary of strategy for improving the strategic relationship between EFPI the academic and research
             institutions


                                                  Strategy 6: Strategic relations

              Objective       To build sustainable and strong strategic relationships between the EFPI and
                              universities and other research institutes
              Critical        Weak linkages between R&D institutions and EFPI (research capacity not orientated
              problem         towards needs of EFPI)

              Activities
                                  •   Identification and promotion of possibilities for strategic partnerships between
                                      research institutions and industry

                                  •   Development of internship programmes

                                  •   Encourage research centres to pro-actively disseminate information to the EFPI

                                  •   Encourage contract research activities
              Outputs         Improved transfer of technology from research institutions to industry. Universities and
                              research institutes deliver properly trained (specialised) manpower to EFPI


              Success         Number of research findings commercialised by EFPI. Number of trained personnel in
              indicators      the food sector




     6.7     FDI attraction (Driver 7)

   6.7.1     Current situation

             Exports and competitiveness depend increasingly on effective participation in global
             value chains – and Foreign Direct Investment (FDI) is today the most important way for
             countries to plug into such global chains. FDI also offers other benefits. It is the main
             conduit of international technology transfer, and its importance is growing apace as
             innovation becomes important. Moreover, technology transfer via FDI comes as a
             package of skills, support, operating know-how and finance.

             The success stories in export and domestic market of joint ventures such as FarmFrites,
             Heineken/Alahram beverages, Hero/Vitrac, Americana/Greenland are good examples.
             The study team could not find the FDI inflow in value terms for the food sector from any
             official source. But, the total foreign direct investment in 2003 in Egypt amounted to US$
             320 sharply declining from US$ 647 million in 2002 and US$ 1235 million in 2000
             according to the General Authority for Free zones and Investment (GAFI).

             There is a commitment from the Ministry of Investment to double the level of investment,
             based on the average value of last 4 years FDI, in 2005.

             Egypt could take advantage of its highly trained manpower, relatively developed
             infrastructure, a highly productive agriculture and proximity to highly attractive
             processed food market of the Middle East and North African countries and to Europe in
             attracting big global players in the food processing and marketing business to locate their
             head quarters for their regional operations in Egypt.


                  Egyptian Processed Food Sector Review                                                                  225
   6.7.2     Critical problems to be addressed

             Low level of foreign direct investment (FDI) in the food processing sector


   6.7.3     Activities to improve the situation

             •      GAFI (and/or a dedicated IPA) can play an important role in ‘Marketing Egypt’ as a
                    most suitable place for the investment in processed food and as head quarter of the
                    multinationals in the food sector and as their regional office for Africa and Middle
                    East133.
             •      Update potential\investors about developments regarding the continuous
                    improvement of the business environment in Egypt
             •      Assist professional associations to organize workshops and study tours for the
                    management of food industries in Europe and North America to encourage the
                    formation of partnerships with multinationals
             •      Create a web site for the food-processing sector promoting the potential of Egypt in
                    agriculture (especially in fruit and vegetables and dairy industries), its low labour cost
                    and the proximity to Middle East and Europe.

Figure 6.7   Summary of strategy for the increased FDI in the Food processing and Marketing


                                                          Strategy 7: FDI Attraction

                 Objective         To increase foreign direct investment flows into the EFPI orientated towards export
                                   activities
                 Critical          Very low level of FDI into the EFPI
                 problem

                 Activities            •     Strengthen promotion of Egypt as a location for investment in food processing
                                             and regional headquarter location for Middle East and Africa
                                       •     Encourage the creation of partnerships and joint-ventures between EFPI and
                                             multinational food companies
                                       •     Implement supporting measures to ensure that Egypt offers a highly attractive
                                             environment for FDI


                 Outputs           Increased flow of FDI into the EFPI and greater integration of EFPI into global FPI.
                                   ‘Spill-overs’ from FDI to domestic sector. Increased export capacity.


                 Success           Volume of FDI and number of regional offices of TNCs food processors located in Egypt
                 indicators




             133
                   GAFI is the only current IPA.




             226 Egyptian Processed Food Sector Review
 6.8    Increased export performance (Driver 8)

6.8.1   Current situation

        Despite very small per capita arable land, Egypt has highly productive agriculture, as
        measured by domestic resource cost of production (DRCs). It also has a comparative
        advantage with regard to its peripheral location (Europe and the Gulf countries), lower
        energy and transport costs in relation to most emerging markets. Egypt’s products can
        reach most of the European markets in less than one week and the GCC in less than 4
        days. This peripheral advantage is crucial for export performance as the transport costs of
        food items especially the fresh perishable products contribute substantial amount (up to
        50%) of the delivery costs.

        Nevertheless the export performance of the Egyptian food processing industry is
        characterized by high trade deficit in processed food trade (more than 1 billion USD in
        2003). Its low share of export per output ratio compared to benchmark countries also
        indicates the potential for the SMEs to increase their export to the region, and the high
        demand in the domestic market.

        One of the challenges in the international food trade is international food safety regulation
        and mandatory approach to ensure the quality and safety of traded food. These
        regulations are becoming more sophisticated and stringent by the day. If the Egyptian
        food sector does not act in time to comply with international regulations, it can easily find
        itself excluded from international markets. Concepts such as HACCP, traceability and
        EureGap should be introduced in practically all sectors of food processing and trade.
        These require a greater level of involvement of government institutions throughout the
        supply/value chain.

        Competitiveness also rests on superior marketing capability. Branding is a widely used
        strategy in the food industry that requires substantial economies of scale, which the
        Egyptian food processing industry is lacking. While the bigger enterprises continue to
        provide relatively high priced branded products, there are alternatives to the high-cost,
        mass-produced, branded product strategy for the smaller and micro enterprises. Niches
        are opening up in areas such as organic food, health foods, regional specialities, supply of
        chilled foods and delicatessen products for the retail trade and export in the region, and
        the supply of fully or partially prepared products for the catering trade (especially hotels
        and tourist catering services).

        As we mentioned earlier, the Egyptian food-processing sector is fragmented and mostly
        small or medium scale. The smaller enterprises need to cooperate (and compete) to
        remain internationally competitive. Possible cooperation could include the vertical
        integration of the value chain, developing a joint marketing strategy, joint contract
        research etc.

        Appropriate packaging, in terms of technology (provide longer shelf life for the products)
        and in terms of design (to attract consumers), is crucial for the export market. Though the
        food industries did not face any significant problems regarding packaging material, the




            Egyptian Processed Food Sector Review                                                   227
        price of imported packaging is mentioned as a problem. A cooperation of the food
        industries with the growing packaging sector is imperative.


6.8.2   Critical problem to be addressed

        •   Inconsistent supply of raw materials in terms of quality and quantity.
        •   Weak marketing strategy.
        •   Lack of proper infrastructure such as cold stores chains from the farm to the port.
        •   Weak product quality and food safety requirements.


6.8.3   Activities to improve the situation

        •   Certification of products according to the requirements of international trade, such as
            EurepGap, HACCP etc.
        •   Organize/strengthen commodity based export association(s) for collective lobbying
            for policy reforms for improving the business environment, access to land for
            commercial farms, conduct trade negotiations and agreements for different markets
            etc., collective bargaining for imported inputs, and collective bargaining of export
            prices.
        •   Establish quick and reliable market information system and dissemination system to
            the members of the association.
        •   Collective sea and air cargo space utilization for transporting of products for export.
        •   Collective establishing /utilization of facilities such as cold store.
        •   Common marketing campaigns such as an Internet site for the marketing of Egyptian
            products.
        •   Establishing/financing joint research projects such as preservation of perishable
            products, appropriate packaging etc. to the benefit of all exporters.




        228 Egyptian Processed Food Sector Review
Figure 6.8   Summary of proposed strategy for increased export performance of the EFPI


                                                 Strategy 8: Export performance

              Objective       To increase processed food supply to international markets

              Critical        Weak marketing strategy
              problem         Lack of proper infrastructure (e.g. cold storage chain)
                              Weak product quality and safety systems and standards
              Activities                Strengthen supply of raw materials
                                        Encourage collective procurement and marketing actions
                                        Establish accessible, up-to-date market information systems
                                        Investment in infrastructure and promotion of collective utilisation of
                                        resources
                                        Strengthen certification of products conforming to international standards
                                        Joint research to improve export potential (e.g. product preservation,
                                        packaging)

              Outputs         Better informed and targeted marketing activities. Increased proportion of products
                              complying to export market requirements. Improved infrastructure for domestic supply
                              chain
              Success         Export performance of EFPI
              indicators




                 Egyptian Processed Food Sector Review                                                               229
      7 Log-Frame for sector level proposed strategy




Table 7.1   Overview of drivers and outputs covered by the log frame

             Driver 1             Raw Material Supply
                                  Output 1.1             Better policy for efficient use of natural resources
                                  Output 1.2             Reduced post harvest losses of agricultural/raw materials
             Driver 2             Labour Productivity and Management
                                  Output 2.1             Trained, motivated and productive labour force
                                  Output 2..2            Trained business development managers
             Driver 3             Access to Finance
                                  Output 3.1             Increased access to finance for technology and working capital
                                  Output 3.2             Increased knowledge of access to finance
             Driver 4             Increased supply of safe processed food to the domestic market
             Driver 4a            Integration of micro and cottage industries into the formal sector
                                                         Reduced negative food trade balance through development of
                                  Output 4.1             micro, small and medium scale food processors
             Driver 4b            Development of the domestic retail market system
                                  Output 4.2             Development of domestic retail system
             Driver 4c            Increased role of SMEs in the domestic and regional market
                                                         EFPI's position strengthened in product groups with presence of
                                  Output 4.3             SMEs
             Driver 8             Export Performance
                                  Output 8.1             Increased export of processed food
             Driver 5             Support institutions coordination
                                  Output 5               Establishment of coordination body/board
             Driver 6             Strategic Alliance between university R&D and industry
                                  Output 6               Technology transfer and trained (graduate) manpower
             Driver 7             FDI attraction
                                  Output 7               Increased inflow of FDI into EFPI




                Egyptian Processed Food Sector Review                                                                 231
Summary of the proposed strategy for increased competitiveness of EFPI--- Improvement of raw material supply, labour productivity and access to
finance
 GOAL(S)                                                          Improved supply of raw material, increased labour productivity and improved access to capital finance for the
                                                                  Egyptian food processing sector


 The objective for factor conditions                              To Improve availability of raw material, to increase labour productivity, to improve access to capital cost (lending)




 Driver 1                                                         Driver 2                                                      Driver 3
 Immediate objective               Improved supply of raw         Immediate                    Improved labour productivity     Immediate                               Improved access to
                                   material                       objective                                                     objective                               finance
 Critical problem                  Fragmented agriculture         Critical problem             Low productivity of labour       Critical problem addressed              Lack of finance for
 addressed                         system, very high post         addressed                    Unskilled labour                                                         capital/technology
                                   harvest losses (specially in                                Lack of trained business                                                 Lack of information on
                                   fruit and vegetable sub-                                    managers                                                                 access to finance
                                   sector)
 Outputs                           Success indicators             Outputs                      Success indicators               Outputs                                 Success indicators
 1.1 Better policy for efficient   Policy guideline announced     2.1 Trained and motivated,   Increased productivity           3.1 increased availability of capital   Amount of finance
 use of natural resources                                         productive labour force in                                    finance                                 made available to the
 (land/water)                                                     the sector                                                                                            industries
 1.2 improved post harvest         Reduced post harvest losses    2.2 trained business         Trained efficient managers       3.2 Increased knowledge of              Number of the MSME
 handling of raw materials         (quality and quantity)         development managers                                          application to finance (borrowing)      applying for lending




    Egyptian Processed Food Sector Review                                                                                                                                                   233
Driver 1              Outputs and activities for increased competitiveness of EFPI improvement of raw material supply


 IMMEDIATE OBJECTIVE                         Improved supply of raw material
 OUTPUT 1.1                                  Better policy for efficient use of natural resources (land/water)
                                             Success
                                                                     Policy guideline announced ,
                                             indicator(s)
 Activities for output 1.1                   Implementing            Party responsible                     Duration             Milestones                 Related activities
                                             inst/industry                                                 Start      Endt
                                                                                                           (YY,MM)    (YY,MM)
 establish and industry-agriculture policy
                                             IMC                     IMC, MALR                             TBD        TBD       Establishment of the PAG   Support institutions
 advisory group
 formulate a policy proposal acceptable      Policy advisory                                                                    Draft policy guide line
                                                                     Policy advisory group                 TBD        TBD
 to all parties                              group                                                                              prepared
                                                                                                                                The first workshop
 organize a workshop to sensitise the        Policy advisory         Policy advisory group
                                                                                                           TBD        TBD       organized for all          Support institutions
 stake holders                               group
                                                                                                                                stakeholders
 Propose the policy guidelines to the
                                             Advisory group          IMC/ MALR                             TBD        TBD       Policy document prepared
 policy making body
                                                                                                                                Issuance of policy
 Follow-up of the announcement of the
                                             IMC                     IMC/MALR                              TBD        TBD       guidelines in official
 policy guide lines
                                                                                                                                channels
 Follow up the implementation of the                                 MALR
                                             IMC                                                           TBD        TBD       Implementation
 policy guidelines




234 Egyptian Processed Food Sector Review
Driver 1            Out puts and activities for increased competitiveness of EFPI----- Improved supply of raw material


 IMMEDIATE OBJECTIVE                               Improved supply of raw material
 OUTPUT 1.2                                        Reduced post harvest losses of agricultural\raw materials (especially perishable products)
                                                   Success
                                                   indicator(s)           Post harvest losses are minimized to acceptable level


 Activities for output 1.2                         Implementing           Party responsible       Duration                  Milestones                      Related activities
                                                   inst/industry                                  Start         End
                                                                                                  (YY,MM)       (YY,MM)
 Selection and introduction of appropriate         R&D institutes         MOA/MOFTI                                                                         Strategic alliance with the R&D
                                                                                                                            Identification of appropriate
 technology for production and post harvest        Private sector                                 TBD           TBD                                         and University
                                                                                                                            technology
 handling

 Extensive training to the farmers on the post     Extension services                                                       Conducting of training in PH    Strategic alliance with the R&D
                                                                          MOA                     TBD           TBD
 harvest handling of crops                                                                                                  handling                        and University and MOA MOFTI
 Encouraging the private (SME) for the             Private sector SME                                                       Incentive to the potential      Support to SMEs
 handling and distribution of produce                                     IMC/MOFTI               TBD           TBD         entrepreneurs announced

 Introduction of legislation on the domestic       Government                                                               Food transportation act         Creating enabling environment
 distribution system for perishable agricultural                          IMC/MOFTI/MOA           TBD           TBD         announced
 products
 Reduction of import tariffs on imported on                                                                                 Law announced                   FDI attraction
                                                   Government             IMC/MOFTI/MOA           TBD           TBD
 cold chain equipment and refrigerated truck
 Introduction of varieties that with stand poor    R&D institutes                                                           New varieties selected          Strategic alliance with the R&D
                                                                          IMC/MOFTI/MOA           TBD           TBD
 post harvest handling                             Private sector                                                                                           and University
 Encourage SMEs to establish cooling               GAFI                                                                     Financial/grant made            Creating enabling environment
 /packing shades and transport companies                                  IMC/MOFTI               TBD           TBD         available to potential
                                                                                                                            investors




    Egyptian Processed Food Sector Review                                                                                                                                              235
Driver 2            Outputs and activities for increased competitiveness of EFPI improve labour productivity
 IMMEDIATE OBJECTIVE                     Improved labour productivity
                                         Critical Problem         Low productivity of labour, low level of human resources management, Lack of training & vocational training system,
 OUTPUT 2.1                              Trained, motivated and productive labour force in the sector

                                         Success indicator(s)       Increased labour productivity

 Activities for output 2.1                                          Implementing                    Party            Duration                  Milestones                   Related activities
                                                                    inst/industry                   responsible      Start       End
                                                                                                                     (YY,MM)     (YY,MM)
                                                                                                                                               Training Needs
 Organize sensitizing workshops to the management of the food                                                                                  Assessment (TNA) report      MSME
                                                                    IMC/ MOFTI/ CFI                 IMC              TBD         TBD
 industries on the need for training                                                                                                           presented to the             development
                                                                                                                                               authorities
 Conduct training needs assessment                                  IMC/ MOFTI / CFI/               MOFTI            TBD         TBD           TNA prepared                 MSME
                                                                    Companies                                                                                               development
 Support the establishment of private human resources               MOFTI/IMC                       MOFTI            TBD         TBD           Financial and other          Enabling business
 development and training consultancy companies and institutes                                                                                 resources are made           environment
                                                                                                                                               available
 Establish/strengthen a human resources development and             MOFTI                           MOFTI            TBD         TBD
 training unit in the ministry of foreign trade and industry
 Develop a curriculum for the food industries personnel in          MOFTI-TU                                         TBD         TBD           Curriculum developed         Support
 collaboration with leading industries and other stake holders                                                                                                              institutions
 Develop a training manual for important subject s in the food      MOFTI-TU                        MOFT-TU          TBD         TBD           Manual prepared              Support
 industry such as HACCP, GMP, Productivity, quality etc…            Consultants                                                                                             institutions
 Conduct training of trainers from each industry                    Private consultancy             MOFT-TU          TBD         TBD           Training organized           Industry
 Conduct training (on job training )                                Trained trainers                                 TBD         TBD           Trainers trained             Best practice
                                                                                                                                                                            industries
 Analyse the impact of training and adapt the training              MOFTI-TU, Private               MOFT/ CFI/       TBD         TBD                                        Support to SMEs
 methodology and content accordingly                                consultancy companies and       Companies
                                                                    other training institutes




236 Egyptian Processed Food Sector Review
Driver 2           Outputs and activities for increased competitiveness of EFPI improve labour productivity


 Immediate objective                          Improved access to finance


 OUTPUT 2.2                                   Trained business development managers
                                              Success indicator(s)   Improved industrial\management system in all food processing industries


 Activities for output 2.2                    Implementing           Party responsible             Duration                   Milestones                   Related activities
                                              inst/industry                                        Start         End
                                                                                                   (YY,MM)       (YY,MM)
                                                                                                                 TBD                                       Can be combined with
 Establish industrial management centre and                                                                                   Management training centre
                                              IMC                    IMC.MOFTI                     TBD                                                     other sectors management
 management consultancy services (private)                                                                                    established
                                                                                                                                                           training activities
                                                                                                   TBD           TBD          Training Needs Assessment
 Conduct training needs assessment            MOFTI                  MOFTI                                                                                 SME development
                                                                                                                              conducted
                                              Management training                                  TBD           TBD
 Develop a training manual                                           MOFTI                                                    Manual developed
                                              centre
 Training the management of the industries    Management training                                  TBD           TBD          Management training          SME development
                                                                     MOFTI
 regularly                                    centre                                                                          programmes announced         Support institutions
                                              Management training                                  TBD           TBD
 Evaluate the training performance                                   MOFTI
                                              centre / CFI




    Egyptian Processed Food Sector Review                                                                                                                                         237
Driver 3             Outputs and activities for increased competitiveness of EFPI-------- Access to finance


 IMMEDIATE OBJECTIVE                        To improve access to finance for SMEs

                                            Critical Problem      Lack of finance for capital/technology and lack of information to access capital
 OUTPUT 3.1 and 3.2                         Increased access of businesses to finance for technology and working capital


                                            Success               Amount of finance made available to the industries
                                            indicator(s)
 Activities for output 3.1                  Implementing          Party responsible         Duration                    Milestones                     Related activities
                                            inst/industry                                   Start (Year   End (year
                                                                                            month)        month)
 Training the management of SME in          Banks, consultancy
                                                                  IMC                       TBD           TBD           Training organized             Improving labour productivity
 accessing finance                          companies
                                            Development
 Provide credit facilities and finance to                                                                               Fund allocated for financing   Increased domestic supply of
                                            banks / Specialised   IMC                       TBD           TBD
 SMEs with moderate interest rate                                                                                       food industries                processed food
                                            Funds / SFD
 Provide micro finance facilities to
                                            MOFTI/IMC
 support the micro and cottage                                                                                                                         Increased domestic supply of
                                            Banks/international   IMC/MOFTI                 TBD           TBD           Micro finance fund allocated
 industries (usually informal) to develop                                                                                                              processed food
                                            NGOs
 their business through revolving fund




238 Egyptian Processed Food Sector Review
Summary of the proposed strategy for increased competitiveness of EFPI------- Increased supply of processed food in domestic regional and int’l markets

 GOAL(S)                                                      Improved competitiveness of the Egyptian food processing sector in global, regional and domestic markets




 Objectives                                                   To increase supply of processed food to domestic market, to become the dominant player in the regional
                                                              processed food exports, increased export of processed food to international market

 Driver 4 a/b                                                 Driver 4c                                                            Driver 8
 Immediate objective            To increase domestic          Immediate                               To make the Egyptian         Immediate                  To increase processed
                                supply of safe processed      objective                               small and medium scale       objective                  food supply to
                                food from micro and cottage                                           for processing industry                                 international market
                                industries and develop                                                play important role in
                                sustainable retail market                                             domestic and regional
                                structure                                                             market
 Critical problem addressed     Weak and disorganized         Critical problem addressed              Weak marketing strategy      Critical problem           Weak marketing strategy
                                MSM scale food processors                                             Weak product innovation      addressed                  Lack of proper
                                Under developed retail                                                capability and interaction                              infrastructure such as
                                market system                                                         with the larger industry                                cold stores chains from
                                                                                                                                                              the farm to the port
                                                                                                                                                              Weak product quality and
                                                                                                                                                              food safety requirements
 Outputs                        Success indicators            Outputs                                 Success indicators           Outputs                    Success indicators
 Minimized food trade balance   % decrease in –ve trade       The Egyptian food processing            % Increase in the export     Increased export of        % Increase in the export
 (-ve) at national level by     balance                       industries became regional players      performance                  processed food to          performance
 import substitution through                                  in selected product groups such as                                   European and north
 developed MSMEs in the                                       dairy products, fruit and vegetables,                                American markets
 food sector                                                  olive products
 Developed domestic retails     Number of new                 Egyptian food processors Develop        Number of new products       Improved cold storage      Number / capacity of cold
 system (supermarkets)          supermarkets established      and maintain market niches based        marketed                     and transport facilities   stores established
                                                              on product specialization and quality
                                                              for the region




    Egyptian Processed Food Sector Review                                                                                                                                                 239
Driver 4a           Outputs and activities for increased competitiveness of EFPI ---------Domestic supply of safe processed food
 IMMEDIATE OBJECTIVE                                        To increase domestic supply of processed food and to develop sustainable retail market structure
                                                            Critical Problem          Weak and disorganized MSM scale food processors, Under developed retail market system
 OUTPUT 4.1                                                 Minimized food negative trade balance at national level by import substitution through developed Micro, Small and Medium
                                                            sized food processors in the food sector

