food export strategy may, 2006

IMC Egypt 1195, Corniche El-Nil Building of the Federation of Egyptian Industries 2nd Floor Cairo – Egypt

Tel: (202) 5770090

FOOD EXPORT STRATEGY STUDY Terms of Reference PS137

FINAL REPORT

CONSULTANTS

Mr. Francois Xavier Pinard - Team Leader Mr Franco SCOTTI – Benchmarking expert Eng. Morad S. Ahmed- Local Assessment Consultant

Liabilities of present report contents This document has been achieved thanks to financial support of the EU commission. Contents and Points of view thereafter given are Consultants’ opinion, and should not in any case be considered as any official EU Commission points of view.

Date: May, 2006

STEM-VCR – Food Export Strategy Study – PS137 – Final Report of 161

TABLE OF CONTENTS

INDEX OF FIGURES .............................................................................................................. 9

LIST OF ACRONYMS .......................................................................................................... 10

Executive Summary................................................................................................................. 12

1. Global Context & Perspectives............................................................................................ 20 1.1 Foreword............................................................................................................................. 20 1.2 Demand-side factors influencing development of EFPI ................................................. 20

1.2.1 General trends in food demand ....................................................................................... 20 1.2.2 Prospective demand including Egyptian vegetal crops for processed products ............. 21

1.3 Supply-side factors influencing development of EFPI.................................................... 22 1.3.1 Global sourcing of raw materials ..................................................................................... 22 1.3.2 Shifts in production and expected shifts (area to area) ................................................... 22 1.3.3 Globalization of food industry .......................................................................................... 25

1.4 Global trade Environment of the FPI .............................................................................. 26 1.4.1 EU export / import policy.................................................................................................. 26 1.4.2 Trade agreements ........................................................................................................... 27

1.5 Global regulator environment of the FPI ........................................................................ 28 2 Local Assessment (recent changes and facts, drivers vs. the 2003 figures of the recent study)........................................................................................................................................ 29

2.1 Introduction........................................................................................................................ 29 2.2 Economic context end of 2005........................................................................................... 29 2.3 Egyptian food processing industry overview................................................................... 30

2.3.1 Egyptian food processing industry performance (recent changes) ................................. 30 2.3.2 Production........................................................................................................................ 30 2.3.3 Trade performance (recent changes) .............................................................................. 31 2.3.4 Impediments to the attraction of foreign direct investment to EFPI................................. 43 2.3.5 Multinational and Foreign Investments in EFPI ............................................................... 44

2.4 Demand side factors influencing development of EGFPI .............................................. 45 2.4.1 Access to western markets.............................................................................................. 45 2.4.2 Organisation of distribution .............................................................................................. 45

2.5 Supply-side factors influencing the development of EGFPI .......................................... 46 2.5.1 Availability of land ............................................................................................................ 46 2.5.2 Agricultural production ..................................................................................................... 47 2.5.3 Subsidized and Imported food products .......................................................................... 49 2.5.4 Imports for re-exports ...................................................................................................... 49 2.5.5 Packaging supplies.......................................................................................................... 50 2.5.6 Bar coding Food Products ............................................................................................... 51 2.5.7 Logistics ........................................................................................................................... 51 2.5.8 Technical support “Centre of Excellence”........................................................................ 55 2.5.9 Access to finance............................................................................................................. 56 2.5.10 Agro-Food Industry productivity....................................................................................... 57

2.6 Egyptian trade environment of the FPI ........................................................................... 58 2.6.1 WTO................................................................................................................................. 58 2.6.2 Regional trade agreements ............................................................................................. 58


2.6.3 QIZ (Qualified Industrial Zones for USA)......................................................................... 59 2.6.4 EU-Egypt Association agreement.................................................................................... 64 2.6.5 Customs procedures........................................................................................................ 64 2.6.6 Egyptian organizations involved with Processed Food exports ...................................... 65

2.7 Egyptian legal and regulatory environment .................................................................... 66 2.7.1 The harmonization of Egyptian Standards ...................................................................... 66 2.7.2 Export and Import law...................................................................................................... 66

2.8 Conclusions and comments ............................................................................................... 66 2.8.1 Recent changes............................................................................................................... 66 2.8.2 S.W.O.T ........................................................................................................................... 67 2.8.3 Gaps ................................................................................................................................ 68 2.8.4 Competitiveness drivers for EFPI .................................................................................... 69 2.8.5 Sustained added value processed food export growth ................................................... 69

3 Benchmark Analysis........................................................................................................ 69 3.1 Benchmarking focus, Definition and Objectives ............................................................. 69 3.2 Identified Key Factors or Strategy to Attack the Export Market ................................. 69

3.2.1 The GCC + Middle East................................................................................................... 69 3.2.2 The EU25 Opportunity ..................................................................................................... 69 3.2.3 The USA .......................................................................................................................... 69 3.2.4 Africa and COMESA ........................................................................................................ 69 3.2.5 Russia .............................................................................................................................. 69

3.3 Opportunities and Benchmark by Product Categories .................................................. 69 3.3.1 Olive oil ............................................................................................................................ 69 3.3.2 Table olives...................................................................................................................... 69 3.3.3 Dried Vegetables (Dried Onion, Other Dried Vegetables) – Dried Tomatoes................. 69 3.3.4 Tomato derivatives .......................................................................................................... 69 3.3.5 Frozen Vegetables and Fruit ........................................................................................... 69 3.3.6 Juices and Pulp................................................................................................................ 69 3.3.7 Spices and Herbs ............................................................................................................ 69 3.3.8 Cheese and Curds........................................................................................................... 69 3.3.9 Others .............................................................................................................................. 69 3.3.10 Protected Designation of Origin (PDO) ........................................................................... 69

3.4 Egypt FDI Benchmark ...................................................................................................... 69 3.4.1 FDI Analysis in the Region .............................................................................................. 69 3.4.2 Investors Drivers.............................................................................................................. 69 3.4.3 Comments........................................................................................................................ 69

