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Food and beverage market in Egypt

Egypt's exposure to changes in global food prices will continue into 2011. Although a rising Egyptian pound has so far limited the country's exposure to rising grain and sugar prices, continued population and economic growth will conspire to keep import demand high over the short term. The government and private sector are taking various initiatives to achieve greater domestic food security, but Egypt's lack of suitable agricultural land, poor infrastructure and consistent battles with disease outbreaks in the livestock sector will prevent agricultural production from meeting domestic demand over the medium term. Import demand will be further aided by new free trade agreements with the EU and Mercosur.

Key Trends

* Milk production growth to 2014/15: 14% to 1.8mn tonnes. A number of larger-scale farms are slowly starting to appear and we expect investment in the dairy sector to improve production in the coming years, driven by strong demand.
* Rice consumption growth to 2015: 13% to 4.6mn tonnes. As the population becomes more affluent, rice consumption will increasingly replace wheat, particularly once the global economic outlook improves.
* Poultry consumption growth to 2015: 14% to 634,000 tonnes. Poultry meat is the main source of protein for the majority of the population, with consumption expected to grow in line with population growth and rising disposable incomes.
* 2010 Real GDP Growth: 4.9% (up from 4.7% in 2009; predicted to average 5.2% from 2010 until 2015).
* Food And Beverage Price Inflation: 17% year-on-year in July 2010 (up from 13% y-o-y in July 2009).

Industry Developments

Although Egypt is one of the world's largest wheat importers, the country appears able to withstand the rise in wheat prices. This is partly because it can maintain its subsidy programme designed to soften the blow of price increases. Moreover, the country is forecast to have over 4mn tonnes of wheat ending stocks in 2010/11, which is high by recent historical standards. The elevated supply of wheat has meant that domestic food price inflation has actually decreased in recent months. Finally, the currency has traded flat over the last few months, which has mitigated the rising cost of imports.

In a bid to counter rising prices of meat and poultry, the Egyptian government is trying to increase the supply of poultry in the market. This is being done by encouraging imports, ostensibly by exempting them from insurance premiums normally required for all imports. Although the decision to support importers should help in the short term, it does not address some of the underlying issues of the poultry sector. In particular, given that wheat is a staple good in the country, there is still some popular opposition to using grains for feed as opposed to food consumption.

The beef industry took a hard hit between 2004/05 and 2009/10, with production falling by 36%, due in large part to rising prices causing consumers to switch to poultry. However, we expect production to record a strong recovery on the back of rising demand and government initiatives. As beef becomes increasingly popular among Egyptian consumers and as profit margins begin to look more attractive, local producers will take the opportunity to cater to such demand growth. Consequently, we are currently forecasting an increase in production of 31% to 426,000 tonnes by 2014/15. Despite the growth, the country should remain in a supply deficit over the forecast period.

by S. C.
10 december 2010, World News > Africa