                                                            Success indicator(s)      Increased supply of processed food in domestic market
                                                                                                          Duration                                             Related activities
 Activities for output 4.1                                  Implementing              Party responsible                            Milestones
                                                                                                          Start        End
                                                            inst/industry
                                                                                                          YY,MM        YY,MM
                                                                                                                                   Census of the micro and     Support institutions
 Identify, register and license all the micro, small and
                                                                                                                                   small processors
 medium scale food processors in the country                MOFTI                     IMC                 TBD          TBD
                                                                                                                                   available per region per
 (including the informal sector)
                                                                                                                                   product group
 Facilitate access to finance through normal                                                                           TBD                                     Access to finance
                                                                                                                                   Fund/grant made
 commercial banks, donor supported concession               MOFTI                     Banks and NGOs      TBD
                                                                                                                                   available
 lending , venture capital funding
 Provide technical advice through national business                                                       TBD          TBD         Technical advice            Support associations
                                                            MOFTI/ CFI/ IMC           MOFTI
 organizations such as CFI, HEIA, etc                                                                                              provided
 Conduct awareness campaigns and training in                                                              TBD          TBD         Media and schools used      Strategic alliance with R&D
                                                            ESO/ MOFTI/ CFI           MOFTI
 legislation in food safety and public health                                                                                      for campaigns               and University
  Assist the MSM food processors in forming                                                               TBD          TBD                                     Support institutions
                                                            MOFTI                     IMC                                          Associations formed
 associations and help them in clustering
 Assisting enterprises to access to technology through      Business assistance                           TBD          TBD                                     Access to finance
                                                                                      IMC/MOFTI                                    SME clustered and grow
 joint ventures and partnerships                            centres
 Develop integrated training courses that are skill based   Training centres          MOFTI               TBD          TBD         Training conducted          Strategic alliance with R&D
 and market/product oriented                                                                                                                                   and University




240 Egyptian Processed Food Sector Review
Driver 4b          Outputs and activities for increased competitiveness of EFPI ---------retail market development
 IMMEDIATE OBJECTIVE                         To develop sustainable domestic retail market structure
                                             Critical Problem        Under developed retail market system
 OUTPUT 4.2                                  Developed domestic retail system (supermarkets etc.)
                                             Success indicator(s)                           Number of retail shops established fulfilling the requirement
 Activities for output 4.2                                            Implementing          Party responsible        Duration                 Milestones                         Related activities
                                                                      inst/industry                                  Start        End
                                                                                                                     YY,MM        (YY,MM)
 Identify and register all food distribution and market channels      MoH/ Licensing        MOFTI                    TBD                      All food retail shops identified   Domestic supply of food
                                                                                                                                  TBD
 including groceries                                                  authority,                                                              and registered                     out put 4a
 Organize awareness campaigns in post production handling and         MOFTI                 MOH,                                                                                 Domestic supply of food
                                                                                                                     TBD          TBD
 marketing of processed food to all shop owners                                                                                                                                  out put 4a
 Introduce law for food distribution an handling of processed food    MOFTI/ IMC            IMC                                               Law introduced after discussion    Raw material (out put
                                                                                                                     TBD          TBD
 and protection of public health                                                                                                              with all stakeholders              1.1)
 Assist the registered groceries, shops, and processed food           MOFTI / MOH/ IMC      IMC                                               Standard design and facilities     Access to finance
 traders in establishing /expanding their food section through                                                       TBD          TBD         for the food marketing shops
 acces to fianance, training, and technical advice                                                                                            set and agreed
 License the shops complying to the set standards as official         MOT ?? MOH             MOFTI                                            All official food distribution     MSME development
                                                                                                                     TBD          TBD
 distribution centres for processed food                                                                                                      shops are licensed
 Conduct awareness campaigns to the public on the public health       MOH                   MOFTI                                             A regular radio and television     Support institutions
 issues and inform them to buy from licensed shops                                                                   TBD          TBD         programme organized to
                                                                                                                                              increase the awareness




    Egyptian Processed Food Sector Review                                                                                                                                               241
Driver 4c            Outputs and activities for increased competitiveness of EFPI--------increased role of SMEs in domestic and regional\ markets


 IMMEDIATE OBJECTIVE                         To make the Egyptian small and medium scale for processing industry play important role in domestic and regional market, through
                                             import substitution and niche marketing
                                             Critical Problem     Weak marketing strategy, Weak product innovation capability and interaction with the larger industry
 OUTPUT 4.3                                  The Egyptian food processing industries became regional players in selected product groups such as dairy products, fruit and
                                             vegetables, olive products
                                             Success
                                                                  % Increase in the export performance
                                             indicator(s)
 Activities for output 4.3                   Implementing         Party responsible              Duration                  Milestones                   Related activities
                                             inst/industry                                       tart         End
                                                                                                 (YY,MM)      ((YY,MM)
 Sensitizing the management of the           IMC/ MOFTI/          MOFTI                                                    Sensitizing                  Support institutions
 SMEs and the large enterprises on the       Industry                                            TBD          TBD          workshops/symposiums         MSME development
 important role of the SME                   Associations                                                                  organized
 Assist the SMEs and larger enterprises      SMES/ Large          IMC/MOFTI                                                MoU and contracts signed     SME development
 in reaching agreements for the supply       enterprises and                                     TBD          TBD
 of services and goods                       MNCs
 Assist SMEs in access to capital            Development banks    IMC/MOFTI                                                Finance/fund/grant made      Access to finance
 finance and or joint ventures with          /IMC/ MOFTI                                         TBD          TBD          available
 larger companies and retailers
 Formation of commodity/service based        Industry             MOFTI/IMC                                                Value chain established      Support institutions
 associations for collective activities to   Associations/ R&D
 reduce costs such as (contract              and University                                      TBD          TBD
 research, collective storage,
 purchasing )
 Establish mechanism of providing            Industry             IMC at the beginning /                                   MIS established/bulletins    Support institutions
                                                                                                 TBD          TBD
 market information to all SMI               Associations         Industry Associations                                    published




242 Egyptian Processed Food Sector Review
Driver 8             Outputs and activities for increased competitiveness of EFPI ---------Increased export performance


                                               To increase processed food export through improvement of quality and food safety, introduction of new products, and develop superior marketing
 IMMEDIATE OBJECTIVE
                                               capability
                                                                           Weak marketing strategy, Lack of proper infrastructure such as cold stores chains from the farm to the port
                                               Critical Problem
                                                                           Weak product quality and food safety requirements
 OUTPUT 8                                      Increased export of processed food
                                               Success indicator(s)        Increased export of processed food to European and North American markets, Improved cold storage and transport facilities


 Activities for output 8                                                 Implementing               Party responsible    Duration               Milestones                               Related activities
                                                                         inst/industry                                   Start      End
                                                                                                                         (YY,M      (YY,MM)
                                                                                                                         M)
 Certification of the products for the requirements of                   Companies/ farms/          Industries/farms/M                          All export industries and most           Training
                                                                                                                         TBD        TBD
 international trade such as EurepGap, HACCP etc..                       laboratories (certified)   OALR/MOFTI                                  suppliers to domestic market certified
 Organize commodity based export association for collective              Companies/ Exporters       MOFTI/Association                           Export associations for each product     Support institutions
 lobbying for policy reforms, collective bargaining for imported                                    s                    TBD        TBD         group established
 inputs, collective bargaining of export prices
 Establish Quick and reliable market information collecting and          Industry Associations      MOFTI                                       Printed and electronic information       Support institutions
                                                                                                                         TBD        TBD
 dissemination system to the members of the association                                                                                         made available regularly to members
 Collective sea and air cargo space utilization for transporting of      Industry Associations      Associations                                Common export cargo space                Support institutions
 products for export                                                                                /EPA/MOFTI/air-                             negotiated
                                                                                                                         TBD        TBD
                                                                                                    sea cargo
                                                                                                    companies
 Collective establishing /utilization of facilities such as cold store   Industry Associations/     Associations/MOFT                           Common cold stores utilized              Support institutions
                                                                                                                         TBD        TBD
                                                                         Companies                  I
 Common marketing campaigns such as webpage for the                      Associations               associations                                Egyptian Web page for business           Support institutions
                                                                                                                         TBD        TBD
 marketing of Egyptian products                                                                                                                 matching launched
 Establishing/financing joint research projects to the benefit of        Associations/ R&D/         Associations/                               Joint research project contracted        Strategic alliance with
                                                                                                                         TBD        TBD
 all exporters.                                                          Universities               University                                                                           Universities and R&D inst




    Egyptian Processed Food Sector Review                                                                                                                                                       243
Summary of the proposed strategy for increased competitiveness of EFPI--------- Improvement of alliances and coordination among stake holders

 GOAL(S)                                                            To promote sustainable alliances with all stakeholders and support institution of the EGFPI to promote increased
                                                                    performance in international and domestic market


 objective                                                          To improve the organization ad coordination of the stake holders in the food supply chain




 Driver 5                                                           Driver 6                                                        Driver 7
 Immediate objective            To improve the coordination         Immediate objective          To build sustainable and strong    Immediate objective            To increase the foreign
                                of the activities of institutions                                strategic relationships between                                   direct investment flow in the
                                supporting the sector                                            the universities and research                                     food processing and export
                                                                                                 institutes and the EFPI
 Critical problem               Lack of coordination of key         Critical problem addressed   Not linked research and            Critical problem addressed     Very low inflow of FDI to
 addressed                      institutions serving the                                         development efforts to the EFPI,                                  food processing sector
                                sector                                                           Strong human capital but not
                                                                                                 focused to the needs of EFPI
 Outputs                        Success indicators                  Outputs                      Success indicators                 Outputs                        Success indicators
 A coordination body for        National board for the food         Improved transfer of         Number of research finding         Increased flow of FDI in the   Value and number of FDI
 the activities of the          processing and marketing            technology from research     commercialised                     food processing for export     inflow to Egypt
 associations and institutes    established                         to industry
 established and become
 operational
 The number of                  Number of stake holders             Properly trained             No of trained personnel in the     Increased number of            Number of regional offices of
 associations                   supporting the sector               (specialized) manpower       food sector                        multinationals make Egypt      multinational companies in
 /universities/ministries/res   increased                           provided to the EGFPI from                                      their hub for regional         the food sector in Egypt
 earch institutes increased                                         research centres and                                            operations
                                                                    university




244 Egyptian Processed Food Sector Review
Driver 5             Outputs and activities for increased competitiveness of EFPI--------increased coordination of stake holders


 IMMEDIATE OBJECTIVE                              To improve the coordination of the activities of institutions supporting the sector
                                                  Critical Problem         Lack of coordination of key institutions serving the sector
 OUTPUT 5                                         A coordination body for the activities of the associations and institutes established and become operational
                                                  Success indicator(s)     Centralized body for representing the food sector established and become operational
 Activities for output 5                          Implementing             Party responsible       Duration                   Milestones                    Related activities
                                                  inst/industry                                    Start         End
                                                                                                   (YY,MM)       (YY,MM))
 Hosting a symposium or related event                                                                                         Work shop organized           Sensitizing
 where all stake holders can interact and         IMC/MOFTI                IMC                     TBD           TBD
 contribute their perception of the sector
 Establish a central board of food producers,                                                                                 Establishment of food
 processors and traders which will discuss                                                                                    board
                                                  Stakeholders             IMC/ MOFTI              TBD           TBD
 the sector needs and chart/propose the way
 forward for the sector
 Encourage all members to develop                                                                                             Memorandum of between         Strategic alliance with R&D
 memorandum of understanding                      Board                    Board                   TBD           TBD          associations                  and University
                                                                                                                              understanding signed
 Establish a central database which could be                                                                                  Database established and      Information dissemination
                                                  Board                    Board                   TBD           TBD
 accessed by all members                                                                                                      accessed by members
 Publish newsletters/bulletins to disseminate                                                                                 Information disseminated      SME development
 information on export/import data, market
                                                  Board                    Board                   TBD           TBD
 prices, position of Egypt in relation to it
 competing countries etc…
 Organize trade fares, exhibitions, study                                                                                     Joint trade fares and study   FDI attraction
 tours and participation in international trade   Board                    Associations            TBD           TBD          tours organized
 fares




    Egyptian Processed Food Sector Review                                                                                                                                                 245
Driver 6            Outputs and activities for increased competitiveness of EFPI--------strategic alliance between university/R&D institutes and Industry


 IMMEDIATE OBJECTIVE                         To build sustainable and strong strategic relationships between the universities and research institutes and the EFPI


                                             Critical Problem     Not linked research and development efforts to the EFPI, Strong human capital but not focused to the needs of
                                                                  EFPI
 OUTPUT 6                                    Improved transfer of technology from research to industry. Properly trained (specialized) manpower provided to the EGFPI from
                                             universities
                                             Success
                                             indicator(s)
 Activities for output 6                     Implementing         Party responsible               Duration                  Milestones                  Related activities
                                             inst/industry                                        Start        End
                                                                                                  (YY,MM)      (YY,MM)
 Identify universities with the capability   Industry / IMC       IMC                                                       Universities identified     Activities to all sector
 to form strategic partnership with                                                               TBD          TBD                                      (industry wide)
 industry
 Discuss the modalities of cooperation       Industry / IMC       IMC                                                       Agreement of cooperation
                                                                                                  TBD          TBD
                                                                                                                            signed
 Assist universities to create internship    Universities         Government / IMC                                          Fund made available for     Board for coordination of
 programmes to link students to the FPI                                                           TBD          TBD          linking university and      activities of the sector
                                                                                                                            industry the programme
 Establish incentives to the research        Universities         Government / Ministry of                                  Fund made available for     Export activities
 centres to pro-actively contribute and                           Higher Education                TBD          TBD          basic research
 disseminate information to the sector
 Encourage and support contract              Universities /       Government                                                Contract research           Export product
 research activities between the             Industry                                                                       agreements signed           development /research
                                                                                                  TBD          TBD
 industry and the research centres and
 universities




246 Egyptian Processed Food Sector Review
Driver 7            Outputs and activities for increased competitiveness of EFPI--------FDI attraction


 IMMEDIATE OBJECTIVE                              To increase the foreign direct investment flow in food processing sector for export
                                                  Critical Problem    Low level Foreign Direct investment in the food processing sector
 OUTPUT 7                                         Increased inflow of FDI to food industry
                                                  Success
                                                                      Number and value of FDI in food processing sector
                                                  indicator(s)
 Activities for output 7                          Implementing        Party responsible           Duration                  Milestones                   Related activities
                                                  inst/industry                                   Start (Year   End (year
                                                                                                  month)        month)
 Strengthen/establish a strong investment                                                                                   Investment promotion         Institutional capacity building
 promotion authority (possibly at ministerial     IMC/MOFTI           IMC                         TBD           TBD         agency                       at state level
 level) IPA/GAFI                                                                                                            established/strengthened
 Update the potential\investors in the                                                                                      Changes in business          Export promotion campaigns
 development regarding the continuous                                                                                       environment made available   through electronic media
 improvement of the business environment in       GAFI/ IPA           IMC                         TBD           TBD         to international investors
 Egypt


 Assist professional associations to organize                                                                               Business men in the food     Support institutions activities
 workshops and study tours for the                                                                                          sector participated in
 management of the food industries in                                                                                       international partnership
                                                  GAFI/ IPA           GAFI/IPA                    TBD           TBD
 Europe middle and North America to form                                                                                    meetings and conferences
 partnerships with multinationals


 Create a web site for the food processing                                                                                  Website launched             Export promotion
 sector promoting the potential of Egypt in
 agriculture especially in fruit and vegetables   GAFI/ IPA           GAFI/IPA                    TBD           TBD
 and dairy industries, the low labour cost and
 the proximity to Middle East and Europe




    Egyptian Processed Food Sector Review                                                                                                                                             247
VI Product Group Strategies




 Egyptian Processed Food Sector Review   249
 1 Processed Vegetables: strategy proposal for
   improved export performance




      This section discusses the global trends in fruit and vegetable processing, the current
      Egyptian situation for fruit and vegetable processing and marketing, SWOT analysis, the
      critical problems to be addressed, the activities to be carried out to improve the critical
      situation, and expected outputs. Finally, the expected performance of the sector in the coming
      10 to 15 years is projected.

      Due to the similarities of problems faced and the similarities of opportunities, the presented
      SWOT analysis covers all horticultural products (processed vegetables and fruit juices in
      general). However, whenever it is appropriate, SWOT analysis specific for the products is
      also presented.

      Tomato paste and Strawberry are discussed in detail due to their high un-tapped potential.
      While investment opportunities for both products are presented, the future performance
      projection is made only for tomato products.


1.1   Background

      As demand for convenience food increases globally, the utilization and trade of processed,
      frozen and preserved vegetables will grow at a higher pace than it does presently. Choice,
      cost, quality (including taste, appearance and texture), safety, convenience, availability,
      service, novelty and continuity of supply will remain the predominant driving factors that
      determine competitiveness within the processed vegetable sector.

      There will be greatly increased competition within domestic and export markets from
      overseas, particularly India and China. China has become the largest producer of vegetables
      and is expected to become the number one exporter of processed vegetables by 2006. The
      present export focus of China is mainly on Asian markets but China will soon become a truly
      global player by increasing its market share to Europe and the Middle East.

      The access of companies operating in the supply chain to an efficient supply of high quality
      information about the latest production techniques and new materials world-wide will also be
      vital to the sector’s future export competitiveness.



      Egyptian Processed Food Sector Review _Product-group strategies                               251
              The growth and concentration of retailers and catering companies will continue at the
              expense of the wholesale markets and there will be further concentration and rationalization
              of companies in the sector.

              For processed fruit and vegetables important factors will be pre- and post-harvest quality,
              together with the physical and chemical characteristics that affect processing procedures. The
              new cost-effective methods of dehydrating fruit and vegetables will take advantage of
              improved fresh quality and will reduce transport costs. There will be a wider range of freeze-
              dried products. Short and long term storage will remain important for potatoes, fruit and root
              vegetables.

              Moreover, there is likely to be an increase in legislation driven by consumer pressure (e.g. on
              environmental issues such as effluent and waste packaging disposal and the use of recyclable
              packaging, on the hidden costs of transporting goods long distances, on health and safety and
              on providing more product information). The influence of these kinds of legislations in
              Egyptian export markets such as Europe and North America will have far-reaching effects on
              agricultural and industrial activities in Egypt and, accordingly, preparedness for potential new
              legislative measures will be imperative.


       1.2    Current situation

      1.2.1   Frozen vegetables

              Egypt’s export of processed vegetables has shown an average increase of 5.3 % (from 92 to
              145 million US$ between 1998 and 2003) and Egypt ranks 26th in global processed vegetable
              export. With respect to growth rate, it stands 17th in the world and 3rd in the region behind
              Jordan and Iran. The domestic market is also growing at more than 20% a year.

              Egypt’s achievements in frozen vegetable exports are attributable to the creative dynamic
              private sector operators that, despite a fragmented traditional-based agricultural (smallholder
              farms account for more than 85% of horticultural production), are pulling the agriculture
              sector forward. The main players in the export of processed vegetables are Montana,
              Farmfrites/Americana, Basmah, Faragallah, Sonac, AGA, ColdAlex and Givrex with total
              export share of more than 80%.

              With increasing global supply, delivered (CIF) costs are becoming a significant driver for the
              improved export performance for the sector and for continuation of Egypt’s gains in market
              share. The increase in supply, together with importers’ quality requirements, will also
              increase the need to produce and deliver product that meets buyer specifications. Many of the
              quality and cost issues that are and will be important are affected by policies, regulations, and
              actions of the government of Egypt.

              A major quality constraint is the lack of adequate post-harvest facilities (including cooling
              and packing sheds, refrigerated transport, and cold storage). In this respect, improvements

              Egyptian Processed Food Sector Review _Product-group strategies
252
        have been made: large growers and exporters are establishing their own facilities and
        acquiring refrigerated trucks, and the establishment of the new cold store at the Cairo airport
        terminal and outsourcing the management of this cold store to HEIA (Horticultural Export
        Improvement Association) provides a very good example of the facilitation role the
        government can play.

        The availability of refrigerated containers has increased significantly in recent years, and
        regulations have been changed to facilitate their use and movement. However, increasing
        production and export volumes will require more investment in support facilities. Particular
        challenges will be faced in extending these facilities to small and medium-sized holders
        growing areas.

        According to the leading exporters in the sector, only less than 20 % of the vegetables
        processed come from commercialised farms. The rest comes from the fragmented
        smallholders’ farms with their associated problems such as low quality and inconsistency of
        supply.

        The private exporters and processors are asking for increased availability of desert land ear-
        marked for export horticultural products (fresh and processed). Provision of the land to
        exporters, together with integrating small holders into the supply chain through contract
        farming and development of the out-growers schemes, will be crucial to meet the challenges
        ahead.

        Although the new tariff levied on imported refrigerated trucks - which are badly needed for
        fresh transport - has been reduced to 5 percent from 40, the law does not allow for the import
        of older trucks. This situation still poses a problem to small-scale entrepreneurs who would
        like to invest in the post-harvest and production transport business. Besides this, commercial
        financing costs are high (commercial interest rates at are 15 percent minimum) and small
        enterprises face difficulties in access to finance.

        Professional associations, such as HEIA, are providing technical expertise and training in
        packing and shipping, organizing business tours and collective attendance in international
        fares. This is a very encouraging development that should be supported.


1.2.2   Processed tomatoes

        Egypt grows more than 5 million tons of tomatoes, with yields and overall production
        volumes increasing due to the introduction of new varieties. Almost all domestic production
        of tomatoes is consumed fresh and Egypt imported more than 220 tons of processed tomatoes
        (mainly in the form of paste) in 2003.

        The production and processing of tomatoes has been considerably hampered by high post
        harvest losses amounting to 50 to 60 percent of production; these losses stem from damage or


        Egyptian Processed Food Sector Review _Product-group strategies                              253
              loss in transit and handling due to poor packaging, lack of cold chain facilities, rough
              transport, and multiple handling.
              If only half of tomato production is processed to paste, Egypt could produce more than
              357,000 tons of tomato paste per annum.

              The technology for the production of tomato paste is inexpensive and relatively simple.
              Moreover, even this investment can be further reduced if tomato paste production is
              integrated to fruit juice production lines (e.g. by adding canning and hot-break stages to
              existing fruit juice factories that typically have unused capacities).

              The growing sourcing of bulk tomato paste from low cost suppliers (e.g. India and China) by
              supermarkets and hypermarkets in Europe for their private label products has contributed to
              European tomato paste processors closing down or moving their production (farms) and
              processing facilities to emerging economies. With the improvement in aseptic and bulk
              transport, more and more factories will move their activities to the countries that have
              comparative advantages in growing and processing of tomatoes. Egypt has a unique
              opportunity to attract these investors for the domestic, Middle East and European markets.


      1.2.3   Strawberries

              Egypt exported 6,300 metric tons of strawberries in 2002. According the report of USAID it
              is projected that the demand for strawberries in EU and Gulf countries will increase
              significantly over the next 10 years to reach 67,500 metric tons.

              As new industrial varieties are introduced, and the ability to produce significant amounts of
              competitively priced strawberry is raised, the resulting projection of exports of Egyptian
              strawberries is that they will reach 16,900 tons in 2007 and 21,100 tons in 2012.

              According to the leading exporters of strawberries, the main challenge for Egyptian exports
              of strawberries to Europe is to raise the volume of strawberries that exporters can supply.
              European importers are looking for high volume and constant supply, which the Egyptian
              exporters have difficulty in achieving. More than 70% of strawberries destined for export
              come from small and medium size farmers, and meeting the increasingly stringent quality
              assurance requirements (e.g. EurepGap) is proving to be too costly or risky to justify sourcing
              supplies from smallholder producers. It is also the case that, in some cases, strawberries
              exported from Egypt to Europe end up in China and India (where energy is cheaper) for
              further processing using high technology freeze dying and are then re-exported to Europe for
              specialized food applications.