4 Strategic Positioning Assessment ................................................................................... 69 4.1 An overall Assessment of the main Competitors Positioning......................................... 69

4.1.1 Spain................................................................................................................................ 69 4.1.2 Morocco ........................................................................................................................... 69 4.1.3 Tunisia ............................................................................................................................. 69 4.1.4 Israel ................................................................................................................................ 69 4.1.5 Jordan .............................................................................................................................. 69 4.1.6 Iran................................................................................................................................... 69 4.1.7 Syria................................................................................................................................. 69 4.1.8 Turkey .............................................................................................................................. 69 4.1.9 Italy .................................................................................................................................. 69 4.1.10 Chile................................................................................................................................. 69

4.2 Egypt: Presently Adopted Strategy, Positioning, Consistency Assessment. ................. 69 4.2.1 A new competitive environment....................................................................................... 69 4.2.2 Egypt’s positioning........................................................................................................... 69 4.2.3 Egypt’s: Strengths............................................................................................................ 69


4.2.4 Egypt’s Weaknesses ....................................................................................................... 69 4.2.5 Egypt’s Informal sector .................................................................................................... 69 4.2.6 Egypt’s: Risks .................................................................................................................. 69 4.2.7 Egypt: Opportunities – Roadmap to growth..................................................................... 69 4.2.8 Conclusions – Recommended Positioning ...................................................................... 69

5 Export strategy................................................................................................................. 69 5.1 Egypt: Export Strategy Geographic Focus...................................................................... 69

5.1.1 A Strategy for GCC and Iraq and MENA......................................................................... 69 5.1.2 Russia and Ex Soviet Republics...................................................................................... 69 5.1.3 USA Market...................................................................................................................... 69 5.1.4 EU25 Market .................................................................................................................... 69

5.2 Egypt: Commodities or Branded Promoted Products Categories ................................ 69 5.2.1 Promotion and Brands ..................................................................................................... 69 5.2.2 Commercial Promotion .................................................................................................... 69 5.2.3 Commodity Approach ...................................................................................................... 69

5.3 Egypt: Market Maturity.................................................................................................... 69 5.4 Egypt: Export Timetable................................................................................................... 69 LIST OF REFERENCES ............................................................................................................... 69 SOURCES........................................................................................................................................ 69


INDEX OF TABLES

Table 1. A few world development bank indicators (sorted by increasing GNI per capita) ....30 Table 2. Performance of top Egyptian processed agro food exporters (value in million USd).

........................................................................................................................................31 Table 3. Processed foods export growth since 2002. ............................................................31 Table 4. EFPI EXPORTS 2005 ..............................................................................................32 Table 5. Exports Value $ - Variation Index Base 100 in 2002 ................................................32 Table 6. Prices for various products.......................................................................................33 Table 7. Distribution of EFPI exports by Main Destination, 2005 ...........................................33 Table 8. EXPORTS TO THE GCC – 2002 - 2005 ..................................................................34 Table 9. Exports $ to COMESA and MENA ...........................................................................34 Table 10. Exports $ to EU. .....................................................................................................35 Source: CAPMAS Jan. 2006 ..................................................................................................35 Table 11. EXPORT TO EU (JAN./NOV. 05)...........................................................................35 Table 12. Exports $ to U.S. ....................................................................................................35 Table 13. Exports $ to Russia, Asia, Oceania........................................................................36 Table 14. Exports $ to Africa ..................................................................................................36 Table 15. Main Egyptian exporters 2005 (FEC). ....................................................................37 Table 16. Food Sector Trade Fairs (Expolink). ......................................................................38 Table 17. Other food Sector Trade Fairs (Expolink)...............................................................38 Table 18. Export values in 2005 for different products. ..........................................................43 Table 19.Impediments to attracting FDI .................................................................................44 Table 20. Time needed to start a new project in various Countries .......................................44 Table 21. Major Agricultural commodities average productivity/yields. ..................................48 Table 22. Exported certified organic products (tones) during 2004/2005...............................48 Table 23 Land area under organic agriculture and the number of certified businesses working

in Egypt in 2004/2005 (for acronyms see page 8 and 9). ..............................................49 Table 24. Use of packaging materials in food industry in Egypt by volume. ..........................50 Table 25. Number of Egyptian Foods and Beverages Firms Registered with EAN (BAR

CODING).........................................................................................................................51 Table 26. Land Transport through flat Trucks for reefer transport. ........................................52 Table 27. Transit time from Egyptian ports to European ports (Alexandria, Dekhaila, Port

Said, Damietta). ..............................................................................................................52 Table 28a. Italy.......................................................................................................................52


Table 28b. UK Transport, Direct shipment. ............................................................................53 Table 28c. Holland, Belgium and Germany............................................................................53 Table 28d. Total Direct shipment to Europe...........................................................................53 Table 29. Sea/Land (Intermodal by truck) freight transit time through Italian and Slovenian

ports to major cities in Europe.........................................................................................53 Table 30. Sea/Land freight costs through Italian and Slovenian ports to Europe. .................54 Table 31. Land transport through refrigerated trucks*to Cairo airport. ...................................54 Table 32. Land transport from Cairo airport. ..........................................................................54 Table 33. Reefer Container Leasing (DAN REEFER). ...........................................................55 Table 34. Agro-food industry productivity in Mediterranean Countries (2002). Source