              Due to its proximity to Europe and the Gulf, higher agricultural productivity potential and
              lower labour cost, Egypt is in a better position than many Far East countries to attract
              investment in the processing of strawberries. This unique competitive advantage of Egypt
              should be exploited relentlessly to attract foreign FDI (both in joint venture or ‘greenfield’)
              by the government and the food processing industry.

              Egyptian Processed Food Sector Review _Product-group strategies
254
     1.3      Processed Vegetables: SWOT Analysis

              The strengths, weaknesses, opportunities and threats (SWOT) for the Egyptian processed
              vegetable sector are shown in Figure 1.1.

Figure 1.1:   Processed vegetables: SWOT

                                     Strengths:                                               Weaknesses:

              •   Highly favourable agro-climatic conditions for         •   Inconsistent supply of raw material (quality and
                  horticulture                                               quantity) due to fragmented small holders farms (up
              •   Off-season production opportunities for some               to 85%)
                  products                                               •   Low level of certification of farms for EureGap and
              •   Diverse geo-climatic zones to produce late and             traceability
                  early maturing varieties for year round supply (e.g.   •   Very high post harvest losses (up to 60%)
                  tomato)                                                •   Low capacity utilization
              •   Absolute advantages in indigenous vegetables           •   Low level of quality control and food safety system
                  (e.g. Molokhia)                                            in several factories (domestic market oriented)
              •   High number of Egyptian expatriates in the Middle      •   High cost of freezing equipment (and lack of
                  East makes introduction of products easier                 finance)
              •   Cheap and abundant labour with basic skills            •   Lack of cold chain and refrigerated truck
              •   Strong base in technical subjects                      •   Lack of regular air and sea cargo shipping
              •   Good basic infrastructure                              •   Lack of market information system
              •   Attractive FDI environment for fruit and vegetable     •   Under developed retail market system
                  exports                                                •   High cost of delivery to domestic market
              •   Improving food quality and safety situation            •   Low level of research in developing new varieties
              •   Close cultural ties to the high value Gulf countries   •   Low labour productivity, due to obsolete machinery,
                  market                                                     and poor management
                                                                         •   Lack of innovative activity
                                                                         •   Lack of modern marketing skills
                                    Opportunities:
                                                                         •   Weak institutional support for technology, marketing
              •   Potential for export-oriented FDI in vegetables            and skill development
                  processing such as tomato, potato, strawberry and      •   Lack of competitive benchmarking with in domestic
                  artichoke                                                  industries and against competitors
              •   Potential for domestic market oriented FDI             •   Lack of cooperation and sharing information among
              •   High opportunity for improving productivity                the exporters
              •   High number of expatriate Egyptians to promote         •   Unnecessary competition of exporters among them
                  the products in the Middle East                            selves during the window season (ex. Molokhia)
              •   Growing urban population (health conscious, rising         when Egypt has unique advantages
                  income and time poor)                                  •   Lack of collective export strategy
              •   Proximity to markets in Middle East and Europe         •   Low level of promotion of Egypt’s potential for
              •   Easier access to Arab markets                              foreign investors in vegetable processing
              •   Potential advantage in labour-intensive
                  manufactures
                                                                                                 Threats:

                                                                         •   Regional political uncertainties
                                                                         •   Growing competition from other low wage countries
                                                                         •   Lack of coherent strategy
                                                                         •   Competition from cheaper production of processed
                                                                             vegetables from, for example, China and India in
                                                                             Middle East / Gulf markets


              Egyptian Processed Food Sector Review _Product-group strategies                                                   255
      1.4   Critical problems to be addressed

            The critical problems facing the processed vegetable sector include:
            •  Low stage of primary production: Egyptian vegetable farms are characterized by small-
               scale holding and low level of integration with commercial farms and the processing
               industry. Lack of quality control during pre- and post-harvest production, combined with
               a lack of sufficient cold stores and proper training, has led the unacceptably high losses
               (up to 60 % in case tomato and more than 40% for other vegetables) and un-quantifiable
               loss in quality of the raw material, which has consequences in quality of product and the
               competitiveness of the processing industry
            •  Low capacity utilization: most of the factories work below their designed capacity due to
               lack of raw material, working capital and proper production planning competency.
            •  Lower level of quality and food safety standards: although a lot of effort in the form of
               technical assistance has been exerted by the government (including IMC) and
               professional associations, only a few exporters have been certified for HACCP and food
               safety. The situation is even worse at the farms level where very few small-scale farms
               have been certified for EureGap and traceability.
            •  Lack of aggressive marketing strategy: the export potential of Egypt in processed
               vegetables is not fully exploited due to low marketing strategy at the firm level. There is
               a general lack of information in the trends, prices and opportunities in different parts of
               the world. There is also a lack of common facilities/services for exporters to reduce their
               marketing costs and reach potential importers. There is low level of utilization of the
               Internet.
            •  Lack of information in new investment opportunities for foreign and domestic investors:
               the potential for investment in production and processing of different vegetables are not
               explored and communicated to potential investors.
            •  Lack of insurance facilities for agricultural activities has discouraged potential investors;
               being afraid of the risk, most investors invest in low risk activities such as trading.
            •  High credit interest rate.


      1.5   Activities to improve the critical problems

            The main activities that need to be undertaken are:
            •  Increase the provision of land available to commercial vegetable farms engaged in (or
               intend to engage in) activities aimed at export.
            •  Increase support to small-scale vegetable farmers, and introduce and/or increase contract
               farming between industries/commercial farms and small holders.
            •  Improve pre- and post-harvest quality of raw vegetables by proper training to commercial
               farms and technical assistance to small-scale farmers.
            •  Reduce post-harvest losses by improving the cold chain, handling and transportation of
               raw materials through incentive to small-scale entrepreneurs to invest in this activity (e.g.
               by reduction of taxes on refrigerated trucks and cold store facilities).



            Egyptian Processed Food Sector Review _Product-group strategies
256
      •   Develop new varieties of vegetables (better yield/shelf life/consistent size, early and late
          maturing etc.).
      •   Support, through training and technical advice, to small holders in meeting current food
          safety legislations (e.g. EureGap) for export market.
      •   Support firm’s within the industry to improve their quality control, HACCP and
          traceability capabilities so as to meet international standards (e.g. through training,
          technical advise and financial support).
      •   Increasing capacity utilization of food processors through improved logistics, production
          and planning.
      •   Strengthen/establish frozen vegetables export association including small and large
          processors/exporters (ExpoLink).
      •   Develop a coordinated and well-targeted strategy for the fruit and vegetables sector by
          benchmarking Egypt against its regional and global competitors.
      •   Collect and disseminate global and regional market trends for each product to the
          members and develop joint strategy.
      •   Conduct pre-feasibility studies in potential investment areas in the fruit and vegetable
          sector.
      •   Promote studies of these investment opportunities through printed and electronic media,
          and through the embassies of Egypt abroad.


1.6   Goals and vision

                                                                Vision
             -To increase the export of frozen vegetables by 4 fold in 2010
             -To be self sufficient in tomato paste by 2009 and export 357,000 tons by 2010


      If the above mentioned critical conditions are addressed properly and the proposed activities
      mentioned below are carried out coherently by the industry, the government, and supporting
      and professional associations, then the export performance of the processed vegetable sector
      can be raised so as to reach a level of more than a billion US dollars a year by 2020.

      The projection of the future performance of the industry was calculated based on the 1998 to
      2003 export data (FAO, Comtrade). The projections, shown in Figure 1.2 assume an
      underlying growth rate for the value of domestic production of 25% per annum. For exports,
      a growth rate of 30% per annum is assumed for the period 2005 to 2010, a growth rate of
      10% thereafter.




      Egyptian Processed Food Sector Review _Product-group strategies                              257
      Figure 1.2   Frozen vegetables: domestic and export market projections


                                                   Projected resultant growth of egyptian frozen vegetable industry
                                                                                         (2005-2020)

                      mi                 4000
                      lli                3500
                      on                 3000                                                                           1077
                      s                  2500                        domestic
                      of                                             export

                      US                 2000
                                                                                                        353
                      D                  1500                                                                                  2406

                                         1000                                   116
                                                                                                                 1494

                                             500              38                                  927
                                                                       250
                                               0
                                                              2005                         2010                 2015           2020




                   Among the processed vegetables tomato processing was selected for focused study due to its
                   untapped potential in export market and is considered suitable for attracting investors (both in
                   agricultural production and processing for export). If the increase in agricultural production
                   of tomato, and reduction in post harvest losses is achieved by implementing the
                   recommended activities above, Egyptian tomato paste exports will be in a position to take
                   over the place of its main regional competitor, Turkey, by 2012 and become regional leader
                   in the tomato market in the Middle East.

      Figure 1.3   Tomato paste: export and import projections

                                                    Projection of the Export Performance Tomato paste production (2005-2020)
                    1000000
                                                   Export
                                                   Import


                                   10000
                    T n o to a p ste
                     o s f m to a




                                                                                 189,744                      472,145
                                                     35,280

                                                                                                                               602,589



                                       100



                                                      145
                                                                                      47
                                                                                                                16

                                        1
                                                      2005                        2010                         2015             2020
                                                     ex port grow th 40% (2005-2010), 20% (2010-2015), 5% (2015-2020)
                                                     Import decline 20%(2005-2015), 10%(2015-20200




                    Egyptian Processed Food Sector Review _Product-group strategies
258
Figure 1.4 Summary of proposed strategy for the improved export performance of processed vegetables




                                Current situation                                   Present position of Egypt

                  •   High post-harvest losses (60% tomato, 40%            •    Egypt is well positioned in potatoes, beans
                      other fruit and vegetables                                and other frozen vegetables
                  •   85% of horticulture production by small holders      •    Domestic market growth more than 20% p.a.
                  •   Low capacity utilisation (average 70%)               •    3rd in the region (Jordan, Iran)
                  •   Lack of cold store, refrigerated truck,              •    17th in the world (35% increase in 5 years)
                  •   Lower safety standards and traceability              •    Creative dynamic private sector pushing the
                  •   Weak marketing strategy                                   sector forward
                  •   Poor transport infrastructure and equipment



                                      Focus                                                   Target

                  •   Earmark land for horticulture exports                •    Increase domestic market by 25% per year
                  •   Integrate small holders to supply chain (contract    •    Become lead regional exporter by 2010
                      farming)                                             •    Increase export to EU and N. America
                  •   Assist small scale transport companies in the
                      distribution of raw material and finished products
                  •   Stronger association (market info, collective
                      marketing strategy)
                  •   Compete and cooperate (in off season )




             Egyptian Processed Food Sector Review _Product-group strategies                                             259
GOAL(S)                                                  Increased and sustainable export performance of the Egyptian frozen fruit and vegetable industry to the Middle East, Europe
                                                         and North America



Immediate objective                                      To increase the current export of Egyptian frozen fruit vegetables 4 fold by 2010
Critical problem addressed                               Low stage of primary production, low capacity utilization and lower level of quality and food safety, lack of aggressive marketing
                                                         strategy, lack of information in new investment opportunities for foreign and domestic investors
Outputs                                                  Success indicators
1 Improved primary (agricultural) production             % increase of agricultural production in vegetables targeted for export market
2 Improved capacity utilization and quality and safety   % increase in capacity utilization, number of enterprises and farms complying to international food safety and traceability legislations
standards to meet the requirements of international
legislations
3 Coordinated marketing strategy developed               % increase in export performance of Egypt in comparison with its regional and global competitors
4 information studies made available in new areas of     Amount of investment in the processed vegetable sector
investment in the sector
Activities for output 1                                  Success indicators                              Party responsible                                  Duration
                                                                                                                                                            Start      End          Related
                                                                                                                                                            (YY,MM)    (YY,MM)      activities
Increase the provision of land to commercial
                                                         Number of hectares of land made available                                                                                  Raw material
vegetable farms engaged or intending to engage in                                                        Government                                         TBD        TBD
                                                         for commercial farms                                                                                                       supply
exporting
Increase support to small holders, clustering and
                                                         Number of small holders organized, number                                                                                  Improved farm
contract farming between enterprises/commercial                                                          MALR/farms/enterprises/government                  TBD        TBD
                                                         of contract farms signed                                                                                                   structure
farms and small holders
Improve pre- and post-harvest quality of raw             Amount of vegetable rejected by processing                                                                                 SME
                                                                                                         Farms/ transport companies / enterprises           TBD        TBD
vegetables                                               industry                                                                                                                   development
Reduce post harvest losses by improving the cold         Post harvest losses reduced from ca 50%         Farms/wholesalers/enterprises                                              Raw material
                                                                                                                                                            TBD        TBD
chain, handling and transportation of raw materials      to acceptable level by 2010                     /professional associations                                                 supply and SME




260 Egyptian Processed Food Sector Review _Product-group strategies
GOAL(S)                                                 Increased and sustainable export performance of the Egyptian frozen fruit and vegetable industry to the Middle East, Europe
                                                        and North America

                                                                                                                                                                     development
Develop new varieties of vegetables for (better
                                                        Number of new varieties developed and                                                                        Strategic
yield/shelf life/consistent size, early and late                                                      R&D institutes/ universities/ industry   TBD        TBD
                                                        their impact in the export performance                                                                       alliance
maturing) etc.
Activities for output 2                                                                                                                        TBD        TBD
Support the small holders in meeting the current food
                                                        Number of small holders farms certified for                                                                  Raw material
safety legislations (such as EureGap) for export                                                      IMC/ MOFTI                               TBD        TBD
                                                        EureGap and traceability                                                                                     supply
market through training and technical advise
Support to enterprises to improve their quality
control, HACCP and traceability capabilities to meet    Number of frozen vegetable processors         IMC/ ESO/ MOFTI/                                               SME
                                                                                                                                               TBD        TBD
international standards, through training, technical    certified for EureGap and traceability        Associations                                                   development
advise and financial support
Increasing capacity utilization of processors through   Capacity utilization in % of individual
                                                                                                      Enterprises                              TBD        TBD        Firm structure
improved logistics, production planning etc.            enterprises and at national level
Activities for output 3                                                                                                                        TBD        TBD
Strengthen/establish frozen vegetables export
                                                        Number of members of the export                                                                              Support
association including small and large                                                                 Industry/exporters                       TBD        TBD
                                                        association                                                                                                  institutions
processors/exporters (ExpoLink)
Develop a coordinated and well targeted strategy for
                                                        Strategy developed for all potential                                                                         Export
the fruit and vegetables sector by bench marking                                                      Industry associations                    TBD        TBD
                                                        products                                                                                                     promotion
Egypt against its regional and global competitors
Collect and disseminate global and regional market
                                                        Amount and quality of information
trends for each product to the members and develop                                                    Industry associations                    TBD        TBD        Associations
                                                        distributed
joint strategy




     Egyptian Processed Food Sector Review _Product-group strategies                                                                                                                261
GOAL(S)                                                   Increased and sustainable export performance of the Egyptian frozen fruit and vegetable industry to the Middle East, Europe
                                                          and North America

Activities for output 4
Conduct pre-feasibility studies in potential investment   Number of pre-feasibility studies made
areas in the fruit and vegetable sector                   available
Promote studies on investment opportunities through
                                                          Number of potential investors to whom the
printed and electronic media, through the embassies
                                                          studies are communicated
of Egypt abroad,




262 Egyptian Processed Food Sector Review _Product-group strategies
 2 Olive products: strategy proposal for the
   improved export performance




2.1   Background

      Olive oil production has normally been concentrated in the Mediterranean basin countries:
      Spain, Portugal, Italy, Greece, Turkey, Tunisia and Morocco. These seven countries alone
      account for 90% of world production. The total world production of raw olives reached 16
      million tons in 2003.

      The main consuming countries are also the main olive oil producers. The European Union
      accounts for 71% of world consumption. Mediterranean basin countries represent 77% of
      world consumption.

      The main producing countries are also the main exporting countries. Once again, the
      Mediterranean basin countries contribute to more than 95% of total world exports.


2.2   Current situation

      Egypt is ranked number 8 in the top olive producers worldwide, with production of 318,000
      metric tons in 2002. The area harvested and the level of production showed a very rapid
      increase over the last five years and is expected to increase further in the next few years.
      Expansion of the harvested area is expected to position Egypt as the third most important
      olive producing country in the world by the year 2010134. This projection is based on the
      expected increase of land devoted to olive production in Toshka and Owniet, and the
      tendency for producers/commercial farms to grow new superior varieties (e.g. manzanilla).

      Within Egypt, 7 firms dominate the production of olive oil and table olives; the largest Mina
      Oils contributes more than 50% of Egyptian olive products export. The total production of
      table olives in Egypt is estimated as 160,000 tons, and the estimate for the olive oil is around
      8,000 tons. Dr. Olive is the leading exporter and importer of the table olives with production
      of more than 10,000 tons of table olives (30% of it exported to Libya). In terms of top-quality
      production and exports, Egypt Canning Company (Americana Group), produces 1000 tons of

      134
            Table olives situation outlook, D. Anderson et al 2003 (aleb)




      Egyptian Processed Food Sector Review _Product-group strategies                              263
            top quality canned and glass jar table olives for export mainly to America and Australia.
            Demand from Pizza hut and other fast food outlets in Egypt is growing and they consume
            more than 300 tons of table olives.

            The study team estimates approximately 70% of production of raw olives goes to table olive
            preparation and 30% to oil crushing. In Turkey, 70% goes to oil crushing and rest goes to
            table olive production, which is advantageous in terms of value addition and spillover effects.

            Egyptian exports of olive oil has increased tremendously in 2003 reaching 2.3 million USD,
            for a volume of 1,312 tons, compared to 322,000 USD (212 tons) in the previous year (which
            itself had been a record level). Egypt also imported 252 tons of oil (USD 353,000) in 2003,
            compared to imports of 603 tons (USD 316,000) in 2002. This illustrates the strong positive
            Egyptian trade balance (more than 1 million USD in 2003) in olive oil trade. The export of
            table olives were about 3,000 tons in 2003 compared to 2,200 tons in the previous year,
            earning 1.4 and 2.1 million USD respectively in 2002 and 2003. These trade figures show
            that Egypt’s market share is still low compared to the bench marking countries such as Spain
            and Morocco both leading countries in the world market.

            The above analysis shows that Egypt’s olive industry is oriented towards the production of
            table olives mainly for the local consumption. The processing of table olives is dominated by
            the traditional methods and equipment and needs to be modernized to respond to the
            production of olives that will increase dramatically in the coming five years.


      2.3   Olive products: SWOT analysis

            Due to the fact that olive is in the category of (horticultural crop), many of the factors for the
            SWOT analysis for olive products replicates those covered in the SWOT analysis for the fruit
            and vegetables sector (Section 1.3). The reader is advised to refer to SWOT of fruit and
            vegetables for the general points. Figure 2.1 shows factors specific to olive products.




264         Egyptian Processed Food Sector Review _Product-group strategies
Figure 2.1   Olive products: SWOT

                                       Strengths:                                             Weaknesses:

                 •   Increased production of olives                      •   Low unit value (quality) for export products
                 •   Improved varieties and increased number of          •   Low level of technology in both olive oil and table
                     commercialised farms Increased land availability        olive
                     for new farms                                       •   Low marketing strategy (usually exported to Spain
                 •   Very high demand in domestic and int’l markets          for re-export)
                                                                         •   Table olives domestic market oriented
                                     Opportunities:                      •   Low level of olive oil utilization by Egyptian
                                                                             consumers
                 •   Increased number of fast food chains that use
                                                                         •   Lack of high quality bottles in the domestic market
                     table olives as an ingredient
                                                                         •   Lack of marketing of Egyptian brand olive oil (can
                 •   Very high potential for the oil production
                                                                             be marketed as desert olives)
                 •   Increased demand of olive oil and table\olives in
                     the global and gulf markets
                                                                                                 Threats:
                 •   Proximity to gulf markets than major producers
                     and exporters like Morocco and Spain                •   Increased dominance of Tunisia, Morocco and
                 •   Room for improvement in quality and increase the        Turkey in the regional market
                     unit value




     2.4     Critical problems to be addressed

             •       Low level of processing technology: Low level of technology in processing and
                     packaging is common in the sector. This is one reason for the relatively low unit value
                     (i.e. low quality) of Egyptian olive products in export markets.
             •       Low value export through third country: Most of the Egyptian table olive products are
                     exported to Spain and Italy at lower prices and end up in the developed markets (USA
                     and Europe) after further “processing”. Egypt looses value in the chain and needs to
                     develop a better marketing strategy.
             •       Domestic market oriented sector: The table olives sector is very much focused on low
                     value domestic market. This has an impact on the quality production and hence the
                     development of the sector.
             •       High price of imported bottles for packaging: Olive oil requires a high quality specialized
                     bottles for packaging. The domestic glass-factories cannot provide the required quality
                     and imported bottles are expensive. These could be a reason for low development of
                     export oriented olive oil production the country.
             •       Low level of marketing strategy


     2.5     Activities to improve the critical problems

             •       Encourage increased investment in technology both in table olives and olive oil sector:
                     despite a high supply of the olives, the processing and export of the both oil and table

             Egyptian Processed Food Sector Review _Product-group strategies                                                   265
                olives is not well developed. The professional associations and IMC/MOFTI should
                support training in table olives and olive oil production to move the low value production
                up to a high quality Egyptian brand for exporting.
            •   Targeting North American market and by-passing third country exports: as a shift from
                re-export oriented marketing through Italy and Spain, Egypt should now target the end
                users directly by maintaining its position in the Gulf market and directly exporting to the
                United States. While Egyptian exporters are targeting the final high value markets in
                America and Europe (Egyptian export to USA increased more than 100 fold in 2003 from
                the level of 2002), the processors should work very hard to improve their quality and
                shift to more value added products in terms of finishing and packaging. By doing this,
                and improving the marketing strategy, Egyptian olive products can be marketed as high
                quality natural products grown in none intensive agricultural practices contrary to
                Spanish and Italian olives.
            •   Shift from domestic focus to export focus: while maintaining the domestic market, there
                is a need to shift the focus from domestic production to export. The upgrading of the
                small scale and traditional processors and exporters through better access to finance,
                training and clustering is required to improve quality and participate in the export market.
            •   Collective ordering and strategic relationship between olive and packaging industry: in
                order to guarantee the supply of high quality glass bottles required for olive oil and table
                olives, a strong strategic relationship must be established. Collective ordering and
                procurement of these glass bottles will trigger new investment in the packaging sector.
            •   Aggressive marketing: in five years from now, Egyptian olive production will take up
                third place behind Spain and Italy. This would probably be followed by high production
                of both table olives and olive oil. The marketing of these products should be highly
                coordinated and sophisticated to penetrate and maintain the US market both in price and
                quality competitiveness.

            Please refer to the LogFrame for olive products for the outputs related to the activities.


      2.6   Goals and vision

                                                                      Vision
                   To increase Egyptian olive oil exports to USD 90 million and table olive exports to USD 135 million by 2020




            If the above critical conditions are addressed properly and the proposed activities mentioned
            are carried out coherently by industry, the government, and other support institutions, then
            the export performance of the Egyptian olive oil industry can reach 90 million USD and the
            table olives sector can increase to over 135 million dollars by 2020.