Comtrade. .......................................................................................................................58 Table 35. QIZ program "Egypt / USA / Israel". Detailed analysis of the "food and beverages"

product group sorted by decreasing importance of total import value (year 2004). ........61 Table 36. Strength and weakness points EFPI EXPORT SWOT – 2006...............................67 Table 37. Opportunities and threats EFPI EXPORT SWOT – 2006. .....................................68 Table 38. Euregap report PBC - 2005....................................................................................68 Table 39. Competitiveness drivers for EFPI. ..........................................................................69 Table 40. GCC and Other Arab Countries Leading Indicators, 2005. ....................................69 Table 41. GCC: Arable Land Available. .................................................................................69 Table 42. GCC: Fruit and Vegetables Imports by Origin Country, 2004. ...............................69 Table 43. GCC: Estimated Imports Needs of Fruit and Vegetables (tons).............................69 Table 44. Confectionery: EU25 Exports to GCC Countries – Value and Volumes. ...............69 Table 45. Iraq: Current Imports and Future Imports Trends Estimate....................................69 Table 46. Estimate of Iraq’s Imports by 2020 and 2040. ........................................................69 Table 47. Olive Oil: EU25 Imports from Country outside the EU25 .......................................69 Table 48. Tomato Paste 2: EU25 Imports from Countries outside the EU25 .........................69 Table 49. Tomato Paste 3: EU25 Imports from Countries outside the EU25 .........................69 Table 50. Fresh Fruit and Vegetables: EU25 Imports from Countries outside and inside the

EU25 ...............................................................................................................................69 Table 51. USA Import Value Olive Oil $ million......................................................................69 Table 52. USA: Imports of Tomatoes Derivatives – Value – and Volumes. ...........................69 Table 53. USA: Imports of Dried Onions – Value...................................................................69 Table 54. Olive oil production by Country, 2005 (000 tons) ...................................................69 Table 55. Olive Oil: EU25 Imports from outside the EU25. ....................................................69 Table 56. USA: Table Olives Imports – $ million -..................................................................69


Table 57. EU25: Imports of Table Olives. ..............................................................................69 Table 58. Dried Onions: EU25 Imports – Value Share - ........................................................69 Table 59. Dried Onions: EU25 Imports Prices/Kg. .................................................................69 Table 60. USA: Import Dried Onion – Value - ........................................................................69 Table 61. USA: Import Dried Vegetables – Value -................................................................69 Table 62. Other Dried Vegetables (rather than Dried Onions): EU25 Imports – Value -........69 Table 63. Industrial Tomatoes: EU25 Production - 000 tons - ...............................................69 Table 64. Italy: Export of Tomato Derivatives - 000 tons - .....................................................69 Table 65. Peeled and Dice Tomatoes: EU25 Imports – Value and Volumes –. .....................69 Table 66. Tomato Paste 2: EU25 Imports. .............................................................................69 Table 67. Tomato Paste 2: EU25 Imports – Value Share and Prices/kg -. ............................69 Table 68. Tomato Paste 3 : EU25 Imports – Value and Volumes -........................................69 Table 69. Tomato Paste 3 : EU25 Imports – Value Share and Prices/kg -. ...........................69 Table 70. Frozen Vegetables: Egypt Export to the GCC – Value -. .......................................69 Table 71. Frozen Strawberries: EU25 Imports – Value and Volumes -..................................69 Table 72. Frozen Strawberries: EU25 Imports Price/kg. ........................................................69 Table 73. Frozen Artichokes: EU25 Imports – Value -. ..........................................................69 Table 74. Canned Artichokes: EU25 Imports – Value -..........................................................69 Table 75. Canned Artichokes: USA Imports – Value -. ..........................................................69 Table 76. Juices: EU25 Imports – Value, Volumes and Shares - ..........................................69 Table 77. Juices: EU25 Retail Market – Volumes by Flavours - , 2005. ................................69 Table 78. Tropical Juices: Country Export Share in Volumes in EU25. .................................69 Table 79. Spices: USA Import – Value -.................................................................................69 Table 80. Spices: Egypt Value Share in EU25.......................................................................69 Table 81. Spices: Leading Trade Companies in EU25 and Global. .......................................69 Table 82. Cheese: GCC Imports Share in Value and Total Import Cheese Market – Value

and Volumes ...................................................................................................................69 Table 83. Cheese: EU25 Imports – Value, Volumes and Shares –. ......................................69 Table 84. Others interesting categories for Egypt. .................................................................69 Table 85. Dried Tomatoes: EU25 Imports – Value and Volumes -. .......................................69 Table 86. Dried Tomatoes: EU25 Import Shares – Value – and Prices/Kg............................69 Table 87. Raisin: EU25 Imports – Value and Volumes -. .......................................................69 Table 88. Syrup Fruit Peaches: EU25 Import – Value and Volumes -. ..................................69 Table 89. Syrup Fruit Apricots: EU25 Import – Value and Volumes -. ...................................69 Table 90. Pickles in Vinegar: EU25 Imports – Value and Volumes -. ....................................69


Table 91. Frozen Raspberries: EU25 Imports – Value and Volumes -. .................................69 Table 92. Dates: EU25 Imports – Value, Volumes and Shares -. ..........................................69 Table 93. Dried Figs: EU25 Imports – Value, Volumes and Shares -. ...................................69 Table 94. Dried Apricots: EU25 Imports – Value, Volumes and Shares -. .............................69 Table 95. Jams and Jellies: EU25 Imports – Value and Volumes -. ......................................69 Table 96. Jams: USA Imports – Value -. ................................................................................69 Table 97. Molasses: EU25 Imports – Value and Volumes -. ..................................................69 Table 98. Molasses: EU25 Import – shares and Price/Kg -. .................................................69 Table 99. Criteria leading FDI among International Investors. ...............................................69 Table 100. Criteria leading FDI among International Investors. .............................................69 Table 101. Spain: Fresh Fruit and Vegetables Export to EU25, 2004. ..................................69 Table 102. Spain: Exports US $ 000. .....................................................................................69 Table 103. Morocco: Fresh Fruit and Vegetables – Olives – Olive oil export position to EU25.

........................................................................................................................................69 Table 104. Morocco: Exports US $ 000. ................................................................................69 Table 105. Tunisia: Exports US $ 000....................................................................................69 Table 106. Israel: Exports US $ 000. .....................................................................................69 Table 107. Jordan: Exports US $ 000. ...................................................................................69 Table 108. Iran: Exports US $ 000. ........................................................................................69 Table 109. Syria: Exports US $ 000. ......................................................................................69 Table 110. Turkey: Exports Euro million to EU25 of Fresh Fruit and Vegetables. .................69 Table 111. Turkey: Exports US $ 000. ...................................................................................69 Table 112. Italy: Exports US $ 000.........................................................................................69 Table 113. Chile: Exports US $ 000. ......................................................................................69 Table 114. Middle East Indicators. .........................................................................................69 Table 115. Egypt: buyers – importers – distributors competitive assessment of Egypt’s as a

supplier............................................................................................................................69 Table 116. Leading Exporters: Blockbusters Products. .........................................................69 Table 117. Egypt’s exports for product categories. ................................................................69 Table 118. Tariffs Reduction: Number of Products negotiated with EU25. ............................69 Table 119. Identified opportunities for Egypt Immediate potential Export ..............................69 Table 120. EFPI Risk Evaluation Matrix (immediate export potential) ...................................69 Table 121. New strategies for Egypt. .....................................................................................69 Table 122. New strategies for Egypt. .....................................................................................69


INDEX OF FIGURES

Figure 1. Changes in U.S. per capita consumption, 1970-98.................................................21 Figure 2. Trends in worldwide dairy products.........................................................................23 Figure 3. Egypt Food export value trend 2003 – 2005 (million $). .........................................46 Figure 4. Reducing transaction costs in Egypt. ......................................................................65 Figure 5. Egypt: Export Geographical Diversification.............................................................69 Figure 6. Olive Oil Prices: Euro/kg. ........................................................................................69 Figure 7. Olive Oil: Italy Imports by Country...........................................................................69 Figure 8. Tropical Juices: EU25 CIF Import Prices. ...............................................................69 Figure 9. Cheese: Cost of Product Sold Benchmark in MENA and Middle East Countries ...69


LIST OF ACRONYMS AEC Agricultural Export 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), COE Centre of Excellence CAP Common Agricultural Policy (European Union) CAPMAS Central Authority for Mobilisation and Statistics CFI Chamber of Food Industries COMESA Common Market for Eastern and Southern Africa DSS Decision Support System ECR Efficient Consumer Response EDI Electronic Data Interchange EFPI Egyptian Food Processing Industry EPDA Egyptian Packaging Development Association ECOA Egyptian Centre for Organic Agriculture 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 FTRI Food Technology Research Institute GOE Government of Egypt GAFI General Authority for Investment and Free Zones GAFTA Greater Arab Free Trade Area GCC Gulf Co-operation 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 HIPH High Institute of Public Health HMR Home Meal Replacers 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 MENA Middle East and North Africa MTI Ministry of Trade and Industry NTB Non Tariff Barriers MOH Ministry of Health OIE Office International des Epizooties PAG Policy Advisory Group PET Poly Ethylene Tetraphthalate QMS Quality Management Systems SPS Sanitary and Phytosanitary TBD To Be Determined TBT-TTB Technical Barriers to Trade TQM Total Quality Management UHT Ultra-High Temperature UNIDO United Nations Industrial Development Org. USAID United States Agency for International Development WTO World Trade Organisation


Executive Summary The objective of this report is to provide market-oriented recommendations concerning which

markets and products categories should be given priority in Egypt to develop a strong, competitive and job-creating export sector.

Today’s Egypt has achieved significant differences compared to the past tradition. Reforms are more aggressive than ever, government and business are more transparent, and the country – finally open to international competition – is dynamically integrated into the global economy.

The Egyptian Food Processing Industry has tripled its export sales between 2002 ($160million) and 2005 ($500 million); it is undoubtedly a remarkable result, even considering the Egyptian Pound devaluation that has taken place in 2003.

In a new drive for global integration Egypt has achieved significant results in lowering protection and raising quality standard, also important trade agreements have been signed securing better access to the US market, EU25, GCC, GAFTA and COMESA for the Egyptian products.

But, of course, market access alone does not deliver growth. The most favourable trade agreement, and the strongest export commitment, will fail in the face of uncompetitive products or a weak country “export positioning”.

Competition has stiffened significantly over the last decade:

• The EU25 market, due to little demographic increase, registers little or no growth at all in most of its imports.

• Mexico and Chile – but also the Asian countries – are more aggressive than ever in the affluent American market.

• New competitors, like Turkey, China, and Brazil have emerged; global customers all over the world are more demanding and selective than ever, few big Food companies and Retail chains increasingly control the market.

Egypt is at a turning point: what has guaranteed its significant export increase so far may not be able to deliver significant growth in the future; the underlying forces behind the current positive export trend – devaluation and opening of the economy – have probably already entered the phase of diminishing returns, but there still seems to be many opportunities for growth.

The entire study has been built on a competitive driven approach. The Global context and perspectives and the Local assessment (chapters 2 and 3) offer an understanding of how Egypt has jumped into the global economy for processed food.

The selected sectors have been Mediterranean products (olive oil, table olives, tomato derivatives), dairy products (cheese and curds), dried vegetables, frozen vegetables and fruit, juices and pulps, spices and herbs, canned vegetables and dried fruits. These sectors have fairly different relative weights and maturity in this strategic development.

It is suggested that the actual general move of the country towards efficient liberal economy is strong nonetheless export growth may be not sustainable in the long term. In order to sustain export some weaknesses should be urgently addressed and big challenges and bold decisions are required to take full advantages of the opportunities outlined in this study:

• Egypt needs to reconsider its geographical export focus: our market analysis clearly shows that the best opportunity is probably in the GCC Countries and Russia + Ex Soviet Republics rather than simply, as overwhelmingly assumed, in EU25 and USA. In particular, the opportunities in the USA market are far from clear.