266         Egyptian Processed Food Sector Review _Product-group strategies
Figure 2.2   Olive products: export projections


                                   projection of olive products export (2005-2020) in millions of dollars
               160

                                                                                                 135.6


               120

                                           table olives                                                  90.4
                                           olive oil
                 80

                                                                           54.5

                                                                                  36.3
                 40
                                                       21.9
                                                              14.6
                             4.1     3.9
                   0
                               2005                       2010                2015                  2020

                                   Table Olives 40% (2005-2010) and 20% (2010-2020)
                                   Olive Oil 30%(2005-2010) and 20%(2010-2020)



             At the moment Egypt stands number 4 among the 6 benchmarked countries; effectively in the
             ‘lowest’ position since neither South Africa nor China have any significant olive production.
             If coordinated effort is exerted, especially on an aggressive marketing strategy and
             investment in new technology, Egypt could climb up to 3rd position (i.e. ahead of Morocco
             and just behind Turkey and Spain) by 2020.




             Egyptian Processed Food Sector Review _Product-group strategies                                    267
      Figure 2.3   Summary of proposed strategy for improved performance of the Olive products




                                    Current constraints                                 Present Position of Egypt

                       •    Low level of value addition (70% table olive      •    Egypt ranked 8 in the world (raw olives)
                            and 30% oil)                                      •    Will become 3rd in olive production in 2010
                       •    Domestic market oriented                          •    Unit value of Egyptian exports is half of that of
                       •    Low level production technology                        benchmark countries
                       •    High price of imported bottles                    •    Estimated 70% of production goes to low value
                       •    Low value re-export orientated marketing               added table olives for local consumption
                       •    Spain exports Egyptian products at double         •    Turkey, 70% goes to olive oil
                            price                                             •    Strong export growth




                                           Focus                                                   Target

                       •    Training in oil processing                        •    Move from low cost to high value exporter
                       •    Targeting the USA and EU market (by-pass          •    Egypt, ranked just behind Spain and Turkey by
                            Spain and Italy)                                       2015
                       •    Shift focus from domestic to export while
                            maintaining domestic supply
                       •    Develop strategic relationship with packaging
                            industry (bottles)




268                Egyptian Processed Food Sector Review _Product-group strategies
GOAL(S)                                          Increased and sustainable growth of the Egyptian Olive products sector in domestic and international markets.



Immediate objective                              To increase the export of olive oil to 36.3 million and table olives to 54.5 million dollars by 2015
Critical problem addressed                       Low level of processing technology, low value export through the third country, domestic market oriented sector, high price of
                                                 imported bottles for packaging, lack of marketing strategy (especially in marketing olive products from Egypt)
Outputs                                          Success indicators
1 Improved processing technology                 Amount and number of investments in the sector
2 increased value addition for export to final   % increase of the value of olive products export from Egypt, % increase in the amount of export to final destination
destination
3 Changed focus from domestic to export market   % increase in amount of export in value and volume
4 Reduced cost of packaging                      % reduction of packaging material
5 aggressive marketing of Egyptian olive         % increase in export to new markets
products
Activities for output                            Success indicators                              Party responsible                           Duration
                                                                                                                                             Start      Start           Related
                                                                                                                                             (YY,MM)    (YY,MM)         activities
Encourage increased investment in technology     Number of new investments and
                                                                                                 Government/ MFTI/IMC                        TBD        TBD             Driver3
both in table olives and olive oil sector        expansions in the sector
Encourage increased investment in technology
                                                 Amount of new investment in technology          Investors/enterprises /MOFTI/ banks         TBD        TBD             Driver 3
both in table olives and olive oil sector
Targeting North American market, by-pass third   % increase in direct trading (mainly
                                                                                                 Associations/ enterprises                   TBD        TBD             Driver 8
country export system, aggressive marketing      trading with USA)
                                                                                                 Enterprises / Industry associations/
Shift from domestic focus to export focus        Number of new SMEs involved in export                                                       TBD        TBD             Driver 4c
                                                                                                 Government
Collective ordering and strategic relationship   Amount of bottles sourced from local
                                                                                                 Enterprises / Industry associations         TBD        TBD             Driver 5
between olive and packaging industry             glass factories




Egyptian Processed Food Sector Review _Product-group strategies                                                                                                                      269
270   Egyptian Processed Food Sector Review _Product-group strategies
 3 Fruit juices: strategy proposal for the improved
   export performance




      As in the previous section, the present situation of the Egyptian fruit juices sector, constraints
      and activities to be performed to improve the situation and achieve the projected goals are
      proposed.

      Due to the large number of products in the sector, projections and specific goals to be
      achieved are presented only for the exotic fruit segment due to its relatively high export
      potential.


3.1   Back ground

      Citrus fruits processing accounts for approximately one third of the total citrus fruit
      production. More than 80% of it is orange processing, mostly for orange juice production.

      The major feature of the world market for orange juice is the geographical concentration of
      production. There are only two main players: the State of Florida in the United States and the
      State of Sao Paulo in Brazil. Production of orange juice between these two players makes up
      roughly 85 percent of the world market. The major difference between them is that Brazil
      exports 99 percent of its production while 90 percent of Florida’s production is consumed
      domestically and only 10 percent is exported. International trade in orange juice takes place
      in the form of frozen concentrated orange juice (FCOJ), in order to reduce the volume used,
      so that storage and transportation costs are lower

      The European Union is the largest importer of orange juice, accounting for over 80% of
      world orange juice imports. Most of imports by the EU and Japan come from Brazil. In North
      America, the United States and Canada consume mainly orange juice from Florida, while a
      small quantity of imports comes from Brazil.

      A remarkable increase in the consumption of exotic fruit juices, such as mangoes, papaya and
      avocados has been seen in Europe and America during the last decade. In search of more
      value added, major importers in the Netherlands, Belgium and Germany are now promoting
      previously less known exotics like mangoes in the form of cocktails in small packages to
      introduce them to consumers.



      Egyptian Processed Food Sector Review _Product-group strategies                                271
            Though there is potential for Egypt to export citrus fruit juices to European markets, it faces a
            considerable pressure from Brazil, European-Mediterranean countries and Israel, which all
            have enormous economies of scale. Egypt should give more attention on citrus fruit
            production for the domestic market, which still has very low per capita consumption
            compared to developed countries (20-40 litre/capita compared with less than 5 litre/capita in
            Egypt) and on exotic fruits for export market. For this reason this report focuses in exotic
            fruits where Egypt has a comparative advantage.


      3.2   Current situation

            Egypt’s export of fruit juices and concentrates amounted 80,000 tons (43 million USD) and
            exotic juices export were 22,000 tons (13 million) USD in 2003. These exports consist
            mainly of exotic fruit juices, and Egyptian export in citrus juices is insignificant in the global
            market. The focus in the development of strategy proposal will be focused on the exotic fruits
            such as mango and guava

            Exports of the category “fruit juices nes” (all fruit juices excluding apple, citrus juices, grape,
            lemon, orange, pineapple, plum, mango, tangerine) has grown from 713,000 USD in 1998 to
            13.5 million USD in 2003. Similarly, mango juice export from Egypt has more than tripled
            from 1.9 million US dollars to 6.5 million US dollars in 5 years. The success in the exotic
            fruit juice export from Egypt started by exporting small-glass packed mango and guava juices
            to Egyptian expatriates in North America and Middle East. The US market now absorbs more
            than 65% of Egyptian exotic fruit exports. The main players in the exotic fruit juice export
            market are Johayna and Enjoy.


      3.3   Exotic fruit juices: SWOT analysis

            The strengths, opportunities and weakness for most fruit and vegetables (horticultural
            products) are in most cases similar and are addressed in the processed vegetables sector (see
            Section 1.3). Only strengths, weaknesses and opportunities specific to exotic fruit juices are
            listed in Figure 3.1.




272         Egyptian Processed Food Sector Review _Product-group strategies
Figure 3.1   Fruit juices: SWOT

                                   Strengths:                                              Weaknesses:

             •   High agricultural potential for developing exotic    •   Low volume of fruits for processing and inefficient
                 fruits                                                   supply system through collectors/Kelelas
             •   Egyptian products already introduced in North        •   Few industries in the business; low capacity
                 American markets                                         utilization
             •   Higher unit value of Egyptian exports of exotic      •   Low level of certification of farms for EureGap and
                 juices                                                   traceability
                                  Opportunities:                      •   High cost of Tetrapak equipment (and shortage of
                                                                          glass bottles)
             •   High demand for private labels in exotic fruits in
                                                                      •   Low level of product development
                 Europe
                                                                      •   Low level of marketing (through specially private
             •   Wide opportunities for new product development
                                                                          labels); Lack of market information system
                 (mixes, new exotic fruits)
             •   High number of expatriate to promote Egyptian
                                                                                             Threats:
                 products in Middle East and Europe
             •   Growing global demand for exotic fruit               •   Growing competition from ‘tropical’ countries
                                                                      •   Lack of coherent strategy




     3.4     Critical problems to be addressed

             •   Low stage of primary production: As in the vegetables sub-sector, the exotic fruit farms
                 are fragmented and are not integrated well into the value chain.
             •   Few players in the export market: The production and export of the exotic fruit juices
                 sector is dominated by few companies and this poses risks of slow development due to
                 lack of competition.
             •   High price of packaging material (Tetrapak) and lack of coordination and collective
                 bargaining for the purchase of packing material, for example with dairy industry
             •   Low level of product diversification and development.
             •   Lack of marketing strategy especially in private labels: the exotic juices are in high
                 demand in the European and USA market and there is a very high potential for
                 production of different packs and mixes of juices through private labelling. There is very
                 little effort to tap this market.


     3.5     Activities to improve the critical problems

             •   Encourage investment in exotic fruits farming for processing and export through the
                 provision of land at reasonable cost and through the availability of long-term credit. This
                 is especially important since it takes from 4-8 years for optimum production of exotic
                 fruit trees, which discourages new investors due to uncertainty in the future performance
                 of the products. The fresh produce export sector usually produces different sizes, which
                 do not comply with the European uniform size requirements. Such “reject” fruits,

             Egyptian Processed Food Sector Review _Product-group strategies                                               273
                mangoes for example, can be processed to fruit juices. Cooperation among the fresh
                exporters and export processors becomes imperative
            •   Encourage new investment in the exotic fruits processing for exporting, especially in fruit
                juices factories requiring only slight modification of existing production lines.
            •   The export associations should take a lead in coordinating collective bargaining and
                purchase of packing material. The dairy and juice industries, the main users of the
                Tetrapak packaging system, can benefit from this. In some cases it could be difficult for
                small processors to have their own packaging lines, in which case the establishment of
                private packing companies to serve multiple processors could decrease the cost pf
                production (to these companies) and thus increase competitiveness.
            •   Though there is a wide scope for product development (different kinds of fruit juices,
                fortification with minerals etc.) there is a little effort being made in this area. Egypt can
                play an important role in marketing of Hibiscus juice. Since Hibiscus tea is already
                becoming popular in Europe, there is high potential for new products such as Hibiscus ice
                tea. The industry in collaboration with the R&D centres and universities should explore
                this opportunity.
            •   With demand for the exotic and tropical fruit juices and mixes rising in Europe, there is
                an opportunity for Egyptian exotic fruits factories to produce private label products to
                European wholesalers and distributors that are currently not being tapped into.
                Enterprises and industry associations should developed a strategy to increase exports of
                private label products to European supermarkets.

            Please refer to the LogFrame for exotic Juices for the outputs related to the activities.


      3.6   Goals and vision

                                                                      Vision
                   To increase the export of exotic fruit juices to 730 million USD by 2020 and become the lead exporter in the
                   region


            If the above mentioned critical conditions are addressed properly and the proposed activities
            mentioned below are carried out coherently by the industry, government, the professional
            associations, and with support from university and research and development centres, then
            the export performance of the Egyptian exotic fruit juices sector can reach more 730 million
            US dollars a year by 2015.

            At the moment Egypt stands number 4 among the 5 benchmarked courtiers just above
            Morocco. If coordinated effort is exerted, especially in supply of raw material and aggressive
            marketing, it could take the position of Turkey by 2010, and those of China and Spain by
            2015, placing it in the lead position among the benchmark countries.




274         Egyptian Processed Food Sector Review _Product-group strategies
Figure 3.2   Exotic fruit juices: export projections


                               projection of export performance of Exotic fruits for BM countires in millions $
              800                                                                           732

                                      2005    2010       2015
                                                                           609
              600



              400                   348

                                                                                                                  271


              200                                                    164                                    168
                                                        133                           136
                                                  104                                                 104                         103
                                             71                                                                              64
                                                                44                                                      40
                                                                                 25
                           0    0
                  0
                            Morocco               S.A                China            Egypt                 Spain        Turkey


                               Projection based at EG 40%, ch 30%, m or 20%,SA Spain, Tr 10%




             The export projection is made based on the historical performance of the bench marked
             countries from 1994 to 2003. However, the capacities of the benchmark countries (except
             Egypt) to produce the required raw material were not taken into consideration. It is assumed
             that their agriculture sector will be in a position to satisfy the raw material at the growth rate
             the processing and export sector requires.

Figure 3.3   Summary of proposed strategy for improved export performance of the exotic fruit juices sector



                                    Current constraint                                            Present Position of Egypt

                  •     85% of horticultural production from                     •      Strong export growth (e.g. tripling of mango juice
                        smallholders                                                    exports)
                  •     Lack of cold storage infrastructure and                  •      Well positioned in exotic/mixed juices
                        refrigerated trucks
                  •     High cost of packaging materials
                  •     Limited product development



                                          Focus                                                              Target

                  •     Encourage investment in exotic fruits farming
                                                                                 •      Maintain high export growth rate (40%) through
                        (long maturity period)
                  •     Integrate small holders to supply chain                         new products / mixes and private labels
                        (contract farming)
                  •     Strong R&D support for new cocktails and
                        products (e.g. karkadeh/hibiscus juice)
                  •     Industry association (market info, collective
                        marketing strategy)




             Egyptian Processed Food Sector Review _Product-group strategies                                                            275
      GOAL(S)                                                         Increased and sustainable export performance of the Egyptian exotic juices



      Immediate objective                                             To increase the export of exotic juices to 732 million dollars by 2015
      Critical problem addressed                                      Low stage of primary production, few players in the export market, high price of packaging material, low level of product
                                                                      diversification and development, low level of product diversification and development
      Outputs                                                         Success indicators
      1 Improved primary (agricultural) production                    % increase of supply of exotic fruits for processing
      2 Increased number of processors and exporters                  number of new industries and packers involved in the exotic fruit juices export
      3 Lower packaging cost through collective packaging and         % reduction in packaging costs
      procurement
      4 New products developed /diversified through innovation        Number of new products developed and marketed
      5 Lack of marketing strategy for private labels                 Number (and value) of contracts signed for supply in private labels
      Activities for output 1                                         Success indicators                                     Party responsible          Duration
                                                                                                                                                        Start       Start        Related activities
                                                                                                                                                        (YY,MM)     (YY,MM)
                                                                      Number of hectares of land made available for
      Increase the provision of land to the commercial exotic fruit                                                                                                              Raw material supply
                                                                      commercial farms. Number of small holders              Government/ MALAR/         TBD         TBD
      farms (for export) and increase support to small holders                                                                                                                   (Driver 1)
                                                                      organized
      Encourage investment in the existing fruit juice factories or   Amount and number of investments in the                Enterprises /MOFTI/
                                                                                                                                                        TBD         TBD          Driver 3
      new factories for processing the exotic juices                  sector                                                 Industry associations
                                                                      Number of enterprises collectively acquired the
                                                                                                                             Industry Associations /
      Collective bargaining and procurement of packing material.      packing material amount of packing material                                       TBD         TBD          Association (Driver 5)
                                                                                                                             Enterprises
                                                                      procured collectively
                                                                                                                             Industry / University/
      Increase development of new products/product mixes              Number of new products launched                                                   TBD         TBD          Driver 6
                                                                                                                             R&D institutes
      Export promotion through private labels                         Number of contracts for private label export           Industry/associations      TBD         TBD          Driver 8




276   Egyptian Processed Food Sector Review _Product-group strategies
 4 Cheese products: strategy proposal for improved
   performance




4.1   Back ground

      The dairy industry is one of the most important components of the world food system, and is
      undergoing dramatic change at the current time. Currently processes of change are being
      driven by a wide range of forces including shifts in the regulatory environment for dairy
      production and trade, technological changes in the production of milk and milk-products,
      rapidly shifting consumption trends, and the restructuring of trans-national corporate
      strategies with regard to this sector.

      Several key inter-related developments have encouraged changes in the distribution of power
      within dairy supply chains. Concentration in the retail sector has evoked significant changes
      to the purchase patterns of dairy products. In the case of liquid milk, the relatively
      fragmented arrangements of local distribution that traditionally have characterized the
      industry have given way to retail sales in supermarkets and franchised convenience stores.

      Some 95% of world dairy production is consumed in the country of origin: exports comprise
      just 5% of world dairy industry output.

      Cheese is a key commodity in these developments, because of its role in pizzas and pasta-
      based cuisines. The global growth of franchised pizza outlets is a significant contributor to
      demand for cheese in non-traditional dairy markets. The export of cheese (all kinds) has
      grown from 3 million tons to 3.5 million tons between 1998 and 2002. According to FAO
      data, Egypt’s export in cheese has increased from 1.4 million dollars to 11.8 million dollars
      between 1996 and 2003, a remarkable performance.


4.2   Current situation

      Total milk production within Egypt is estimated to be 3.8 million tons in 2002 and the total
      cattle population at around. 7.3 million, and 8.2 million sheep and goats (SHOAT). Despite
      high number sheep and goats compared to cattle (cows and buffalos), the supply of milk
      comes exclusively from cattle, indicating opportunities to use sheep and goat milk for
      specialized cheese production. The productivity of milk in Egypt is low; between 300 and
      500 kg per cow per annum.

      Egyptian Processed Food Sector Review _Product-group strategies                             277
            The Egyptian dairy farms are characterized by small-scale mixed farms that contribute 90%
            of milking animals (72% of milk production), while commercial farms contribute only to 3%
            of dairy herd (7% of the milk production). From the total milk produced, only 35% goes to
            milk processing industries while the rest 65% is either consumed locally or for nursing
            calves.

            Due to this, the few industrial segments involved in dairy processing are forced to import
            dried skim milk, and Egypt’s import of dried skimmed milk (DSM) attained a value of more
            than 42 million USD in 2003 and is not showing any decline. The main reason for limited
            supply of milk is small fragmented dairy farming and lack of organization of milk collecting
            units. Only the Greenland milk processing company has milk-collecting centres.

            Since the study of the dairy farming sector is beyond the scope of this study, the study team
            cannot enter deeply into the problems facing the sector; rather we will concentrate on the
            potential of the cheese processing and marketing sector.

            Though Egypt has the world’s largest cheese processing factory (Greenland dairy industry), it
            is still a net importer of cheese. Egypt’s export of cheese (whole cow milk cheese) reached a
            record level of 11.6 million dollars in 2003, with imports of 15.6 million USD worth of
            similar cheese. However, there was a considerable decline in imported cheese in 2003 (the
            lowest level in the last 8 years).

            The dairy processing sector in Egypt is dominated by micro enterprises employing less than 5
            people. These factories account for more than 95% of the enterprises operating in the sector
            and their relative importance makes the improvement of hygiene and food safety extremely
            difficult, if not impossible.


      4.3   Cheese production and marketing: SWOT analysis

            Most of the general SWOT analysis for the cheese sector (such as labour productivity, quality
            and food safety, business environment, support from institutions and alliance with the
            universities and R&D institutes etc.) is included in Section 1.3 of this report and, therefore,
            we will focus only SWOT specific to this cheese-processing sector.




278         Egyptian Processed Food Sector Review _Product-group strategies
Figure 4.1   Cheese production: SWOT

                                  Strengths:                                              Weaknesses:

             •   Increased demand for Egyptian cheese in the         •   Very high trade deficit in the sector
                 Middle East                                         •   Low quality of milk supplied by the farmers
             •   High potential for developing new products based    •   High cost of imported dry milk
                 on traditional cheese processing techniques.        •   High cost of packaging material (Tetrapak)
             •   New investments in the sector are emerging (e.g.    •   High tax levied on the imported DSM and
                 Americana)                                              packaging material
                                                                     •   Low level\of marketing outside Arab countries
                                Opportunities:                       •   Low level of product development
                                                                     •   Lack of marketing of the ‘Egyptian’ brand
             •   Increasing fast food chains that use cheese as
                                                                     •   Highly fragmented sector with out specialization
                 ingredient
             •   Increased interest in the Goat milk cheese in
                                                                                             Threats:
                 European population
             •   Developing retail sector for domestic consumption   •   Growing investment of Arab countries (e.g. Saudi
             •   Historical cheese processing culture which can be       Arabia) in dairy processing
                 converted to modern cheese making
             •   Knowledge of the taste of Arab consumers




     4.4     Critical problems to be addressed

             •   Lack of supply of good quality milk in sufficient quantity: except in the case of a handful
                 of big enterprises, fresh milk is collected from small farms by wholesalers. Middlemen in
                 some concentrated areas perform assembly functions through village collection points.
                 Due to unavailability of milk quality testing methods and equipments, the quality of milk
                 supplied is usually poor and this has impacted on the quality of dairy products and hence
                 the competitiveness of enterprises and the industry as a whole.
             •   Highly fragmented sector without specialization: the dairy-processing sector has more
                 than 3,000 processors (only registered processors; the number of informal sector could
                 not be quantified) including cheese making. Due to their small size, the implementation
                 of any quality and food safety regulations is impossible. They also lack specialization, as
                 cheese making is not their core business.
             •   High price of imported DSM: since imported DSM is becoming a reliable source of raw
                 material for feta cheese making (the most important cheese production in Egypt), the
                 competitiveness of the feta cheese making factories is jeopardized by the high cost of
                 DSM and packaging material. The devaluation of Egyptian pounds has aggravated the
                 problem further.
             •   Low level of marketing compared to European cheese makers: due to its fragmented
                 nature, the Egyptian cheese industry does not have capability to market its products in
                 Europe and North America. Its European competitors are increasing their market share in
                 the Arab world through aggressive marketing, better packaging and continuous



             Egyptian Processed Food Sector Review _Product-group strategies                                                279
                improvement in the quality of their products. These developments pose a threat to the
                new enterprises engaged in the export market.


      4.5   Activities to improve the critical problems

            •   Improve the supply of milk in quality in quantity: encourage the establishment of milk
                producers groups and assist them in establishing milk collecting and cooling centres,
                encourage contract supply of milk (milk producers groups and industries).
            •   Clustering of small and micro processors: clustering of small milk processors (cheese
                makers) to collectively use raw material, packaging facilities, and to assist them in
                finding assured market outlets through contracting with retailers and exporters.
            •   New strategy: in the short-term revision of the tax laws for the export industries, while
                designing the strategy to improve the supply of local fresh milk.
            •   Low level of marketing compared to European cheese makers: Egyptian cheese is
                popular, especially in the Arab world, and a continuous marketing strategy should be
                developed to maintain Egypt’s share of the Arabian market; while an aggressive strategy
                must be developed to European and North American market.

            Please refer to the LogFrame for cheese products for the outputs related to the activities.