• Egypt urgently needs an industry – we call it a “blockbuster” – with high volumes export potential, currently has none. Experience shows that no country has ever achieved strong export results without such a driver – pistachios for Iran, wine for Italy, dates for Tunisia. This study shows how olive oil could be a strong, well-fit candidate for Egypt.


• Egypt should target labour intensive product-crop such as frozen strawberries, tomato derivatives, artichokes (frozen and canned), dried vegetables, dried fruit which are more and more pushed out of Europe because of high labour costs: it is a unique opportunity for a low labour cost country as Egypt, now with a competitive (but stable) currency quotation/exchange rate vs. Euro and the US dollar.

• Export of brands, generated by brand-oriented multinationals is also gaining importance. To attract these multinationals and to make them prosper – making Egypt the MENA regional hub in some industry – is imperative. Special incentives to attract new FDI are the key, along with the consolidation of a strong business- friendly environment.

• Finally, strong position with dominant market shares in some markets (Tunisia in dates, Turkey in dry fruits for example) should be attacked; there are real chances of obtaining market shares gains.

With such appropriate focus and investment, Egypt could realistically gain - in our opinion - a leading position in fast growing countries like GCC and Russia-Ex Soviet Republics, consolidate its share in mature markets such as EU, and USA, further expand itself in MENA and set profitable positions in Russia, Oceania, Asia.

It would add $2000 millions to its current export in 5 years, and successfully targeting mature markets through strategic alliances and olive oil adding another $2000 within 7-8 years.

Key actions in this globalised economy are the compliance to international standards, the full reliability and reactivity as a supplier country, a competitive logistic and banking system, and above all the presence on target rich markets thanks to strategic alliances (EU – Italy is a candidate), to a dynamic Export Promotion Agency (with specialized human resources on the field and registration of few Egyptian indigenous specialties), and a fairly attractive FDI policy to stimulate relocation of industries in Egypt hub to make them profit from highly educated management and competitive rural & industrial labour cost. Intensive redesign of Egypt’s reserve of new lands is also a strategic issue.

Chapter 2 is a focused understanding of the Global context and perspectives of the processed food industry. The main recent changes are described for the demand and supply sides and for the global trade and regulatory environment.

Demand, influenced by social and demographic changes, has been changing for the last twenty years in the direction of a “snack society”. Food consumption changes with a trend for home meal replacement and its parallel home convenience food. Consumer’s attention to organic and nutraceutical food develops. Both directions are favouring the highly skilled processed food companies, the marketing and research / innovation oriented companies. Consequences of such demand change for Egyptian crops are limited in volume but important in terms of reliability. Long-term investments are the key to gain the confidence of markets for specialty crops.

The supply side is changing quickly favouring of those countries that have a reserve of new arable lands (Brazil and Argentina). In this respect, Egypt possesses the greatest availability of lands in its relevant area together with long-term low labour cost. Also the maritime transportation sector is looking for economy of scale. Egypt is participating actively to this economy as it improves its ports and logistics.

Capturing exports flow formerly subsidized (i.e. shifts in production) means long-term competitiveness and ability to gain in domestic market flows at the expense of domestic agricultural production. Egypt, like its main benchmarked competitors (Morocco, Tunisia, Turkey) performs well in horticulture and water management improvement. Agri crops shifts of production are more a matter for South America and South Russia / Ukraine. The potential shift for dairy products (cheese) worked out from local production is important. Other animal foods are really subject to a policy of risk management fairly difficult to challenge, as once more proven with avian influenza and bovine FMD. Egypt involvement in such risk management is however important for its own importing companies who deliver to domestic and export markets. Egypt fruit juices industry is facing the adverse effects of this consolidation, in spite of a distinguished taste. Egypt is not yet a partner supplier of International branded high quality juices, nor a contract supplier or co-packer in the main segment.

Participation of Egypt in the global value chain (global distribution) has started and offers new opportunities for EFPI, e.g. CARREFOUR involvement in Egypt is showing results. Relocation of


industries goes together with increased incomes in the domestic market and its size. Egypt's investment interest profile for the FPI is a key to the relocation of migrating food industries and geographical expansion.

Global trade environment is highly influenced by the EU common agricultural policy. Although the DOHA cycle has main difficulties to achieve its cycle with results, 2013 is a clear date for being prepared to flow into the EU. Main Trade agreements are now running and bilateral agreements may better balance and help concentrating on developing specific solutions for improved logistic (cost decrease).

Global regulatory environment has emphasized for the last few years the importance of total quality and information system proving the reliability of the business. Processing companies do need more service in the field of information system and technology to participate to the global trade. Chapter 3 reflects and analyses the performance of the EFPI and understands which progress and positive changes have been achieved in the recent period, capitalizing on the former Food sector study and focusing on recent changes and developments.

Chapter 3 covers: Economic context 05, EFPI Overview, Compliance to technical export requirements (quality and food safety), - Trade performance, Export by sub-sector, Exports by region/markets, Main export companies, Marketing strategies, Government bodies and NGO's involved in EFPI, Export incentive programs, Impediments to FDI in food sector, Demand and supply side factors affecting EFPI, including access to western markets, distribution, availability of land, agricultural output, packaging, logistics, technical support, access to finance, productivity, Trade agreements, Customs, Conclusions, Performance, SWOT, Competitiveness drivers and sustainability.

Egypt is currently achieving a fair post devaluation performance and its currency has started to regain strength vs the USD. However, Egypt deserves a higher annual GDP growth when compared to its main Mediterranean competitors, inviting EFPI to increase efforts.

To achieve its main changes EFPI has embarked: stronger and bigger companies, a few more multinational involved in domestic market and major export business, diversification and investments in underdeveloped crop processing (i.e. tomato and olives) associated with tackling the crop technology improvement and quality harvesting and first processing, sectoral concentration and higher volume of investment. Compliance with technical export quality requirements is underway but it suffers from an ancient poor image.

Recent trade performance ($460 million in 2005 from $221 in 2003) confirms recovery and expansion in the close region: GCC and MENA with some achievements in Comesa - these are the three major buyers of the EFPI. Eight countries buy 60% of products, Libya and Saudi Arabia respectively 14.7% and 14.5%. However dried onions commodity is bought by the EU, which also represents a strong buyer of frozen artichokes. Dried onions are also increasing sales to Russia and Japan. The USA remains an ethnic market. The IRAQ business strong recovery offers good opportunities.

Marketing strategies and methods rely a lot on participation to international exhibitions; some use of modern communication towards the consumer is achieved, but the number and quality of marketing partners do not change much. Expolink plays the major role in these directions although some export champions play alone (processed food and fresh vegetables).

The role of business associations has increased: the main one is FEC who is also in charge of distributing the 8% of export support. IMC and EXPOLINK are heavy supporters of the changes.

The organization of Government for legal and regulatory environment is schematically undertaken. Unified Food Law and Unified Food Authority should come to reality and offer stronger reliability to the business both for import and export flows.

The GOE has introduced in 2003 an 8% tax rebate on FOB cost as export support. Managed by the FEC, it concerned 2.8 billion LE exports in 2005; first beneficiary is the dairy sector (32% of allocation), then vegetables preparations 17.2%, confectionery 15.8% and frozen vegetables 14.1% (total of four sub-sectors 78.9%). This allocation also helps a few low margin high investment commodity sector to better set their position (dried onions). The number of beneficiaries has doubled in 3 years time. Capacity building funds and export guarantee systems are developing.


The challenges faced by the food sector are several, including raw materials supply, packaging, infrastructure, local regulatory environment, product quality, retail sector, food safety requirements, TBT, and structural impediments such as an underdeveloped retail sector in Egypt and weak cold chain logistics. These are main obstacles and potential costs for investors.

Egypt needs to show that it is a an investor-friendly market, by simplifying the procedures of setting up companies, adopt international accounting measures, transparency, correcting weakness in its juridical system - especially affecting bad cheques cases - curbing unpredictable municipal level decisions affecting investors and activating trade mark protection and intellectual property laws. This would favour the entrepreneurial behaviour dedicated to find solutions for increased growth and development.

The compliance with export requirements in product quality, food safety, packaging and labelling requirements is a necessity for market entrance to many markets in the world, especially USA, EU, Australia and soon the Gulf.

The development of the Globalised Distribution industry is also on the move in Egypt: in the long run this offer will change the customer selections of products; opportunities will be offered to contract annual higher volumes at lower prices to the EFPI and also to answer to the innovative demand of these distribution chains.

The supply side factors within Egypt reflect the trend: the land is available and its price is increasing to high world values. Big companies have acquired the know-how to start and manage competitively big plots (> 500 feddans). They are excellent vehicles of progress and new technologies. They ask for specific allocations related to their export markets.

Water resource and its management have a good potential in Egypt and many projects have resulted in improved efficiency of the resource.

The import supply chain for further processing into exportable products has been increasing in parallel with the tax reduction, especially for all commodities (edible oil, frozen beef, beans,.etc.): Egypt plays an important role for its closest MENA customers (Libya, Sudan).

Although improving, the packaging supply still lacks a few capacities, especially in the glass sector. Related to packaging improvement, it is observed that bar coding practices have strongly developed and concern now <600 processing units. Information technology and efficient management of costs and logistic will be in the next decade a strong help to the EFPI.

The shipping situation from Egyptian seaports to EU (and USA) has improved over the past 3 years mainly due to “Green Corridor project” with Italy. However, shipping to GCC ports and Comesa may remain difficult where the shipping rates for Reefer containers can be as high as 7500 USD to East Africa. Competitiveness in close region customer is a must to gain against EU exports that have huge efficient facilities and comparatively reduced costs.

Access to finance did not show any major change for the last two years. Lending rates are high (>12%) compared to the low profit margins of the food sector. Quite a few stakes in the EFPI have been taken by Arab finance, helping to solve a liquidity problem. Many donors also are active, of which IMC with the HORUS program.

Egypt is due to productivity progress at a macro economic scale; at micro scale, companies often have found their way by integrating their raw supply chain. Integrating the reliability process is yet a long process that country infrastructure is not proven to contribute to from farms to ports with reduction of all losses.

Egypt trade environment of the FPI has considerably changed towards free circulation, especially in the close region GCC MENA. Main WTO and EU negotiations are still pending. The USA offers the QIZ operations that do not much concern typical Egyptian food.

Egypt Food Processing Industry has entered free competition, and is competing. It has more strengths than weaknesses. There is also an obvious need to improve global competitiveness; cost of doing nothing would be expensive. The team has identified four major threats:

- no acceleration in competitiveness improvement - slow improvement of port fees and clearance.


- no investments in competitive infrastructure to the GCC (to get additional market share) - no strengthening for compliance with global supply chain efficiency (traceability, information

system)

Sustainability of the export growth is questioned since acceleration is needed.

Chapter 4 first session is a detailed analysis of the export opportunities for Egypt in terms of geographic areas and product categories.

Geographically, the greatest potential seems to be in the GCC countries where the population is set to more than double in less than forty years and where there is virtually no more land available to cultivate.

Egypt could realistically position itself as a strategic supplier of fresh vegetables and fruit to the GCC (conservately a market of almost $2 billion in 2005) and also to reinforce its strong position in the area as a leading supplier of cheese and curds (especially processed cheese) and frozen vegetables (in particular there is great demand and fast growth for frozen chips in the region).

The young and gradually more affluent GCC young population looks also extremely “brand oriented” and very opened to product innovation and differentiation. It is undoubtedly a great opportunity should Egypt succeed in consolidating its position as a regional hub of marketing oriented multinationals as it has already happened for cheese, for fast food catering and partially for confectionery.