      4.6   Goal and vision

                                                                     Vision
                   To Increase cow milk cheese export from Egypt to more than 450 million dollars and decrease the import to
                   1.5 million dollars by 2020


            If the critical conditions are addressed properly and the proposed activities mentioned are
            carried out coherently by all stakeholders, then the export performance of the Egyptian cow
            milk cheese can increase to over 456 million dollars by 2020.

            Also the import of the same kind of cheese could decline from15.6 million dollars of 2003
            value to 1.5 million dollars.




280         Egyptian Processed Food Sector Review _Product-group strategies
Figure 4.2 Cheese: export and import projections

                             proje ction of the perform ance of Egyptian cow m ilk chee s e in international
                                                       m arke t in Millions of USD

             1,000,000                                                                                         456,630
                                                                                       183,509
                                     im port        export
                                                              73,748
                100,000              19,863


                 10,000

                     1,000

                                                  9,998
                      100                                                  3,276                   1,935                   1,497



                       10

                         1
                                       2005                     2010                    2015                        2020

                                e xport growth rate 30% (2005-2010), 20% (2010-20150, 10% (2015-2020)
                                im port decline rate 20% (2005-2010), 10% (2010-20150, 5% (2015-2020)




Figure 4.3   Summary of proposed strategy for the increased export performance and improved domestic supply\for the
             Egyptian white cheese industry



                               Current constraints                                           Present Position of Egypt

                 •    80% of raw milk from small farmers                           •   Lowest positioned exporter among benchmark
                 •    Low productivity (300-500 lt. per annum per                      countries
                      cow)                                                         •   Largest cheese processing factory in the region
                 •    Rising imports of powdered milk ($US 42 million              •   Egypt is a net importer of cheese ($US 11.6
                      in 2003)                                                         million exports, $US 15.6 million imports)
                 •    95% of cheese comes from micro enterprises                   •   Imports declining (2003 lowest in 8 years)
                      and informal sector                                          •   Private sector being pushed forward by sector
                 •    High tax in imported packaging material                          leaders (e.g. Americana)
                 •    Increased competition from the European                      •   Strong competition in Middle East from
                      countries                                                        European suppliers



                                      Focus                                                                Target

                 •    Establish milk producers groups and link to                  •   Maintain and strengthen position of exports to
                      industry through contracts                                       Arab markets
                 •    Clustering Small and micro-processors                        •   Increase exports to EU and N. America
                      (cooperatives)                                               •   Increase quality (unit value)
                 •    Assist small scale transport/distribution                    •   Decrease trade deficit by 20% per year till 2010
                      companies in the collection of milk and
                      marketing cheese
                 •    Industry association (market info, collective
                      marketing strategy)




             Egyptian Processed Food Sector Review _Product-group strategies                                                       281
      GOAL(S)                                                   Increased and sustainable growth of the Egyptian cheese processing sector in the export market


      Immediate objective                                       To increase the export of white cheese export half a billion dollars
      Critical problem addressed                                Lack of supply of good quality milk in sufficient quantity, highly fragmented sector with out specialization, high price of
                                                                imported DSM and imported packaging, low level of marketing compared to European cheese makers ,

      Outputs                                                   Success indicators
      1 improved milk supply quality and quantity               Amount milk supplied, % of reject by the industry
      2 increased supply of cheese to domestic and export       % increase of the value of cheese product export from Egypt, % increase in the amount of export to final destination
      market
      3 increased utilization of locally produced fresh milk    Amount of fresh milk used in cheese making
      4 increased export of Egyptian white cheese               % increase in export to new and existing markets
      Activities for output                                     Success indicators                                   Party responsible          Duration
                                                                                                                                                Start        Start         Related activities
                                                                                                                                                (YY,MM)      (YY,MM)
      1 Encourage establishment of the milk producers           Number of milk producers group established,
                                                                                                                     MALR, industry
      groups: establishing milk collecting and cooling          number of milk collecting centres established
                                                                                                                     associations,              TBD          TBD           Driver 4c, 3
      centres, encourage contract supply of milk (milk          Number of milk producers signed contract with
                                                                                                                     enterprises
      producers groups and industries)                          processors
      2 Clustering of the small milk processors (cheese
                                                                                                                     MALR, industry
      makers) to collectively use raw material, packaging       Number of clusters established
                                                                                                                     associations,              TBD          TBD           Driver 4c,3,
      facilities and assist them in finding assured market      Number of small processors joined the clusters
                                                                                                                     enterprises
      outlet through contracting with retailers and exporters
      3 A short term revision of the tax laws for the export    The revision of tax announced
                                                                                                                     Government/
      enterprises, while designing a strategy to improve the    Strategy document prepared and agreed                                           TBD          TBD           Driver 4
                                                                                                                     enterprises
      supply of local fresh milk                                Amount of DSM replace by fresh milk
      4 Develop aggressive marketing strategy to maintain
      Egypt’s share of the Arabian market, while an                                                                  Enterprises / Industry
                                                                Strategy developed and implemented                                              TBD          TBD           driver 8
      aggressive strategy must developed to European and                                                             associations
      North American market.




282   Egyptian Processed Food Sector Review _Product-group strategies
        Egyptian Processed Food Sector Review-
        Annexes




Egyptian Processed Food Sector Review _Product-group strategies   283
VII-A Global Assessment-Analysis of Main
      Sub-Sectors




Egyptian Processed Food Sector Review _Product-group strategies   285
      1 Global trends in the dairy industry




    1.1     Overview

            The dairy industry is one of the most important components of the world food system,
            and is undergoing dramatic change at the current time. Currently processes of change are
            being driven by a wide range of forces including shifts to the regulatory environment for
            dairy production and trade, technological changes to the production of milk and milk-
            products, rapidly shifting consumption trends, and the restructuring of trans-national
            corporate strategies with regard to this sector.


    1.2     Global production

            In 2003 the world produced at least 63 million tonnes of dairy products. European union
            (15) is the highest producer with 23.3 million tons in 2003, an increase of 3.6% from 22.5
            million tons in 1998 (Table 1.1). Affluent nations consume larger per capita amounts of
            dairy products than do poorer nations. However, food habits also influence the
            consumption of dairy products, meaning that nations with comparable per capita incomes
            may exhibit dramatically different dairy consumption levels.

            Within the developed world, European consumption levels greatly exceed those in North
            America. Higher levels of dairy consumption levels of Europeans compared to North
            Americans can be explained largely through the dietary significance of cheeses, yoghurts
            and other processed dairy products, particularly within central and northern Europe. In
            contrast, Japanese consumption of dairy products remains low. Although Japanese per
            capita incomes are comparable with those of many nations in Europe, dairy consumption
            is extremely low. The consumption of fresh milk is also reported to be low in Egypt.

Table 1.1   World production of milk and other dairy products (million metric tons)

              Country / Region            1998           1999           2000          2001    2002    2003
              World                       63.53          64.91          66.48         68.23   70.65   70.29
              Egypt                        1.04           1.12           1.12          1.16    1.19    1.19
              European Union (15)         22.49          22.62          22.88         23.23   23.38   23.31
              Near East                    2.80           2.94           2.99          3.06    3.05    3.07
              East Europe                  3.33           3.27           3.27          3.38    3.47    3.40
              Africa (SSA)                 0.48           0.54           0.55          0.57    0.57    0.57
              Asia                         8.85           9.18           9.75         10.49   11.09   11.33
            Source: FAO




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      1.3   Geography of dairy production

            There are strong constraints to the trade of milk and dairy products, owing to their
            perishable nature and relative bulkiness. This is particularly true for liquid milk. Hence,
            although some areas are suited well to dairy production and traditionally have developed
            specialist dairy processing expertise, the industry as a whole has remained relatively
            geographically dispersed. The demands of satisfying urban needs for liquid milk have
            tended to encourage a proliferation of dairy producers proximate to urban centres and
            their proximity to major cities has allowed them to continue to play an important role in
            the industry with regard to the supply of liquid milk.

            Technological and market changes however are causing rapid shifts to these geographical
            patterns. On the one hand, improved transportation has allowed urban markets for liquid
            milk to be satisfied by more distant dairy regions. On the other hand, liquid milk markets
            in Western nations are fragmenting due to increased consumption of Ultra-High
            Temperature (UHT) milk, the use of new packaging technologies, and the replacement of
            full cream milk with specialist milk types. In a more general sense, the dairy industry in
            any case is being restructured via breeding programs and improved feeding regimes that
            are producing higher yields per cow.


      1.4   Trends in trade

            Some 95% of world dairy production is consumed in the country of origin: exports
            comprise just 5% of world dairy industry output. More liberalized global trading
            conditions brought about free trade agreements will increase the volume of dairy products
            traded internationally, but the pace of this growth will be gradual rather than dramatic.

            It is also likely that the majority of dairy demand in the key consumption areas of Europe
            and North America will continue to be sourced from internal production. Obviously this
            is truer of perishable products such as liquid milk and yoghurt, than it is of cheese and
            skim milk powder.

            Cheese is a key commodity in these developments, because of its role in pizzas and pasta-
            based cuisines. The global growth of franchised pizza outlets is a significant contributor
            to demand for cheese in non-traditional dairy markets. The export of cheese (all kinds)
            has grown from 3 million tons to 3.5 million tons between 1998 and 2002135. According
            to FAO data, Egypt’s export in cheese has more than doubled from 2.1 thousand tons to
            5.4 thousand tons in the same interval of time.




            135
                  For more detailed data on the leading exporters of cheese products, see Table 5.1.




288         Egyptian Processed Food Sector Review _Product-group strategies
Table 1.2   World cheese and curd exports (thousand metric tons)

             Country / Region                       1998            1999       2000     2001     2002
             World                                3001.4           3054.0     3306.6   3439.6   3449.4
             - Egypt                                  2.1             5.2        2.1      2.1      5.4
             - Turkey                                 4.3             4.7        4.8      4.7      7.1
             European Union (15)                  2196.5           2208.5     2392.2   2484.9   2473.3
             Near East                              15.3             16.8       19.2     19.2     29.4
             Africa (SSA)                           11.3             14.7       13.8     14.8     26.0
             Latin America & Caribbean              43.2             57.5       66.8     59.4     65.7
             - USA                                  40.6             43.1       49.9     54.0     55.6
            Source: FAO




    1.5     The industrial structure of the dairy industry and supply chain

            Dairy farmers are highly dependent upon having a local processing facility to buy their
            product, because milk rapidly deteriorates prior to processing. Traditionally this has
            encouraged the development of cooperatives in the dairy sector. Cooperatives emerged
            worldwide in this industry as a means to alleviate the vulnerability of dairy farmers. By
            pooling their resources and operating their own collectively owned dairy-processing
            factory, dairy farmers are able to minimize their market risk. Hence, by becoming
            members of a local cooperative, dairy farmers have been able to ensure an outlet for their
            highly perishable product.

            The emergence of cooperatives in the dairy sector was associated also with local control
            and local identity. In eras when transport was uncertain and costly, it became imperative
            to locate cooperatively owned dairy factories central within farming communities.

            Changes to technologies and transport over time are changing these patterns. These days
            milk is transported up-to 900 km from the farm to the processing industry.

            The expansion of the food service industry is best seen through the emergence of global
            fast food chains over the past two decades. Dairy products are key ingredients to pizzas,
            in particular. Pizza Hut (global sales US$5 billion) and Dominos Pizza (global sales
            US$3.2 billion) play a major role in encouraging standardization of product (pizza
            cheeses) and through their buying power, place downwards leverage on dairy producers’
            pricing.

            Other industries making significant use of dairy products as food ingredients, such as ice
            cream and confectionery, also have witnessed considerable industrial concentration over
            recent years through the trans-national strategies of large corporations.




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          1.6     Key corporate players

                  Nestle and Unilever, in particular, have engaged in aggressive merger and acquisition
                  behaviour since 1990, with the net result of dramatically rationalizing key components of
                  the global food industry. These developments pose major challenges to the dairy industry.

      Table 1.3   Key players in the dairy products industry

                   TNC                           Turnover (US$ billion)   TNC                       Turnover (US$ billion)
                                                          (2001)                                           (2001)
                   Nestle                                  12.9           Unilever                           4.5

                   Dairy Farmers of                        7.4            Friesland Coberco Dairy            4.3
                   America                                                Foods

                   Danone                                  6.4            Bongrain                           3.7

                   Phillip Morris (Kraft)                  6.3            Land O’Lakes                       3.3

                   Parmalat                                6.1            Meiji Milk                         3.2

                   Suiza Foods                             6.0            Dean Foods                         3.0

                   Aria Foods                              5.3            Morinaga                           2.9

                   Lactalis                                5.1            Sodiaal                            2.8

                   Campina Melkunie                        4.9            Dairy Crest                        2.5

                   Snow Brand                              4.7            Nordmilch                          2.4

                  Source: Rabobank 2002




290               Egyptian Processed Food Sector Review _Product-group strategies
 2 Global trends in the edible oil industry



2.1   Overview

      The edible oil industry as one of the major food systems is undergoing complex
      developments with respect to genetic modification, and production of functional foods.

      The vegetable oil market is also much correlated to the protein meal market as both are
      largely co-products of oil seeds. The supply and demand conditions in one market
      directly affect the other. The meal market in turn is related to another important industry,
      that of poultry, meat and fish.

      Developments in technology and increasing recognition of the value of several
      components of pressed oil have allowed the utilization and marketing of these products in
      health food stores or drug stores. Increasingly, it is likely that these molecules will be
      incorporated into functional foods or so-called designer foods.

      An increasing number of countries, both developed as well as developing, are introducing
      policies that encourage the production of bio-diesel from oil crops for (i) bio-fuels are an
      environmentally friendly alternative to mineral oil;(ii) bio-fuels from oil-crops offer new
      market outlets for products for saturated markets; and (iii) reducing dependency on
      imported petroleum.


2.2   Global production

      In 2003 the world production of edible oils reached 105 million tons from 92 million in
      1998 (a 15% increase). Asia and Latin American emerging economies recorded the
      highest growth of 27% and 14% respectively between 1999 and 2003.

      According to FAO agricultural commodity projections the global food consumption of
      oils and fats is expected to slow down during 2004-2005 mainly due to saturation in
      demand in developed countries. However, the consumption in developing countries is
      expected to grow steadily mainly as a result of faster expansion of GDP. Also, the
      competitiveness of the developing countries in this sector will increase due to
      strengthening of environmental regulations and aggregated pollution control costs of
      cultivation and processing, which that will have marked increase of production costs of
      the major oil producers (USA, Brazil and Argentina).




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      Table 2.1   World production of vegetable oil (million metric tons)

                   Country / Region                  1999              2000         2001     2002       2003
                   World                             90.61             94.86        97.70   100.26     105.51
                   - Egypt                            0.13              0.14         0.17     0.18       0.18
                   European Union (15)               10.98             11.13        11.66    10.54      11.18
                   Near East                          1.64              1.98         1.58     1.96       1.89
                   Eastern Europe                     1.83              1.61         1.66     1.64       1.48
                   Africa (SSA)                       4.12              4.14         4.23     4.47       4.56
                   Asia                              44.28             47.95        50.51    52.95      56.42
                   Latin America                     13.21             12.98        12.97    14.06      15.15
                  Source: FAO




          2.3     Geography of vegetable oil production

                  Most of the vegetable oil raw materials (oilseeds and tree crops) are produced in tropical
                  and Mediterranean climates. Soya in USA and Latin America, palm oil in South East
                  Asia and Africa and olive oil in the Middle East and North Africa. There are less
                  constraints to the trade of vegetable oils, since they are less perishable compared to fruit,
                  vegetable, dairy, meat, milk and fish. The fact that vegetable oil does not require
                  specialized logistics and cold chain facilities, has allowed the sourcing of the raw material
                  and semi-processed product world wide with out significant problems. The main
                  constraint in trade of edible oils is the genetic modification of oil seeds at farm level to
                  increase productivity. GMO soy oil and meal is an example. European farmers and
                  consumers have forged an alliance against genetically engineered soy. The soybean
                  industry reacted with the introduction of the Identity-Preserved (IP) by which suppliers
                  guarantee that their products are GMO-free. The GMO issue resulted in the replacement
                  of some Soya ingredients with other materials, some of which are synthetic and have
                  lower functionality.


          2.4     Trends in trade

                  Over two thirds of vegetable oils produced are consumed in the regions they were
                  produced (FAO-stat). The import market for vegetable oils is much more dispersed than
                  the export market. In the export market the top 3 world exporters usually accounted for
                  around 60% of total world exports (FAO). Though the diversity in oilseeds sources is
                  high, soybean and palm oil remain as the main oilseeds products that dominate the world
                  market

                  While use of export subsidization schemes remained limited, exports have been promoted
                  by a variety of other incentives. European Union’s export subsidization schemes for
                  rapeseed, olive oil and US subsidy to butter/butter-oil are examples of trade incentives
                  from developed countries.

                  The three largest exporters of vegetable oil are USA Brazil, and Argentina with 6, 3 and 1
                  billion USD respectively. The main export product is Soybean oil. The South East Asian



292               Egyptian Processed Food Sector Review _Product-group strategies
      countries such as Malaysian and Indonesia are leading exporters of palm oil. The
      Mediterranean regions such as France, Spain and Italy are the leaders in the olive oil
      production and export.

      According to FAO data, Egypt’s export of the vegetable oil remained relatively constant
      between 4.2 and 4.7 million USD from 1999 to 2001 and increased significantly to 8.9
      million USD in 2002.

      China, Japan and the Netherlands are the largest importers with 1.9, 2.6 and 1.4 billions
      of USD respectively.


2.5   The industrial structure of the vegetable oil industry and supply chain

      The oil seeds industry is characterized by large and well-established commercial farmers.
      In the majority of cases the farms are mono-crop with production facilities (at least for the
      first production of crude oil) in the farms, due to the different specific technologies
      required for each oilseeds processing and hence the sourcing of the raw material. The
      soybean processing facility, for example, is vertically integrated to ensure the integrity
      and quality of their soybean and edible oil products. The industry employes its own
      farmers who grow the seeds and then deliver them to drier locations where the seeds are
      dried and stored. The seeds are then transported to industries own crushing facility where
      the oil is extracted, refined, and processed. Once this is done, they package and distribute
      the products to their customers directly. The similar examples of these structures are palm
      oil industries in Malaysia and Indonesia.

      The other characteristics of this industry are more extended and sophisticated downstream
      processing (value addition) for both and non-food application. The main non-food
      products from vegetable oil are fatty acids for soap manufacture, mono-glycerines as
      emulsifiers, ingredients for cosmetic industry, raw material for the plastic industry.

      The competitiveness of the edible oil industry is very much linked to the degree of value
      addition the factory undertakes to produce specialized products. Most of the vegetable oil
      in the world market is exported as crude oil, which is used for various purposes.

      Cargill, Unilever, Archer Daniels Midland Company (ADM) and Riceland Inc. dominate
      more than 30 % of the total vegetable oil market.




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      3 Global trends in the meat and poultry
        (processing) industry



    3.1     Overview

            The meat industry has changed dramatically in recent years. Most notable is the changing
            structure of the broiler and beef sectors. Changes in consumer demand caused by
            convenience and perceived health concerns have likely contributed to the recent structural
            transformations within the meat industry. Firms have become larger and fewer in all types
            of processing and packing. Not only has the market share for large firms increased, but
            also the relationships between processors and producers have become closer. This has
            occurred either through contractual agreements or actual integration (ownership) by the
            processor.


    3.2     Global production

            In 2003 the world production of meat (all kinds excluding fish) amounted 62 million tons
            with an increase of 4 million tons from 1998. Latin American countries produced 14.8
            million tons followed by USA 11.9 million tons. Brazil and Argentina are the main
            producers of meat in the region. The meat consumption is nearly saturated in the
            developed world and increasing in the developing countries.

            FAO estimates of Egypt’s production of different kinds of meat is shown in Table 3.1 and
            Table 3.2. The poultry meat production has shown increases from 535 thousand tons in
            1998 to 652 thousand tons while the increase in beef and buffalo meat has shown modest
            increase from 518 to 557 thousand tons. The relatively smaller size of the Egyptian the oil
            extraction factories and the negative trade balance in cereals will make the development
            of the feed industry and, hence, the development in the meat sector difficult.

Table 3.1   World production of poultry meat (1000 tons)

             Country / Region                 1998          1999     2000      2001     2002     2003
             World                          62,400         65,334   69,156    71,644   74,377   75,823
             - Egypt                           535           588      619       643      652      652
             European Union (15)             8,893          8,721    8,801     9,076    8,977    8,801
             Near East                       2,903          3,121    3,380     3,505    3,456    3,424
             Africa (SSA)                    2,763          2,934    3,086     3,202    3,282    3,300
             Latin America & Caribbean      15,178         16,039   16,416    16,761   17,268   17,468
             - USA                          10,583         11,692   12,590    13,319   14,374   14,999
             - Turkey                          510           615      661       631      711      627
            Source: FAO




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      Table 3.2   World production of beef and buffalo meat (1000 tons)

                   Country / Region                1998          1999      2000      2001     2002     2003
                   World                         58,160        59,262     59,833    59,160   61,193   62,104
                   - Egypt                          518           510       544       550      554         557
                   European Union (15)            7,654         7,680      7,446     7,360    7,558    7,472
                   Near East                      1,918         1,853      1,872     1,843    1,927    1,980
                   Africa (SSA)                   3,952         4,052      4,273     4,239    4,355    4,376
                   Latin America &
                   Caribbean                     12,756        13,583     13,801    13,838   14,478   14,874
                   - USA                         11,803        12,123     12,298    11,842   12,288   11,906
                   - Turkey                         364           355       359       334      329         386
                  Source: FAO




          3.3     Economic geography of meat production

                  The trade of meat (especially beef) has been greatly hampered by the outbreak of meat
                  born diseases such as unconventional bovine spongiform encephalopathy (BSE) and
                  veterinary drug residues in cattle and Evian flu in poultry.

                  The meat and poultry industry was relatively geographically dispersed till recently. Most
                  developing countries were consuming locally produced meat and meat products.
                  Developments in refrigerated sea and air transport and cold chains in developing
                  countries, increasing globalisation of the food services chains such as MacDonald’s and
                  Burger King and increased trade liberalization has contributed to the fast growing
                  international trade in meat products.

                  The increase in meat production is directly related to the amount of excess cereals a
                  country produces. The Latin American countries especially Brazil have the fastest
                  growing soybean and maize agriculture mainly due to the application of biotechnology
                  and commercialisation of its agriculture in the last ten years

                  In general the meat industry has increased it productivity through intensive livestock
                  farming and improved feed preparations.


          3.4     Trends in trade

                  The outbreak of BSE, increasing attention on the animal welfare in the developed world,
                  and the associated decrease in consumption of the animal products in affluent markets
                  will have a negative impact in the global market trend. Nonetheless, poultry meat trade is
                  expected to increase as the roasted frozen poultry meat is preferred as ready to eat
                  convenience food in developing and developed markets.

                  The USA, Australia, Netherlands New Zealand and Brazil are the main exporters of meat
                  (processed and fresh). Japan, USA and Italy are the largest importers. The fact that USA
                  is the highest importer and exporter shows the trend in USA meat industry characterized



296               Egyptian Processed Food Sector Review _Product-group strategies
      by sourcing lower quality meat from Latin America and exporting it to Japan after
      processing.