Thanks to its huge domestic market and its political stability, Egypt seems to be able to attract more and more FDI (Foreign Direct Investment) especially from Europe where lack of growth obliges Food Company to look for faster growing markets in Asia and in the Middle East.

To attract marketing oriented multinationals is vital, since these multinational generate exports with their powerful global brands usually manufactured in few regional hubs.

In spite of the actual unstable situation the import potential of a country like Iraq also shouldn’t be neglected, Iraq currently imports in basic food well above $2 billion/year, an amount likely to reach $8 billion in the medium-term enhanced by booming population and oil revenues.

EU25 occupies the second position as a potential area for the Egyptian export. There are many clear opportunities:

• The opening of protected Industries such as Tomato derivatives (EU25 farmers are currently subsidized with an heavy €35/tons) and Olive oil – currently protected by a tariff of €1/liter for import from countries outside the EU25 – paves the way for a possible Egyptian entry in two important markets characterized by high volumes. In particular Olive oil seems highly attractive to Egypt (although capital intensive) since the demand is growing fast pushed by higher consumption in USA, China and India. Also Spain, the world leader in olive oil, drastically reduced its cultivated area and Italy (the n0 2 in the market) heavily depends on imports from Spain and other Mediterranean countries (Turkey, Syria, Tunisia) because of its insufficient production and low competitiveness.

• Concerning tomato derivatives, they are undoubtedly a very important market in volumes (peeled tomatoes, tomato paste) but are also extremely competitive with countries like Spain and China very aggressive in the market and with high level of productivity and cost competitiveness.

• Europe is also becoming less and less competitive and increasingly dependent on imports in “labour intensive crops” such as Artichokes, Asparagus, Olives, Tomatoes, dried tomatoes, strawberries, dried figs and apricots, raisin, raspberries and syrup fruit. Morocco and Turkey have displaced traditional producers as Spain, Greece, Italy and Portugal, but also Egypt could play an important role with its low cost labour, provided that logistic costs are lowered and product specification matched.

• Egypt should carefully look at Italy, a country with a strong export in many typical Mediterranean products but struggling to maintain its cost competitiveness because of the exchange rate


(following the Euro adoption) and high labour cost coupled with low modernization and mechanization. Egypt could become an important privileged Italian partner guaranteeing a highly needed cost competitive supply.

On the contrary, the USA opportunity looks far from clear and its potential blurry. The USA are in fact a competitive producer of agricultural commodities and also have traditional – and commercial – links with Mexico and Chile, two competitive countries in costs and quality and operating under the NAFTA trade agreement with low or no tariffs. Most of the successful Mediterranean exports to USA have strong marketing support and required high investment to consolidate a market position as it happened for the Italian tomatoes or olive oil, or the Spanish olives. Few Mediterranean countries have achieved significant results in the USA even in presence of favourable trade agreement (as Morocco for instance). The best short-term opportunity for Egypt in USA seems to be in dried vegetables (a market of 270,000 tons) where the Californian Company is getting uncompetitive because of growing labour costs and high-energy costs. Also canned artichokes and spices and herbs (to a lesser extent) seem a promising market for the Egyptian export, provided that a more aggressive commercial approach is adopted.

Finally Egypt should also intensify its links – and efforts – with Russia and some of the ex Soviet Republics where demand for the Mediterranean products and fresh fruit and vegetables (but also jams, and dried fruits) is growing and competition limited mainly to Turkey and Israel. The second session of Chapter 4 covers the competitiveness of Egypt and other countries in terms of FDI attraction in the processed food industry.

Egypt looks relatively well positioned in the Middle East and MENA region, especially with European investors. The greatest assets of Egypt are undoubtedly its domestic market size (unmatched by GCC, Tunisia, Israel, Jordan) and its potential growth. European Food Company increasingly prize growth opportunities having to cope with sluggish demand in Europe. In order to further boost its attractiveness, Egypt should anyway strengthen its infrastructure (energy, ports, transportation, telecommunications, water are currently the main concerns to investors) and consolidate its macroeconomic and political environment guaranteeing a friendly and stable business environment. To European investors (although American seems less positive) Egypt looks definitively a strong candidate to FDI probably with a better assessment and potential of most of its direct competitors:

As a matter of fact, Turkey is perceived as prone to high inflation, bureaucracy ridden, with inconsistent taxation and a saturated market with low profitability and investment “pay back.”

UAE and Saudi Arabia, in spite of generous incentives and favourable corporate tax, are increasingly perceived as venues with “difficult social environment and labour work regulation” more suitable as hubs for services than for manufacture. Chapter 5 is about positioning: it analyses strengths and weaknesses and the strategy of all the major Egypt’s actual and potential relevant competitors.

The underlying assumption is that any country needs a well focused unique positioning to succeed in the global highly competitive export market. It implies that Egypt should as well carefully analyse which positioning have not been pre-empted by competitors and where and with whom there is a reasonable chance of success.

Spain is probably the most fearsome competitor: is the leading supplier of fresh fruit and vegetable to the EU25, the world leader and exporter of olive oil and table olives, a significant player in wines, sugar confectionery and tomato derivatives. Spain is also a modern “mechanized” agricultural producer, probably the most competitive in Europe and one of the top five in the world, but nevertheless is not immune to raising labour costs, and therefore partially vulnerable in labour intensive crops where mechanization is not currently adopted or possible.

Morocco looks exclusively as an important – but not leading – supplier of fresh fruit and vegetables to the EU25 (and Russia) but its position as a processed food exporter is weak in all but canned fish. Morocco is also suffering from raising labour costs (minimum wage) and currency appreciation, both factors making it vulnerable to Egyptian competition. Morocco greatest advantage lays on logistic (its costs to reach EU25 are at least 25% lower than Egypt). Any Egyptian strategy targeting an attack to Moroccan exports should therefore contemplate improvements in logistics and transportation costs.