      Egypt’s export beef has declined from 0.7 to 0.4 million USD between 1998 and 2002
      (see Table 5.3 and Table 5.4). It’s exports of non-beef meat (mainly poultry) have also
      declined from 1.6 to 1.3 million USD. The decline in exports is probably due to more
      stringent food safety requirements of European Union, which was the main destination
      for Egyptian export.


3.5   The industrial structure of the meat industry and supply chain

      Changes in consumer demand caused by convenience and perceived health concerns have
      likely contributed to the recent structural transformations within the meat industry. Firms
      have become larger and fewer in all types of meatpacking. Not only has the market share
      for large firms increased, but also the relationships between processors and producers
      have become closer through contractual agreements or actual integration (ownership) by
      the processors.

      Vertical integration or coordination has been the primary method used by processors to
      increase efficiency in livestock marketing channels in the form of packer/processor
      feeding of livestock in packer-owned facilities or on a contract basis or purchasing
      livestock under exclusive marketing/purchasing agreements. Especially in broiler
      complexes, the industry is integrating the feed processing the production, processing, and
      marketing activities needed for raising the birds and bring a final product to the
      consumer. This has enabled the industry to meet the current requirements in traceability
      and food safety requirements at low costs.

      Because of the health concerns associated with beef born diseases like BSE, and
      preference to lean meat, the beef market in the developing countries might lose market
      share to poultry and pork. If the total demand for meat stabilizes or lessens over time,
      then real beef prices will decline to compete with other meats. This keeps continued
      pressure on the beef industry to reduce costs.




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 4 Global trends in the fruit and vegetables
   (processing) industry



4.1   Overview

      The global fresh fruit and vegetable marketing system is increasingly focused on adding
      value and decreasing costs by streamlining distribution and understanding customer
      needs. In the developing economies of Asia, Latin America and elsewhere supermarket
      chains are capturing a growing share of the consumers and competing effectively with
      traditional fresh produce marketing channels.

      The consumption of fruit and vegetables has steadily increased in the recent years mainly
      due to change in the attitude of consumers towards healthy food. The health authorities
      are advising the people to reduce their cereal, meat and fat consumption and to consume
      more and more fruit and vegetables. This shift in the consumption pattern in the
      developed countries and the increase in the income in the developing countries has
      increased the demand and supply of the fruit and vegetables.

      The trend in fruit marketing is geared towards value addition in the form of canning,
      preservation, freezing while in addition to processes mentioned above fresh cut, salad
      greens and ready packages for consumption for vegetables


4.2   Trends in global production and geography

      Global fruit and vegetable production grew from 1.08 billion metric tons in 1998 to 1.32
      billion metric tons in 2003 a 23% increase (FAO). Fruit production showed modest
      increase from 438.8 million tons to 480.3 million between 1998 and 2003. Vegetables
      grew more rapidly than fruit with an increase of 32 % from 640.3 to 842.2 million tons
      from 1998 to 2003. While total fruit and vegetable production grew by 47 percent
      between 1990 and 2002, population only increased 18 percent. Consequently, per capita
      supply or availability expanded from 155 to 193 kg in the last twelve years.

      China’s role in both vegetable and fruit area and production grew rapidly over the last
      decade. In 2003, China’s share of world fruit and vegetable production was 15 percent
      and 49 percent, respectively. With yields above the world average China is set to surpass
      a fifty percent share of global vegetable production in coming years.




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      Table 4.1   World production of fruit (million metric tons)

                   Country / Region               1998              1999    2000    2001    2002        2003
                   World                          438.8             459.2   471.7   472.2   477.9      480.3
                   - Egypt                          6.3               6.8     7.0     7.4     7.4         7.4
                   European Union (15)             53.0              59.0    59.7    56.2    54.3        54.3
                   Near East                       38.2              38.9    40.0    41.0    41.1        41.6
                   Eastern Europe                  10.5               9.7    10.8    11.4    10.0        12.3
                   Latin America                   90.4              97.0    97.5    96.8    97.0        97.8
                   - China                         56.7              64.8    64.5    68.9    72.0        72.2
                   - India                         44.3              45.3    44.3    45.0    46.0        45.9
                   - USA                           31.5              28.1    32.8    30.1    30.3        29.1
                   - Turkey                        10.5              10.6    10.9    10.7    10.6        11.2
                  Source: FAO


      Table 4.2   World production of vegetables (million metric tons)

                   Country / Region               1998              1999    2000    2001    2002        2003
                   World                          640.3             695.1   745.6   776.4   815.6      842.2
                   - Egypt                         12.5              14.0    15.0    14.1    14.1        14.1
                   European Union (15)             54.0              56.5    56.5    54.5    52.9        53.7
                   Near East                       63.2              66.3    66.6    63.6    67.7        65.6
                   Eastern Europe                  18.3              18.0    16.2    16.6    15.8        16.6
                   Latin America                   30.9              33.6    33.7    34.4    35.8        36.8
                   - China                        251.4             280.2   328.8   356.5   389.2      410.9
                   - India                         63.8              71.0    72.3    78.5    79.3        81.9
                   - USA                           34.4              38.9    38.4    36.1    38.2        37.0
                   - Turkey                        23.4              24.7    24.6    24.2    25.8        25.7
                  Source: FAO




          4.3     International trade

                  Generally speaking, no country produces all of the fresh fruits and vegetables it requires
                  in every week of the year, creating the opportunity for trade. Seasonality in the
                  production and consumption of perishable commodities, due to natural climatic
                  conditions, causes much horticultural trade to be contra seasonal, such as the shipment of
                  Southern Hemisphere grapes, stone fruits, and avocados to North America and Europe in
                  order to meet consumer demand during the Northern Hemisphere’s winter, when
                  domestic supplies are low.

                  At the moment, varieties (whether marketed on a branded basis or not) are being
                  consistently provided from multiple locations in both the northern and southern
                  hemispheres.

                  Over the next decade the rapid evolution of supermarkets should induce more direct
                  linkages between suppliers and customers, gradually eroding the dominant role of
                  traditional wholesalers and wet markets, following the trend occurring in the latter half of
                  the 20th century in the U.S. and Europe.



300               Egyptian Processed Food Sector Review _Product-group strategies
4.4   Processed fruit juices

      The major feature of the world market of fruit juices is the geographical concentration of
      production. The two main players in the production of fruit juices are Latin America and
      USA. The export of fruit juice from these two continents amounts to 35 percent of the
      world market. The major player in juice export is Brazil, which has a share of 20 percent
      of world export. International trade in fruit juice takes place in the form of frozen
      concentrated fruit juice (FCFJ), in order to reduce the volume used, so that storage and
      transportation costs are lower.

      The European Union is by far the largest importer of fruit juices, accounting for over 63
      of world fruit juice imports. Southern Hemisphere countries, (developing countries) and
      Australia are increasing their presence in international trade by providing off-season fruits
      to the North. This has been favoured by the improvements in storage and transportation
      technologies.

      According to FAO data, fruit juices exports from Egypt have shown a significant increase
      (nearly 40 %) from 2.1 million USD to 7.9 million USD between 1998 and 2002. China
      more than doubled it exports from 88 to 199 million USD between 1998 and 2002136.


4.5   Frozen vegetables

      Health, taste, and convenience are the factors driving the increased consumption of
      vegetables, in particular frozen vegetables. Consumers are eating more nutrient-dense
      vegetables, such as broccoli, bell peppers, carrots, and tomatoes. New convenience
      packaging has made consuming vegetables easier. Pre-packaged, peeled, mixed bagged in
      small portions are ready-to-eat or ready to add to fast meals. Tomatoes have become
      popular again as an ingredient in many tomato-based ethnic foods. Many new exotic
      produce items, such as specialty lettuces and peppers are expanding. These trends reflect
      consumers' changing demand for vegetables.

      The Netherlands and Spain are the largest exporters of the frozen fruit and vegetables.
      Together, they export around 6.2 billion USD worth of frozen vegetables. Egypt’s export
      performance in frozen vegetables in the last 5 years is also remarkable. According to
      FAO data, Egypt’s exports increased from 92.4 to 113.7 million USD between 1998 and
      2002137. The main importers of the frozen vegetables are USA and Germany importing
      frozen vegetables of value 3.4 and 3.2 billion USD respectively.




      136
            For more detailed data on the leading exporters of fruit juices, see Table 5.5
      137
            For more detailed data on the leading exporters of chilled and frozen vegetables, see Table 5.6




       Egyptian Processed Food Sector Review _Product-group strategies                                        301
      4.6   The industrial structure of the fruit and vegetable industry and supply
            chain

            Due to increased trade of fresh fruit and vegetables and their perishable nature, the supply
            chain of the sector has changed dramatically in the last decades. The traditional supply
            chain in which wholesalers collect the fruit and vegetable and supply it to the retail
            market has been found inefficient, inconsistent and non-traceable. The stringent quality
            and safety standards required to win the confidence of the consumers (specially the fresh
            fruit and vegetable) has forced the retailers to supply the fresh products through a
            minimum number of reliable sources and using their own brand.

            This requires larger well-managed commercial farms or smaller out grower farmers
            closely under close supervision of the retailer (distributor). In this case small farmers are
            provided quality seeds, agricultural inputs and technical and extension services by the
            manufacturers and retailers.

            In return the farmers provide the raw materials for further processing and ‘own label
            packaging’ at predetermined price. This is a win-win situation where the manufacturers or
            distributors get raw material of desired quality and quantity while the farmers are assured
            market outlet for their products. In some cases grower-shippers are forming strategic
            alliances with firms in distant parts of the globe to structure year-round supply chains.




302         Egyptian Processed Food Sector Review _Product-group strategies
      5 Supplementary Tables



Table 5.1   20 largest exporters of cheese and curd by value ($US), 1998-2002

                    Rank                                             Value ($US million)
                                                                                                              Average annual
                                1
             Exports    Growth      Country             1998       1999         2000    2001       2002       growth rate (%)
             1          36          France             2015.0    1952.2     1822.8     1773.6     1866.9                -1.9
             2          39          Netherlands       1892.6     1662.2     1509.7     1700.3     1703.5                -2.6
             3          35          Germany            1668.1    1505.1     1395.1     1672.8     1554.1                -1.8
             4          33          Denmark             949.0     916.1      858.1      872.6      921.5                -0.7
             5          25          Italy               791.5     821.0      801.4      882.4      940.8                4.4
             6          30          New Zealand         520.1     509.8      495.8      606.2      545.4                1.2
             7          27          Australia           427.5     462.6      525.6      506.8      489.6                3.4
             8          32          Belgium                       418.8      385.0      424.7      428.7                0.8
             9          42          Switzerland         345.5     340.1      287.1      296.7      305.5                -3.0
             10         29          Ireland             309.4     290.9      265.4      345.8      336.0                2.1
             11         28          U. Kingdom          207.0     217.1      192.9      210.7      227.2                2.4
             12         9           Austria             133.2     153.0      157.4      206.2      232.4               14.9
             13         18          USA                 117.0     130.1      138.4      162.0      160.4                8.2
             14         11          Spain                94.9     111.5      101.0      126.4      147.1               11.6
             15         26          Finland             101.2       79.1     100.1      113.6      120.1                4.4
             16         34          Greece               96.4       89.7        82.9       93.3     89.8                -1.7
             17         49          Canada              100.7       88.7        69.5       70.5     63.3               -11.0
             18         13          Lithuania            70.4       50.0        72.4       86.4    103.5               10.1
             19         38          Norway               78.8       74.8        69.7       65.1     71.5                -2.4
             20         19          Poland               69.0       52.4        54.7       86.2     88.1                6.3
             43         7           Egypt                 3.5       10.0         2.3        2.2         8.0            23.2
             1) Ranking in terms of average annual growth rate (among the 50 largest world exporters)
            Source: Author’s calculations based on ITS data




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      Table 5.2   20 largest exporters of vegetable oils by value ($US), 1998-2002

                          Rank                                               Value ($US million)
                                                                                                                    Average annual
                                     1
                  Exports    Growth       Country               1998       1999       2000     2001       2002      growth rate (%)
                  1          18           USA                  5315.0    4928.7      5670.9   5801.8     6026.7               3.2
                  2          13           Brazil               2176.7    1594.3      2189.4   2730.6     3036.9               8.7
                  3          38           Canada               1467.4    1153.9      1064.8   1037.6      867.6             -12.3
                  4          16           Argentina            1038.9     859.4      1002.1   1388.5     1280.2               5.4
                  5          39           France                946.9     641.5       557.9    432.7      522.7             -13.8
                  6          10           China                 274.0     355.6       396.2    413.0      427.5              11.8
                  7          11           Australia             262.9     486.2       406.7    372.4      402.1              11.2
                  8          33           Paraguay              442.5     312.5       289.2    364.0      350.0              -5.7
                  9          31           Netherlands           422.0     295.6       281.8    345.9      351.4              -4.5
                  10         15           Germany               184.2     258.1       144.7    236.2      245.3               7.4
                  11         17           India                 104.2     168.3       203.3    179.0      123.0               4.2
                  12         7            Hungary                66.5       73.4       99.2     82.5      134.2              19.2
                  13         49           Ukraine               208.3     106.4       148.4    113.2         24.5           -41.4
                  14         37           Sudan                 109.5       58.3      136.1    102.4         72.2            -9.9
                  15         3            Czech Rep              25.7       90.6       87.4     82.6         75.1            30.7
                  16         50           Russian Fed           242.1       67.0      187.2     45.6         22.8           -44.6
                  17         29           Romania                39.9       99.6       36.7     45.0         33.6            -4.2
                  18         26           Belgium                           45.6       40.4     48.6         43.4            -1.6
                  19         1            Greece                 17.4       32.5       26.7     29.9         53.8            32.7
                  20         36           United Kingdom         78.5       71.0       14.4        6.9       52.1            -9.7
                  49         30           Egypt                  10.7        4.2        4.7        4.2        8.9            -4.4
                  1) Ranking in terms of average annual growth rate (among the 50 largest world exporters)
                  Source: Author’s calculations based on ITS data




304               Egyptian Processed Food Sector Review _Product-group strategies
Table 5.3   20 largest exporters of non-beef and buffalo meat by value ($US), 1998-2002

                    Rank                                               Value ($US million)
                                                                                                             Average annual
                               1
            Exports    Growth       Country               1998       1999      2000        2001     2002     growth rate (%)
            1          31           USA                 3529.6      3216.8   3673.8       4029.6   3205.5             -2.4
            2          29           Netherlands         2312.1      2396.9   2404.1       2408.9   2230.9             -0.9
            3          24           Denmark             2252.9      2253.8   2310.0       2721.6   2493.0              2.6
            4          35           France              2216.6      1988.3   2053.4       1963.5   1825.5             -4.7
            5          17           Belgium                         1299.0   1473.3       1771.2   1643.6              8.2
            6          6            Brazil               960.8      1076.6   1092.8       1803.6   1964.9             19.6
            7          10           Germany              799.8       964.9    840.0       1226.9   1412.4             15.3
            8          9            Canada               781.7       895.3   1190.2       1451.8   1390.7             15.5
            9          20           New Zealand          942.7       947.0    981.8       1075.6   1200.3              6.2
            10         14           Australia            625.4       696.1    803.8        923.1    943.2             10.8
            11         44           United Kingdom      1017.3       850.1    758.2        430.4    543.9            -14.5
            12         15           Spain                578.2       647.4    725.4        944.5    870.7             10.8
            13         33           China                756.2       662.5    724.6        820.4    658.5             -3.4
            14         28           Hungary              511.1       461.4    462.9        550.5    524.0              0.6
            15         30           Ireland              443.9       489.7    485.9        526.7    419.3             -1.4
            16         12           Thailand             425.8       435.9    427.7        596.2                      11.9
            17         25           Italy                325.6       313.5    261.8        342.8    355.8              2.2
            18         11           Austria              164.3       180.8    197.7        255.6    274.1             13.6
            19         18           Poland               159.8       178.9    172.3        200.4    208.3              6.9
            20         16           Mexico               130.6       138.6    177.8        194.7    187.8              9.5
            76         -            Egypt                     1.6      0.8       1.2         1.2       1.3            -5.4
            1) Ranking in terms of average annual growth rate (among the 50 largest world exporters)
            Source: Author’s calculations based on ITS data




            Egyptian Processed Food Sector Review _Product-group strategies                                              305
      Table 5.4   20 largest exporters of beef and buffalo meat by value ($US), 1998-2002

                          Rank                                             Value ($US million)
                                                                                                                   Average annual
                                     1
                  Exports     Growth      Country             1998       1999      2000      2001        2002      growth rate (%)
                  1           20          USA               2251.3     2596.8     3036.4    2549.8      2488.4               2.5
                  2           17          Australia         1792.8     1948.4     2066.6    2313.4      2250.0               5.8
                  3           32          Netherlands       1345.7     1398.8     1179.5     792.1      1127.3               -4.3
                  4           9           Canada              789.1    1020.9     1159.7    1321.9      1304.4              13.4
                  5           22          Germany           1033.1     1098.0      846.7     997.4      1116.8               2.0
                  6           28          Ireland             930.3    1142.6      875.9     589.8       817.3               -3.2
                  7           39          France            1039.7     1041.7      771.5     387.7       622.5             -12.0
                  8           16          New Zealand         609.5     631.6      695.9     737.6       782.8               6.5
                  9           2           Brazil              276.6     443.8      503.3     738.8       776.3              29.4
                  10          19          Belgium                       340.2      317.5     285.8       367.5               2.6
                  11          35          Argentina           480.9     530.9      497.7     113.7       346.3               -7.9
                  12          37          Uruguay             388.1     324.9      357.1     208.3       251.2             -10.3
                  13          34          Spain               338.7     348.7      292.6     198.4       247.4               -7.6
                  14          10          India               164.3     162.9      305.6     242.6       268.5              13.1
                  15          36          Denmark             343.0     291.9      274.2     182.4       228.1               -9.7
                  16          30          Italy               210.3     217.8      207.4     140.8       179.3               -3.9
                  17          14          Ukraine             155.8     157.4      179.3     154.1       201.6               6.7
                  18          29          Austria             185.2     185.5      135.8     135.4       158.1               -3.9
                  19          23          Paraguay             65.9      33.4       70.3         76.0     71.0               1.9
                  20          5           Nicaragua            37.6      41.8       52.2         65.3     81.4              21.3
                  81          -           Egypt                 0.7        0.5       0.4          0.3        0.4           -16.8
                  1) Ranking in terms of average annual growth rate (among the 50 largest world exporters)
                  Source: Author’s calculations based on ITS data




306               Egyptian Processed Food Sector Review _Product-group strategies
Table 5.5   20 largest exporters of fruit and vegetable juices by value ($US), 1998-2002

                    Rank                                              Value ($US million)
                                                                                                             Average annual
                                1
            Exports     Growth       Country             1998       1999        2000       2001     2002     growth rate (%)
            1           36           Brazil            1305.5      1290.1     1090.2       880.1   1096.0              -4.3
            2           26           USA                 653.6      731.2      697.6       648.7    658.1               0.2
            3           32           Belgium                        587.8      490.5       487.0    550.8              -2.1
            4           22           Germany             503.1      550.1      524.1       541.0    542.7               1.9
            5           18           Netherlands         427.9      557.5      517.8       469.1    505.2               4.2
            6           25           Italy               304.8      316.1      324.1       302.0    317.3               1.0
            7           15           Spain               246.9      268.2      253.2       247.1    322.0               6.9
            8           24           Austria             154.3      165.9      172.4       162.9    160.8               1.0
            9           33           Argentina           142.8      181.9      153.4       156.1    129.3              -2.5
            10          5            China                88.3      114.5      142.8       179.2    199.3             22.6
            11          29           France              132.9      163.8      157.2       107.5    127.4              -1.0
            12          8            Poland              108.9      102.1      138.3       156.6    190.3             15.0
            13          42           Mexico              176.6      135.9      140.9        90.3    104.3             -12.3
            14          13           Thailand             87.2      133.9      109.8       109.2                        7.8
            15          28           South Africa                               92.5        75.8     92.0              -0.2
            16          11           Chile                50.0       83.2       72.5        92.5     72.6               9.8
            17          38           Hungary              83.2       60.3       67.8        57.1     65.7              -5.7
            18          35           Israel               71.5       60.4       62.0        54.5     60.5              -4.1
            19          41           Cuba                            58.8       76.0        49.5                       -8.2
            20          20           Philippines          50.2       41.9       54.2        67.5     55.4               2.5
            62          -            Egypt                 2.1        2.8         3.6        4.9       7.9            39.7
            1) Ranking in terms of average annual growth rate (among the 50 largest world exporters)
            Source: Author’s calculations based on ITS data




            Egyptian Processed Food Sector Review _Product-group strategies                                               307
      Table 5.6   20 largest exporters of chilled and frozen vegetables by value ($US), 1998-2002

                          Rank                                              Value ($US million)
                                                                                                                Average annual
                                     1
                  Exports     Growth      Country               1998       1999      2000       2001     2002   growth rate (%)
                  1           23          Netherlands         2824.8     2872.2    2708.9     2725.8   3126.8             2.6
                  2           20          Spain                2677.5    2648.6    2432.7     2743.0   3068.5             3.5
                  3           25          Mexico              2031.7     2016.7    2164.3     2321.3   2228.7             2.3
                  4           32          USA                  1644.4    1579.4    1691.5     1654.6   1700.5             0.8
                  5           14          China                1233.5    1260.8    1265.4     1485.7   1625.2             7.1
                  6           33          France               1286.9    1302.1    1072.8     1109.6   1312.2             0.5
                  7           29          Belgium                        1243.8    1089.0     1200.6   1308.4             1.7
                  8           16          Canada                860.7     978.4    1076.9     1187.9   1091.4             6.1
                  9           26          Italy                 756.4     772.0      684.5     797.1    818.9             2.0
                  10          13          Germany               405.3     458.9      364.9     488.8    536.1             7.2
                  11          11          Australia             286.6     313.5      388.3     407.8    386.2             7.7
                  12          37          Thailand              381.8     446.9      304.8     381.5                      0.0
                  13          43          Turkey                388.5     268.9      258.2     370.0    307.5            -5.7
                  14          40          United Kingdom        265.6     282.6      228.2     214.1    264.1            -0.1
                  15          49          Argentina             455.3     265.0      204.1     228.6    180.4           -20.7
                  16          8           India                 144.1     197.5      244.7     222.0    234.8            13.0
                  17          30          Morocco               209.0     248.2      170.3     178.1    218.1             1.1
                  18          10          Poland                176.9     177.4      164.4     221.8    251.7             9.2
                  19          39          New Zealand           193.2     204.1      170.1     184.3    192.4            -0.1
                  20          21          Israel                138.1     153.6      148.2     167.9    155.2             3.0
                  26          17          Egypt                  92.4      80.4       82.0      85.5    113.7             5.3
                  1) Ranking in terms of average annual growth rate (among the 50 largest world exporters)
                  Source: Author’s calculations based on ITS data




308               Egyptian Processed Food Sector Review _Product-group strategies
        VII-B Sub-Sector Profiles




Egyptian Processed Food Sector Review _Product-group strategies   309
      1 Dairy Products




    1.1     Sector Overview

Table 1.1   Key figure 2003: Dairy products (excl. fresh and pasteurised milk)

             Indicator                   Unit                        Processed milk         Yoghurt            Cheese
                                                                     (UHT &
                                                                     flavoured)
             Domestic                    Tons (1000)                                  60                                  430
             Consumption                 $ US million
             Production                  Tons (1000)                                  60                                  425
                                         $US million
             Exports                     Tons (1000)                                                   13.4
                                         $US million                                                   14.6
             Employment                  Persons (1000)
             Enterprises                 Number                                                           8
             (key players)
             Source: Study team estimates




    1.2     Production

   1.2.1    Production and use of milk

            Milk production has increased rapidly during the second half of the 1990s, to reach a
            level of around 3.8 million tons in 2001138 (see Table 1.2). In addition there is a small
            amount of production of goat and sheep milk but this is estimated at less than 1 percent of
            total milk production. The vast majority of milking animals and milk production is in the
            hands of small-scale farms (see Table 1.3).




            138
                  Estimated milk production for 2003 is also at around 3.8 million tons, and it appears that after a period of growth production
                  has stabilised at around this figure.




                   Egyptian Processed Food Sector Review                                                                                    311
      Table 1.2   Estimated milk production 1995-2001 (thousand tons)

                    Type                                       1995                            2001                         Change (%)
                    Cow milk                                       754                           1618                             115
                    Buffalo milk                                 1308                            2213                               69
                    Total                                        2062                            3831                               86
                    Source: CAPMAS


      Table 1.3   Breakdown of dairy herds and milk production by farm type

                   Type                                    Part of total dairy herd                Part of total milk production
                                                           (%)                                     (%)
                   Small scale mixed farms                                  90                                          72
                   Flying herds                                             7                                           21
                   Commercial farms                                         3                                           7
                   Source: DIDA


                  Average output of milk per animal is low (510 kg per annum for buffalo and 305kg for
                  cow milk) which can be attributed to:
                  •  Poor control of animal feed consumption139;
                  •  Lack of storage for animal feed and wastage of other foodstuffs;
                  •  High sterility levels;
                  •  Production wastage at the farm.

                  Of the total production of milk, some 65 percent is actually consumed at the point of
                  production, either for feeding calves, own/family use by the producer, or for domestic
                  processing. The surplus is sold to processing units, both private sector dairy plants and to
                  the business sector (see Table 1.4). The approximate breakdown of the use of fresh milk
                  by process/product is shown in Table 1.5.

      Table 1.4   Breakdown of use of raw milk (2001)

                                                                                                                                         %
                   Consumed at the production location
                   •      Nursing calves                                                                                                  20
                   •      Family use                                                                                                      15
                   •      Domestic processing                                                                                             30
                   Sub-total                                                                                                              65
                   Surplus for marketing
                   •      Private and investment sectors                                                                                  30
                   •      Business sector                                                                                                    5
                   Sub-total                                                                                                              35
                   Total                                                                                                                 100
                   Source: Study team estimates




                  139
                        During the winter season, when supply of grass (clover) is abundant, animals can consume up to 5 times the necessary
                        volume.




312               Egyptian Processed Food Sector Review _Product-group strategies
Table 1.5     Breakdown of use of milk by process/product

                                                                                                                                   %
               UHT and pasteurised milk                                                                                             6
               Fresh (cooled but mostly un-pasteurised)*                                                                           26
               Cheese-making                                                                                                       49
               Other (cream, yoghurt, calf-feed etc.)                                                                              39
               Total                                                                                                           100
               * Peddled and sold daily in shops
               Source: Study team estimates


              Although, increasing demand (see Section 1.3) provides an incentive for increased milk
              production, dairy producers face major constraints:
              •   Limited suitable land for pasture: there are no permanent pastures so animals are fed
                  in confinement.
              •   Shortages of quality feed and forage.
              •   High capital and input costs
              •   Lack of agricultural equipment and low-education levels.


      1.2.2         Import situation for powdered milk

              Dairy processors have increasingly relied on local production of inputs rather than
              imports due to the government’s 3-year safeguard duty on milk powder imports, which
              expired in September 2004. Despite the discontinuation of the safeguard duty, the
              devaluation of the Egyptian Pound has raised the cost of imported milk powder making it
              more expensive relative to local products140. Egypt imports around 20 thousand tons of
              skimmed milk per annum, from the EU, USA and New Zealand.


      1.2.3         The dairy processing sector

              According to data from CAPMAS there were 3334 licensed dairy processing units in
              1997; of these, some 95 percent had 5 or less workers (see Table 4.25). The majority of
              units process less than 1 ton of milk per day and there are very few units processing more
              than 10 tons of milk per day during the peak season (December-April); most processing
              units work only during the first 6 months of the year, producing soft and hard cheese and,
              when the price is low enough, butter and ghee.




              140
                    Source:Egypt Dairy and Products Annual 2003, USDA Foreign Agricultural Service, GAIN Report, September 2003.




                     Egyptian Processed Food Sector Review                                                                              313
      Table 1.6   Breakdown of licensed dairy processing units by number of workers

                   Number of workers            Number of processing units            Comparative importance
                                                                                      (%)
                   1-5                                                 3190                          95.68
                   6 – 10                                                57                           1.71
                   11 – 15                                               21                           0.63
                   16 – 20                                               20                           0.60
                   21 – 25                                               10                           0.30
                   26 – 30                                                 6                          0.18
                   31 – 40                                                 4                          0.12
                   41 – 50                                               11                           0.33
                   51 – 100                                              12                           0.36
                   101 – 500                                               3                          0.09
                   Total                                               3334                         100.00
                   Source: CAPMAS, June 1997


                  There are around 25 companies involved in the industrial processing and packaging of
                  dairy products. Of these, only 14 companies are members of the Dairy Industry
                  Development Association (DIDA) and about 7 or 8 can be considered as significant
                  players (see Table 1.7, at the end of this Section). Most production of these companies
                  use fresh milk, as recombining (use of skimmed milk powder) remains unimportant due
                  to its higher cost.

                  Overall the private commercial sector (basically members of the DIDA) account for
                  around 15 percent of production of dairy products. They have, however, made significant
                  progress since the early 1980s and taken market share away from the public sector
                  company, Misr Milk and Food Company, whose output has fallen to an estimated 10
                  percent of total supply.

                  The commercial sector, both private and public factories, has significant over capacity.
                  Their total capacity is estimated at 1.9 million tons of dairy products per year, although
                  actual yearly production is only around 500-800 thousand tons. Furthermore, it appears
                  that progress towards changing Egyptian consumers’ preferences from fresh to processed
                  products is slow; this could seriously impede further development of the private industrial
                  sector. At the same time, although strong urban demand provides a firm basis for modern
                  large-scale producers to expand commercial production, factors such as high capital and
                  material costs and limited purchasing power are expected to be major constraints on
                  production.

                  More generally, the constraints facing the dairy industry in Egypt include:
                  •  Production of unclean milk in some dairy farms makes it difficult to use such milk to
                     process end products with a high good quality.
                  •  The difficulty of obtaining high-quality raw milk with a reasonable price.
                  •  Lack of milk testing laboratories services for both dairy farms and plants.
                  •  Lack of consumer awareness regarding the hazards of using unprocessed milk leaves
                     the peddlers unchecked and limits both the demand and price of processed milk.




314               Egyptian Processed Food Sector Review _Product-group strategies
      •      Unfair competition between the imported dairy products (which are subsidized) and
             the local producers who pay high customs fare for the imported raw materials and/or
             equipment.
      •      Poor handling of dairy products during storage, shipping and distribution cause quick
             deterioration and/or low quality end product. This in turn gives the consumer a bad
             impression about these products.
      •      Most dairy processing units are still utilizing old techniques for manufacturing and
             packaging. Also, they put limited investment in marketing and branding.
      •      The lack of coordination between the dairy producers and processors makes it
             difficult to establish a National Dairy Association/Board, which can play a significant
             role to develop the industry within Egypt.

      Cheese production
      Total cheese production in Egypt is estimated to be around 425 thousand tons. The most
      important category is Feta cheese (est. 320 thousand tons in 2002), about 70 percent of
      which is produced in small unlicensed factories. The rest is Romano cheese (est. 65
      thousand tons in 2002) and processed cheese (est. 40 thousand tons in 2002). In addition,
      there is a small but growing production of mozzarella cheese and a very small amount of
      blue and cheddar cheese. In recent years the public sector market share has diminished
      drastically to almost insignificant levels141.

      Butter and ghee
      Egypt produces only a very small quantity of butter on a commercial scale (est. 10
      thousand tons)142. The absence of a significant domestic butter industry is due to several
      factors, the most important being the lack of adequate refrigeration throughout the
      country, which makes the conversion of butter-to-butter oil and ghee necessary. Also
      there is an increasing trend toward the use of palm oil in ghee rather than butter143.

      Milk Powder
      Egypt does not have a significant milk powder production. Imported non-fat dry milk
      (NFDM) and whey powder are used mainly for the production of feta cheese, yoghurt and
      ice cream. Small quantities are also used in the production of chocolate and pastries.


1.3   Domestic Market

      Traditionally Egyptians are not heavy consumers of liquid milk in spite of the widespread
      availability of fresh milk. The recommended daily requirements of dairy products as a
      liquid milk shouldn’t less than 250 g (about 90 kg/year), while the average of per capita
      consumption of dairy products now is about 54 kg/year. The gap between the local
      production and the recommended consumption is about 40% of the current production.
      Most of the available raw milk continues to be processed and consumed in the form of
      cheese and other processed dairy products. It is well known that all raw and loose milk
      sold is raw (without any heat treatment) and unpackaged.

      141
            Ibid, footnote 140.
      142
            Most butter production is for farmers home consumption with a small amount going to sale at local markets.
      143
            Ibid, footnote 140.




             Egyptian Processed Food Sector Review                                                                       315
            Egyptian consumers of all classes have a preference for buffalo's milk. This has a
            stronger taste, higher fat content, is white in appearance, and provide a thick layer of
            cream after it has been boiled and then cooled. At least 70 percent of liquid milk sold
            loose is buffalo's milk. It is frequently mixed with low quantities of cow's milk (5-15%)
            by milk peddlers. However, only cow's milk is used to supply of pasteurised milk, mainly
            because it is less expensive but also because it is more suitable for industrial production.

            Strong urban demand for milk and other dairy products provides an incentive for small
            farmers to increase their supply and to pay more attention to marketing. It also underpins
            increased production of large-scale commercial producers and is a stimulus for them to
            improve their production.

            Total cheese consumption is estimated to be in the region of 430 thousand tons; per capita
            consumption is about 6 kilograms per annum. There is a small amount of imported fancy
            cheeses (est. 320 tons in 2002), although imported products are likely to suffer from the
            recent rise in import duty and the pending expiry date legislation which should affect
            imports of processed cheese and cheese in Tetra Pak packaging. The rising number of fast
            food restaurants operating in Egypt is spurring growing demand for cheddar and
            mozzarella cheese.


      1.4   Export Market and performance

            Egypt’s exports of dairy products increased dramatically in 2003, up from 6.8 thousand
            tons in 2002 to 13.4 thousand tons (+97%); with the value rising from L.E. 42.2 million
            to L.E. 87.3 million (+107%).




316         Egyptian Processed Food Sector Review _Product-group strategies
Table 1.7   Leading companies in the dairy product-processing sector

                Company           Leading products       Main export locations         Output 2003        Number of
                                  (*=export product)                                   equivalent fresh   employees
                                                                                       milk input in
                                                                                       tons
            1   Juhayna           UHT Milk*              USA, Italy, Germany,          180000             750
                                  Yoghurt                Switzerland, Netherlands
                                  Drinking Yoghurt       Jordan, Libya
                                  Juice*                 Mauritania
            2   Greenland         Feta Cheese*           USA                           144000             600
                (Americana        Domiati Cheese*        UK, Greece, Netherlands
                Group)            Hard Cheese*           Saudi Arabia, Kuwait, UAE,
                                  Processed Cheese*      Libya, (plus 15 other Arab
                                  UHT Milk*              countries)
                                  Juice*
            3   Domty (Candia)    Feta Cheese*           Qatar, Bahrain, Saudi         72000              300
                                  Domiati Cheese*        Arabia, UAE
                                  Mozzarella*            France, Italy, Switzerland,
                                  Processed Cheese       Germany, Sweden,
                                  Drinking Yoghurt       Canada, USA
                                  UHT Milk*
                                  Juice*
            4   Enjoy             Set Yoghurt            USA,                          60000              250
                                  Drinking Yoghurt       UK, Netherlands, Sweden,
                                  UHT Milk*              Italy,
                                  Juice*                 Libya, Lebanon, Palestine
            5   Nestle            Ice cream              Ethiopia, Sudan               60000              250
                                  Set Yoghurt
                                  Drinking
                                  Dry blends*
                                  Baby foods*
            6   Siclam            Set Yoghurt            Italy, Netherlands            60000              250
                                  Drinking Yoghurt       Jordan, Lebanon, Palestine,
                                  Feta Cheese*           Kuwait, Saudi Arabia
                                  Domiati Cheese*
                                  Hard Cheese*
                                  Processed Cheese*
                                  UHT Milk*
                                  Juice*
            7   Faragallah        Processed Cheese*      USA, Canada                   54000              200
                                  UHT Milk*              Europe
                                  Juice*                 Australia, New Zealand
                                                         Jordan, Saudi Arabia,
                                                         Morocco, GCC, Libya
                                                         Other Africa
            8   Arab Dairy        Feta Cheese*           Iraq, Libya, Saudi Arabia,    36000              200
                (Lactalise)       Domiati Cheese*        Kuwait, UAE, Qatar,




                Egyptian Processed Food Sector Review                                                             317
          Company          Leading products          Main export locations         Output 2003        Number of
                           (*=export product)                                      equivalent fresh   employees
                                                                                   milk input in
                                                                                   tons
                           Hard Cheese*              Bahrain, Oman, Jordan,
                           Processed Cheese*         Yemen
      9   El Misrieen      Set Yoghurt               Saudi Arabia, Kuwait, UAE,    180000             200
                           Drinking Yoghurt          Qatar, Bahrain, Oman,
                           Feta Cheese*              Libya, Jordan
                           Domiati Cheese*
                           Juice*
      10 Katilo            Yoghurt                   Saudi Arabia , Jordan,        180000             200
                           Feta Cheese*              Kuwait, UAE, Qatar,
                           Domiati Cheese*           Bahrain, Oman
                           Hard Cheese*              USA
                           Processed Cheese*
      11 Edafco (Viva)     UHT Milk*                 Libya                         180000             200
                           Juice*                    Germany, Italy, Sweden,
                                                     Austria, UK
                                                     Mauritius
                                                     USA
      12 IGI Interagro     Set Yoghurt                                             180000             200
          (ex Dallah)      Drinking Yoghurt
                           UHT Milk*
      13 Bell Egypt        Processed Cheese*         Saudi Arabia, Jordan,         180000             200
                                                     Kuwait, UAE, Qatar,
                                                     Bahrain, Oman
                                                     USA
      14 Misr Milk &Food   Set Yoghurt               Saudi Arabia, Jordan, Iraq,   180000             200
          Company          Feta Cheese               Kuwait, UAE, Qatar,
                           Domiati Cheese            Bahrain, Oman
                           Hard Cheese
                           Processed Cheese*
                           Pasteurised milk
                           UHT Milk
      15 Oburland          Feta Cheese               Libya                         180000             200
                           Domiati Cheese
                           Processed Cheese*
                           Emulsifiers/stabilizers
      16 Egyptian Danish Ice Cream*                                                50                 200
          (Iceman)         Ice lollys
      17 Hawaii            Ice Cream*                                              50                 200
          Total                                                                    782200




318   Egyptian Processed Food Sector Review _Product-group strategies
      2 Exotic fruit juices, pulp and puree



    2.1     Sector Overview

Table 2.1   Key figures, 2003

              Indicator                                                                       Unit                           Value
              Domestic                                                            Tons (1000)                                        61
              Consumption                                                         $ US million                                     30.6
              Production                                                          Tons (1000)                                        80
                                                                                  $US million                                      42.8
              Exports                                                             Tons (1000)                                        22
                                                                                  $US million                                      13.6
              Employment                                                          Persons (1000)                                       4
              Enterprises (key players)                                           Number                                             20
              Source: Study Team estimates


            The fruit juice industry originates from the processing of ‘surplus’ fruits, as is the case
            with jam production144. During the 1990’s the development of the Egyptian fruit juice
            industry was promoted through investments in UHT carton packaging lines. A
            consequence of the move towards ‘solution-packaging factories’ has been the close
            integration of the dairy and fruit processing sectors, even though some successful ‘fruit
            specialist’ still remain. Buying (on lease) such lines, companies sought to achieve higher
            capacity utilisation rates by processing both fruit juices and milk145. In fact, since the
            Egyptian market for liquid milk is relatively small, most producers have run their
            investments largely for the processing and packaging of fruit juices. Alongside this
            development, some fruit juice producers continued to maintain (existing) glass-packaging
            lines, whilst others did not switch to cartons at all.

            Domestic demand for juices is mainly for ‘pocket money’ small pack or bottle sizes. On
            the export side, fruit juices packed in UHT cartons is to all intents a ‘commodity’ product,
            alongside which a higher-value added chilled fruit juice in carton segment is developing.
            Exports in small glass bottles represent the traditional high quality exotic offer.

            Increased understanding of export market requirements, combined with seller and buyer
            recognition of the specific quality of Egyptian mango and guava juices, has encouraged
            144
                  Some successful jam manufacturers also produce quality juices. Historically these quality exotic juices have been packed in
                  (small size) glass bottles.
            145
                  Looking to further improve utilisation of packaging lines, several few companies started to pack soft feta cheese in the
                  same aseptic cartons. With little domestic demand for this product-packaging combination, all these companies sort to
                  develop export opportunities. The most successful channelled their products on the ethnic-expatriate markets, in the USA
                  for example. Through this type of market opening, the sector leaders have also recently managed to develop exports of
                  UHT milk.




                   Egyptian Processed Food Sector Review                                                                                   319
                  many producers to become involved in the production and export of concentrates.
                  Nonetheless, the major players dominate the global market for concentrates, and Egyptian
                  potential in this segment would appear to be limited to a minor specialised producer.

                  Despite severe competition from countries such as Brazil and India, the recent
                  devaluation of the Egyptian Pound has, nonetheless, opened up market opportunities for
                  Egyptian exports. Notably, devaluation has enabled the export of low-price, low-quality
                  Egyptian fruit concentrates.

      Table 2.2   Juices & syrups: production, source and usage (2000-01)

                                                                                                                      Units                  Value
                    Production (actual)                                                                         L.E. million                    198
                    Production (actual)                                                                         1000 tons                      47.9
                    Production (available capacity)                                                             1000 tons                      62.7
                    Capacity Utilisation rate                                                                   %                                76
                    Private sector share of production (actual)                                                 %                                74
                    Private sector share of production (available capacity)                                     %                                61
                    Exports                                                                                     1000 tons                       1.4
                    Imports                                                                                     1000 tons                       6.5
                    Change in stocks                                                                            1000 tons                       -1.7
                    Domestic consumption                                                                        1000 tons                      44.5
                    Production (output) to consumption ratio                                                    %                               108
                    Imports to consumption ratio                                                                %                                  3
                    Exports to production (output) ratio                                                        %                                14
                    Source: CAPMAS and author’s calculations




          2.2     Production

                  There are 3 basic forms of processing:
                     4. Direct processing and bottling of pure fruit juices;
                     5. Freezing and storage, either for further processing (e.g. jams) or export
                     6. Processing as concentrate, permitting storage of up to 1 year146.

                  In addition, a few Egyptian companies (e.g. Nile Pulp) have invested in the production of
                  higher quality fruit pulps147.




                  146
                        Concentrates may subsequently be converted back to juice if the quality is good enough. In the case of concentrates made
                        from poor quality fruit, these may be marketed in the nectar category (i.e. with added sugar). Further, some Egyptian
                        concentrates is known to pass via specialized re-treatment units, typically located in Israel and Cyprus, from which it
                        eventually finds itself back on the market as fruit juice.
                  147
                        Such high quality production requires closer integration with the supply of fruits (agriculture) in order to assure the quality of
                        supplied materials.




320               Egyptian Processed Food Sector Review _Product-group strategies
Table 2.3   Evolution of production

                                   Units          1992     2000     2001      2002     2003     2004          92-00            00-03
                                                                                                forecast      a.a.g.r. (%)     a.a.g.r. (%)
            Juices & syrups        1000 tons      30.0     81.9     47.9      51.0     58.0     60.0               13               -11
            Concentrate            1000 tons      n.a.     11.5     13.0      15.0     22.0     26.0                -               24
            Total Value            L.E. mil.      n.a.     350      198       210      256      285                 -               -10
            Source: Study team estimates based on CAPMAS and industry sources


            The industry consists of around about 20 main production units, of which 10 have UHT
            Tetra packaging lines (9 of the 10 are located in dairies). As noted above, development of
            the domestic market for UHT milk has proved to be a relative failure and this has pushed
            the development of fruit juice processing.

            The fact that enterprises have been ‘tied in’ to their investment in packaging lines148 has
            influenced the sectors development and strategies. Basically, when faced by the quasi-
            monopoly of carton pack suppliers149, enterprises over invested in capacity given the
            relatively weak (low income) domestic market, in which alternative sources of fresh milk
            and juices are available. This has forced companies with UHT carton packaging facilities
            to adapt their behaviour:
            •   Two traditional market leaders (Juhayna, Enjoy) have nicely positioned themselves
                on the ‘ethnic’ export market, giving a much lower priority to development of the
                domestic market;
            •   A more recent entrant (Faragalla) has adopted an aggressive export marketing of it’s
                own wide range of branded juices and other processed foods, aimed at the general –
                as opposed to ‘ethnic’ – market;
            •   Another company has focussed on supplying the retail distribution sector in Egypt
                and Europe with distributor’s own–brand juices.

            Despite the success of such strategies, the fundamental weakness of Egyptian production
            remains the relatively low volumes of fruit being processed relative to major producers.
            In a global market characterised by high-volume low-cost production, the need for
            Egyptian companies to cover the (fixed) costs of investments in packaging technology
            running at low capacity and/or low volumes implies higher production costs and, hence,
            poor competitiveness.




            148
                  It is a typical strategy of the market leader Tetrapack to lease equipment (new or re-engineered) and provide training and
                  incentives for launch campaigns, provided the company purchase paper for at least 1 year and signs an after sales
                  agreement.
            149
                  A criticism made during the company interviews was that packaging equipment/material suppliers provided enterprises with
                  over optimistic evaluations of the market for carton packaged milk and juices.




                   Egyptian Processed Food Sector Review                                                                                  321
      Table 2.4   Key players in the fruit juice and concentrates sector

                   Juices:
                   Juhayna
                   Enjoy
                   Faragallah
                   Greenland
                   Domty
                   Edafco
                   [other active companies are Vitrac, Halwani, Comby, El Horreya]
                   Concentrates:
                   El Marwah (Juhayna)
                   Faragallah
                   Nile Fruits
                   Foodico
                   P&J
                   Kaha
                   Comby
                   Hansa Foods
                   Edfina




       2.2.1      Supply of agricultural inputs

                  Egypt is not an important player in the global market for citrus fruits; rather it is
                  positioned as a supplier of exotic juices, mainly mango and guava. Nonetheless, a wide
                  variety of fruit juices are available on the domestic market, these include citrus, exotic
                  and other juices such as apple.

                  Fruits are purchased at the peak of the growing season; delivery to the factory is often
                  organised by collectors (i.e. “kellelas”). Though the collection system has proved in the
                  past to be a relatively efficient mechanism of ensuring supply of fruits given the often
                  small-scale nature of fruit production, it is questionable whether it is suitable for meeting
                  modern requirements especially for high quality production destined for exports for
                  which guarantees of quality and (international) industry standards are necessary. As such,
                  evolution of this system may be necessary as part of the development of a long-term
                  strategy for investment in fruit production and processing. Moreover, logistics between
                  fruit orchards and processing units is extremely poor (e.g. use of small trucks and vans
                  and absence of cooling during transport).

                  The recent devaluation of the Egyptian Pound has provided a boost across the board to
                  the processing of all fruit types. However, lack of flexibility to respond to increased
                  demand from the processing industry has been revealed, and limited supply capacity has
                  meant that increased demand cannot be met without significant price increases,
                  particularly for mangoes.




322               Egyptian Processed Food Sector Review _Product-group strategies
2.2.2   Packaging range

        For the export market, juices are usually supplied in 1-litre UHT cartons or, in the case of
        ‘exotic’ juices often in (small) glass bottles. The latter is often essential to permit
        consumers to view the product, unless it can be sold under a well-known and clearly
        identifiable brand label.

        For the domestic market, smaller sizes are more prevalent (200-250ml) reflecting the
        ‘pocket money’ purchase of fruit drinks. Although it is not possible to get accurate data
        on sales by packaging size, information from companies suggests that the share of small
        cartons could be as high as 90% of domestic sales of carton packaged juices. It has not
        been possible to establish the volume or market share of juice sold in glass bottles, but it
        is thought to be rather low. This segment is primarily the domain of more established
        (traditional) juice makers such as Halwani, Vitrac and El Horriea.

        One problem facing the industry is a shortage of glass bottles.


2.2.3   Technological performance and quality

        The technological level of Egyptian production has improved over recent years to achieve
        a fairly good standard. The promotion of HACCP and ISO management systems by the
        government and through technical assistance provided by donors has also helped to
        improve quality. Nonetheless, still more needs to be done to encourage the uptake of such
        systems.

        Exposure to export markets has shown that companies can access markets by actively
        promoting Egyptian taste and quality. Nonetheless, to continue to increase sales,
        companies have realised the need for product development: freshness of juices is a must,
        but formulation of new ‘recipes’ is also a means of sales development.

        In general, product standards and quality are important throughout the global fruit juice
        processing industry and even producers in developed country markets have failed where
        they have been unable to offer required guarantees of product standards and quality.
        Increasingly, consumer expectations (freshness, taste, health etc.) are driving industry
        requirements, though this goes hand in hand with the intensive development of new
        products.


2.2.4   Business capacity

        The extent to which Egyptian production currently fulfils some of the main criteria
        consistent with (international) state of the art business capacity are summarised in Table
        2.5.




            Egyptian Processed Food Sector Review                                                 323
      Table 2.5   Egyptian proximity to “state of the art” business capacity

                    Criteria                                       Comments
                    Guarantee of raw materials (quality            Not yet. More to be done to guarantee quality and quantity (e.g. shift
                    and quantity)                                  to contract farming)
                    Original / genuine products                    Yes, but more to be done to ‘prove’ to export client/consumers
                    Product authenticity                           Yes
                    New product development                        Limited, at a relatively early stage
                    Flexibility and service standards              Not yet at levels to be expected for success on export markets
                    Business acumen and ‘self image’               Producers have strong self image but




          2.3     Domestic Market

                  The domestic market for processed fruit juices is evaluated through interviews and
                  research to be approximately 50 thousand tons, with an additional 11 thousand tons of
                  concentrates. On the assumption that the potential market for processed fruit juices (i.e.
                  consumers with sufficient purchasing power) is around 10 million inhabitants, this
                  represents an average consumption of 5 litres per capita150 – as compared to Western
                  European levels of between 20 to 40 litres per capita.

                  In addition to regular packaged juices, about 3 years ago Daltex (a potato and citrus
                  packing company) built a fresh juice plant and marketed fresh orange juice in plastic jerry
                  cans to hotels and restaurants.


          2.4     Export Markets and performance

                  Egyptian success in the USA, and elsewhere, has been achieved through the initial
                  development of juices sold in small glass bottles and targeted at the ‘ethnic’ market. With
                  the development of carton-packaged juices, Egyptian companies have widened their
                  target markets, with success in some specific areas.

                  According to data from the ITC Trademap database (see Table 4.17), Egyptian exports of
                  fruit juices in 2002 are estimated at a value of $US 8 million. The main export market is
                  the USA with a share of 64% of the value of exports. Some ways behind are: Saudi
                  Arabia, Jordan, Italy and Canada151.

                  From interviews conducted by the study team, however, it appears there is a significant
                  underestimate of the value of exports of fruit juices and concentrates. For 2003, industry
                  estimates indicate export volumes of around 11 thousand tons for each of the categories
                  fruit juices and fruit concentrates. Further, the underlying trend is of a 15% increase per
                  annum in the volume of packaged juice exports and an additional 1,500 tons per year of


                  150
                        At the same time, freshly squeezed fruit juice stalls are prevalent in Egypt.
                  151
                        With some companies targeting their marketing efforts towards Europe, the Baltic States and other E. European regions
                        (Russia), the share of the USA is expected to fall.




324               Egyptian Processed Food Sector Review _Product-group strategies
            fruit concentrates. It appears that the devaluation of Egyptian Pound in 2003 had a
            positive impact on export sales152, particularly for concentrates.

Table 2.6   Egyptian exports of fruit and vegetable juices, unfermented (HS code 2009), 2002

             Importing              Value                  Share               Volume                Share               Unit value
             country                $US thousand           %                   Tons                  %                   $ per ton
             Total                  8,032                  100                 -                     -                   -
             USA                    5,117                  64                  -                     -                   -
             Saudi Arabia           889                    11                  1,213                 -                   733
             Jordan                 477                    6                   894                   -                   534
             Italy                  448                    6                   1,075                 -                   417
             Canada                 401                    5                   428                   -                   937
             Source: ITC




 2.4.1      Distribution channels for exports

            The main distribution channels for juices and concentrates are described in Table 4.18.

Table 2.7   Distribution channels for Egyptian exports of fruit juices and concentrates

             Channel                                Comments
             Further processing industry            Yes, for fruit concentrates
             Traders                                Main export channel, also for co-packing of retail distributor own brands
             Wholesalers                            Yes, for ‘ethnic’ distribution channels
             Modern (centralised) retailers         Yes, but mainly via traders
             Own import company                     No




    2.5     Global Trends

            The market for fruit juice is split into three main segments:
               1. Pure (100%) juice, directly made from fruit and pulp without additives.
               2. Juice from concentrates (80% of water removed) to which water is added in
                   production units close to the consuming market place, and with the possible
                   addition of allowed aromas and sugar in controlled quantities.
               3. Nectar, for which water and sugar are added to the fruit juice.

            Studies of consumption habits show that the proportion of consumption of 100% juice is
            increasing, particularly in Europe, Asia, Africa and the Middle East. Nonetheless, there is
            considerable variation across regions and counties in consumer attitudes to the various
            juice segments; as is, also, the case with regard to new product development, product
            branding and distribution.



            152
                  Companies with only glass bottling packaging lines have been hampered in taking advantage of devaluation because of the
                  shortage of supplies of locally produced glass bottles.




                   Egyptian Processed Food Sector Review                                                                              325
              Fruit juices benefit from a positive image based on their ‘naturalness’ and vitamin
              content, which is of increasing importance in more developed markets such as the
              European Union. Also, generally speaking there is an increasing demand for not from
              concentrate (NFC) products. Traditional flavours, such as orange and apple, are declining
              in market share at the expense of innovative flavours: fruit combinations and colours,
              such as ‘red fruits’. Consumers are attracted by more exotic fruit juices, exceptional
              varieties, new tastes and new fruit mixes. Moreover, ‘functional’ drinks such as juices
              and nectars with added vitamins and calcium are becoming more popular. On top of these
              shifts in consumer preferences, consumers are also looking for other requirements, giving
              importance to: taste quality of products, packaging and ‘fair’ agriculture in the production
              and purchase of fruits.

              Hand in hand with these changes in consumer preferences, juice processors are trying to
              innovate and increase value added through the development of new products. It is
              estimated that in Europe in 2003, innovative products represented 14% of the sales of
              multinational brands153. These developments offer market opportunities for (developing)
              countries producing exotic fruits and in the production of organically grown products.


      2.5.1   Global production and distribution

              In developed markets the fruit juice-processing sector is dominated by multinational154
              and distributor own brands. In Europe, retail distributors’ own brands accounted for over
              half of the market but have seen their share slip back to 40-45%. In a mature market,
              having become heavily involved in the juice business, distributors have seen their market
              position weakened by an increasing and cheap supply of traded juices. Lacking
              specialisation and technical know how of the market and production, they have
              abandoned products with low volumes (e.g. single fruit tropical juices) and retained only
              suppliers able to offer strong guarantees on quality and standards.

              The fruit juice industry is very much linked to the variety of local fruit production.
              Nonetheless, countries such as the Netherlands, Belgium and Germany have developed
              powerful fruit juice processing industries based upon the imports of fresh fruits that are
              crushed locally into juices.

              In Eastern Europe local companies still dominate the local market. In Poland, long known
              as a major producer of apple juice and concentrates, producers have broadened their offer
              to the domestic market and is developing sales of branded products to the Russian market.
              In several other East European countries there is a strong and renewed juice industry

              153
                    For example: Tropicana has started new cocktails of tropical fruits such as mango-orange and mango-almond; Eckes
                    Granini is supplying 100% multi-fruit juices and cocktails with orange, passion fruit and mango; Teissere, with its Etnobar
                    range, has launched “Africa”, a cocktail with orange, banana and hibiscus; in France, Eckes Granini has started ‘light’ fruit
                    juices with the brands Joker Affinité and Pampryl – a range of juices marketed for their ‘cosmetic’ properties (e.g. ‘fruits de
                    la vitalité, for skin beauty, memory help and vitality) containing kiwi, banana, mango, and wild rose.
              154
                    For example, in the European market:
                    •      Eckes Granini (Granini, Hohes C, Joker, Réa, Frucht Tiger, La Bamba …)
                    •      Pepsico (Tropicana, Looza, Copella, Frui’Vita)
                    •      Cadbury Schweppes (Mott’s, Pampryl, Oasis, Banga …)
                    •      Coca Cola (Minute Maid)




326           Egyptian Processed Food Sector Review _Product-group strategies
        where, as is the case in Egypt, over capacity in carton packaging lines and a limited
        market for UHT milk has pushed the development of fruit juice processing. This has
        resulted in a concentration of the dairy and fruit juice industry. This is less so the case in
        Russia where geographically the market remains concentrated around the major markets
        (Moscow, St Petersburg) and the juice industry relies heavily on imports of juice
        concentrates.

        In the Mediterranean area juice production has historically developed around the
        processing of citrus fruits155. Spain has had a very dynamic development, though this has
        been curtailed somewhat by the arrival of new suppliers (e.g. Brazil); Turkey has also
        developed citrus fruit processing as is the case for Cyprus156.


2.5.2   Export market requirements

        To be successful on export markets, exporters need to be able to fulfil the basic (but
        essential) requirements concerning volume and quality of products. Importers,
        particularly in developed markets, will demand evidence that suppliers have invested in
        both these directions.

        In those markets that have seen a saturation of demand for retail distributors’ own brands,
        there may now be opportunities for producers’ own brands to reassert themselves where
        they are able to supply products meeting customer expectations. However, optimisation
        of logistics and economies of scale from large production are pushing towards greater
        integration of fruit juice and soft drink supply.

        In the Egyptian case, responding to export market requirements may necessitate
        supplying a broad(er) range of products to achieve necessary volume levels. In turn, in
        addition to the traditional supply of mango, pineapple, hibiscus etc., Egyptian exporters
        may need to look towards opportunities to source juices and concentrates of fruits that
        cannot be met from local fruit supplies and thus be in a position to offer a wide and
        flexible range of products.


2.5.3   Global Trade

        Increasing global demand for fruit juices has underpinned a steady increase in world
        trade. Increasing supply has resulted in falling unit prices for most categories of
        ‘traditional’ fruit juices (see Table 2.8). So called ‘non-traditional’ juices is one of the
        fastest growing segments in both volume and value terms (see Table 2.9)




        155
              The study team has not focussed on the citrus fruit segment, since the development potential for Egypt in this segment is
              limited.
        156
              See footnote 36.




               Egyptian Processed Food Sector Review                                                                                 327
       Table 2.8   World imports of traditional fruit juices

                                             Unit                 1992         1997           2002              1992-97           1997-02
                                                                                                                a.a.g.r. (%)      a.a.g.r. (%)
                   Orange Juice
                   Quantity                  Tons thousand          2,309       2,847          3,529                      4.3                4.4
                   Value                     $US million            2,845       2,659          2,951                      -1.3               2.1
                   Unit value                $/kg                    1.23         0.93          0.84                      -5.4              -2.0
                   Apple Juice
                   Quantity                  Tons thousand            784       1,097          2,500                      6.9               17.9
                   Value                     $US million            1,131       1,178               980                   0.8               -3.9
                   Unit value                $/kg                    1.44         1.07          0.39                      -5.8            -18.3
                   Pineapple Juice
                   Quantity                  Tons thousand            544           548             680                   0.2                4.4
                   Value                     $US million              319           357             388                   2.3                1.7
                   Unit value                $/kg                    0.59         0.65          0.57                      2.0               -2.6
                   Grape Juice
                   Quantity                  Tons thousand            593           717             674                   3.9               -1.2
                   Value                     $US million              363           458             343                   4.7               -5.6
                   Unit value                $/kg                    0.61         0.64          0.51                      1.0               -4.4
                   Grapefruit Juice
                   Quantity                  Tons thousand            173           230             295                   5.9                5.1
                   Value                     $US million              216           189             293                   -2.6               9.2
                   Unit value                $/kg                    1.25         0.82          0.99                      -8.1               3.8
                   Source: FAO & study team


       Table 2.9   World imports of special flavour fruit juices (i.e. except citrus, apple, pineapple and grape)

                                           Unit                   1992       1997            2002           1992-97               1997-02
                                                                                                            a.a.g.r. (%)          a.a.g.r. (%)
                   Special Juices
                   Quantity                Tons thousand            744          996          1,607                       6.0               10.0
                   Value                   $US million              845        1,096          1,437                       5.3                5.6
                   Unit value              $/kg                    1.14         1.10           0.89                     -0.6                -4.1
                   Source: FAO & study team


      Table 2.10   Imports of special flavour fruit juices by region (tons thousand)

                                             1992        1997     2002       1992-97           1997-02              Quantity per capita 2002
                                                                             a.a.g.r. (%)      a.a.g.r. (%)         (kg/capita)
                    European Union           197.7       317.6     565.1            10.0             12.20                                  1.50
                    (15)
                    Middle East                54.8        84.4    131.1               9.0                9.2                               0.46
                    Eastern Europe             24.4        46.7     69.1            13.9                  8.1                               0.35
                    Source: FAO & study team




328                Egyptian Processed Food Sector Review _Product-group strategies
             Hibiscus ‘juice’
             Hibiscus flowers can be used to prepare tea, juice and jam. Hibiscus is well known as an
             ingredient in tea preparations (e.g. France, UK, Germany). Further, hibiscus decoctions
             are also processed into extracts and syrups; hibiscus syrup is mainly drunk in northern
             and western Africa but is also used in some juice cocktails in Europe. The main producers
             are China, Thailand, Sudan and Mexico – though Sudan and Thailand are most respected
             for the quality of their product. Smaller suppliers of dried hibiscus flowers include:
             Senegal, Tanzania, Egypt and, perhaps in the future, Mali.

             As a consequence of the embargo on Sudan, Egypt has achieved some penetration of the
             US market by replacing Sudan’s market share. The USA and Germany are the world’s
             largest importers of hibiscus. The UK is also important consumer market, but imports
             already processed hibiscus (tea) from Germany.

Table 2.11   Hibiscus powder imports

                                                1993       1994         1995         1996         1997         1998
              USA             Tons 1000                           2.9          4.0          4.4          5.1          5.2
                              $US million                         8.7      13.4         15.7         17.7         22.4
              Germany         Tons 1000             22.9      25.3         29.6         29.2         33.9
                              € million             53.3      54.6         69.0         69.4         89.7
              Source: US Trade, Eurostat




             European Union (15)
             The main importers of special flavour fruit juices, and fruit juices in general, in the
             European Union (15) are France, Germany, Belgium and the Netherlands (see Table
             2.12). There is however an important re-export activity for countries such as the
             Netherlands, Belgium and Germany. There is a large processing activity concentrated in
             Germany, which has the highest per capita consumption of fruit juices (see Table 2.13),
             and several juice producers are also located in the United Kingdom. The Netherlands, by
             virtue of its position as a key entry point for goods into the EU, is a major supplier of
             juices and concentrates to the EU (15) market.




                 Egyptian Processed Food Sector Review                                                                329
      Table 2.12   European Union Imports of special flavour fruit juices by country (thousand tons)

                                    1992       1997        2002       1992-97         1997-02          Quantity per capita 2002
                                                                      a.a.g.r. (%)    a.a.g.r. (%)     (kg/capita)
                    France             46.2       75.9      116.0            10.4              8.9                          1.94
                    Germany            47.9       59.6       88.3             4.5              8.2                          1.08
                    Belgium/Lux        13.2       28.7       74.1            16.8            20.9                           7,34
                    Netherlands        22.7       23.1       57.3             0.3            19.9                           3.58
                    UK                 18.4       30.8       50.0            10.9            10.2                           0.84
                    Italy              14.9       21.0       42.6             7.1            15.2                           0.74
                    Portugal            3.4       17.7       25.9            38.7              7.9                          2.58
                    Sweden              8.6       14.6       25.6            11.2            11.8                           3.13
                    Spain               7.9       13.5       22.5            11.2            10.8                           0.56
                    Denmark             4.5        8.7       20.8            13.9            19.2                            3.9
                    Austria             4.4       14.1       19.5            26.4              6.7                          2.41
                    Ireland             1.6        3.1        9.9            13.5            26.6                           2.56
                    Greece              2.8        4.0        6.5             7.5            10.2                           0.61
                    Finland             1.1        2.9        6.0            20.9            15.6                           1.16
                    TOTAL             197.7     317.6       565.1            10.0            12.2                            1.5
                    Source: FAO & study team


      Table 2.13   Consumption of fruit juice and nectars, 2002

                                                                                 Litres per capita
                     Germany                                                                                                40.2
                     Austria                                                                                                32.0
                     Finland                                                                                                32.0
                     Denmark                                                                                                25.3
                     Netherlands                                                                                            24.4
                     Sweden                                                                                                 23.7
                     Spain                                                                                                  22.0
                     France                                                                                                 21.7
                     United Kingdom                                                                                         21.0
                     European Union (15)                                                                                    24.2
                     Source: VIGEF




                   Eastern Europe
                   Eastern Europe has seen a rapid growth in sales of fruit juices, which increased by 64%
                   between 1998 and 2003 compared to growth of only 18% over the same period for
                   carbonated drinks. Pure (100%) juice is generally perceived as the healthiest option and
                   accounts for greatest volume of sales throughout the region. Nonetheless, nectars have
                   shown the fastest growth, which may be attributable to their lower cost – corresponding
                   to lower income levels in the region - and possibilities for combining flavours and fruit
                   varieties. Eastern Europe has a long tradition of producing excellent quality apple and red
                   fruit juices. Even though global soft drink leaders are setting up operations in the region,
                   the market remains dominated by local players. These local suppliers will source from
                   throughout the world so long as they can obtain the required quality-cost combination.



330                Egyptian Processed Food Sector Review _Product-group strategies
             Nonetheless, large volume imports are likely to remain mainly for cheaper products that
             correspond to the purchasing capacity of the majority of consumers.

Table 2.14   Eastern Europe imports of special flavour fruit juices by country (thousand tons)

                                  1992          1997         2002         1992-97            1997-02           Quantity per capita 2002
                                                                          a.a.g.r. (%)       a.a.g.r. (%)      (kg/capita)
              Albania               0.0          1.2         21.0                                   78.5                            6.63
              Ukraine               1.6         13.9         18.8                54.1                6.2                            0.39
              Czech Republic        0.0          4.5          8.0                                   12.1                            0.78
              Poland                0.3          4.8          6.9                69.6                7.5                            0.18
              Romania              10.2          0.6          3.9               -43.0               45.2                            0.18
              Bosnia                0.5          4.3          2.1                57.1              -13.0                            0.52
              Slovakia              0.0          2.6          1.8                                   -7.3                            0.33
              Hungary               1.6          2.4          1.8                 8.6               -5.6                            0.18
              Croatia               6.9          7.0          1.5                 0.2              -26.3                            0.32
              Serbia                0.3          2.3          1.3                48.1              -10.6                            0.12
              Slovenia              2.0          1.4          1.3                -7.8               -1.5                            0.63
              Bulgaria              1.0          1.8          0.6                11.4              -19.1                            0.08
              TOTAL                24.4         46.7         69.1                13.9                8.1                            0.35
              Source: FAO & study team




             Middle East
             Saudi Arabia, Oman, Qatar and Bahrain are the largest importers of special flavour fruit
             juices in the region, though on a per capita basis Qatar and Bahrain are some way ahead
             of the other two countries.

Table 2.15   Middle East imports of special flavour fruit juices by country (thousand tons)

                                       1992        1997        2002           1992-97           1997-02         Quantity per capita 2002
                                                                              a.a.g.r. (%)      a.a.g.r. (%)    (kg/capita)
              Saudi Arabia             13.5        28.4         59.3                 16.0              15.9                         2.73
              Oman                        2.9          2.2      20.2                 -5.5              56.3                         7.46
              Qatar                       3.4          6.5      13.4                 13.6              15.8                        23.00
              Bahrain                     8.0          6.5      12.7                 -4.0              14.3                        19.15
              United Arab
              Emirates                    6.7          9.5          6.8               7.3              -6.4                         2.51
              Palestine                   0.0          3.0          5.6                                13.3                         1.63
              Jordan                      0.8          3.2          4.0              30.3               4.9                         0.78
              Syria                       0.3          0.2          2.9              -7.3              74.1                         0.17
              Kuwait                   13.8        19.4             2.6               7.0            -33.2                          1.28
              Libya                       1.0          0.1          2.0             -39.8              90.5                         0.36
              Lebanon                     3.0          0.7          0.7             -24.6              -0.9                         0.19
              Turkey                      0.1          4.1          0.4             102.4            -37.1                          0.01
              Egypt                       1.0          0.4          0.3             -18.0              -7.2
              Cyprus                      0.3          0.2          0.2             -10.6               9.1                         0.31
              TOTAL                    54.8        84.4        131.1                  9.0               9.2                         0.35
              Source: FAO & study team



                  Egyptian Processed Food Sector Review                                                                               331
      3 Jams



    3.1     Sector Overview

Table 3.1   Key figures, 2003

             Indicator                                                          Unit        Value
             Domestic                                                  Tons (1000)              18
             Consumption                                               $ US million            14.6
             Production