Tunisia is very dependent on dates (almost a share of 50% in EU25) and olive oil, but at the same time a very effective country at the moment to negotiate quotas and “preferential treatment” with the European Commission. Egypt, in our view, could successfully attack the main Tunisian exports (dates and olive oil) and adopt, as the Tunisian do, a more demanding approach with the EU Commission in terms of quotas.

Israel and Jordan, in spite of their proximity to Egypt should not be considered as direct competitors: Israel specializes on niche added value crops (due to the scarcity of lands and water), Jordan, in spite of focus (cucumber and tomatoes) and productivity, has anyway limited available quality land.

Iran and Syria have probably more weaknesses than strengths and both look increasingly isolated and ridden with bureaucracy hampering their export efforts. Iran relies heavily on pistachios (almost $700 million export) but is also strong in raisin and tomato paste. Syria competes with Egypt in herbs and spices (with a strong position in USA) and shows interesting export shares in olive oil (but very erratic in quantity and quality).

Turkey is by and far a success story, probably the strongest potential competitor of Egypt along with Spain. Turkey has a differentiated and competitive export ranging from dried fruits, olive oil, fresh fruit and vegetable but is also strong in processed food categories such as bakery, snacks, juices, jams, processed fruit and vegetables (pickles), sugar confectionery. Turkey has successfully built part of its relevant export in Russia, ex Soviet Union, Iraq and Central Asia where competition is lower than in EU25. Turkey is a competitor to be respected due to its- state- of-art technology and know-how in processed food and packaging and because of the strengths of some “national” food conglomerate very aggressive in investments and modernization of the production facilities.

Italy probably represents more of an opportunity than a threat for Egypt: the country is still a great exporter and consumer of olives, cheese, tomatoes derivatives, dried fruit, artichokes, strawberries but is getting uncompetitive in costs. Egypt, traditionally a country with strong commercial links with Italy, could become a source of competitive raw materials for the Italian “branded” export Mediterranean products (olive oil, tomato derivative, mozzarella cheese, pickles, just to mention a few). It looks like a strategic possible movement for Egypt, also taking into account Morocco strong links with Spain and France and the alliance of Turkey with Germany.

Chile is also covered in the study as an example of successful export agency promotion: PROCHILE. First of all PROCHILE is an agency deeply customer oriented with strong presence in all the export markets with professional and dedicated staff, second PROCHILE probably attracts some of the best managers in the country for its recognized prestige. The final session of Chapter 5 is dedicated to Egypt’s SWOT analysis while Chapter 6 outlines the recommended strategy for Egypt


Country DRIVERS TO GROWTH

GROWING COUNTRIES (GCC-Russia- Ex Soviet Republics)

G.C.C 6 GCC Demographic growth, from 36 million in 2005 to 75 million (conservatively) in 2005.

Russia and Ex Soviet Republics Per capita income increase and increase in fresh and fruit vegetables consumption.

GCC Scarcity of land available for crops. Almost good quality land is already cultivated. Almost $2 billion of Fresh Vegetables $ Fruit are currently imported

GCC Brand oriented young consumers, sensitive to marketing.

Key sectors ■ Fresh Fruit & Vegetables ■ Processed Cheese ■ Confectionery ■ Frozen Vegetables ■ Dried Fruits ■ Herbs & Spices ■ Olives

Export Potential $400 million

Russia Ex Soviet Republics

■ Fresh Fruit & Vegetables ■ Dried Vegetables ■ Vegetables ■ Herbs & Spices ■ Olives ■ Jams


PROXIMITY MARKETS (Iraq, Libya, Sudan, Ethiopia)

Iraq, Libya, Sudan, Ethiopia

Lack of processed food industry, lack of competitiveness (Iraq $3 Billion in 2005).

Competitive advantage in Logistics

Existing Market Linkages

Key sectors ■ Processed Cheese ■ Confectionery ■ Frozen Potatoes ■ Dried Fruits ■ Jams ■ Pulp & Juices


MATURE MARKETS (EU25-USA)

EU25 Opening of protected Industries

Tomatoes: current subsidy to EU farmer’s €35/ton.

Olive oil: tariff of €1/liter for imports from outside EU25 countries.

EU25 Labor intensive crops relocation

Artichokes (frozen and canned), Asparagus, Olives, Peeled tomatoes, Tomato paste, Frozen Strawberries, Raisin, Dried Apricots, Dried Figs, Syrup fruit, Raspberries.

EU25 Fresh Vegetables and Fruit EU25 imports €9.2 billion/year of fresh vegetables.

EU25 imports €17.1 billion/year of fresh fruit.

Key sectors ■ Fresh Fruit & Vegetables ■ Processed Cheese & Dairy ■ Mozzarella ■ Frozen Strawberries and Artichokes ■ Dried Fruits ■ Herbs & Spices ■ Olives ■ Olive Oil ■ Tomato Derivatives ■ Canned Artichokes ■ Dried Tomatoes ■ Dates ■ Dried Vegetables


USA Relocation, out of California of the Dried vegetable industry estimated in 270,000 tons.

USA Table olives an import of $317 million/year.

Canned Artichokes – 50,000 tons and $105 million of imports.

Jams an import of $90 million.

Key sectors ■ Mozzarella ■ Frozen Artichokes ■ Dried Fruits ■ Herbs & Spices ■ Olives ■ Canned Artichokes ■ Dried Tomatoes ■ Dried Vegetables ■ Jams



1. Global Context & Perspectives

1.1 Foreword The WTO – (World Trade Organization) DOHA cycle is due to an end soon and late 2005, within

this framework, EU went on with ambitious proposals, with a deadline in 2013. The liberalization of trade has actually already been anticipated by processed food multinationals worldwide and further consolidation of sectors is expected resulting in geographical relocation and expansion. These elite companies will obviously look for a general improvement of all drivers of competitiveness within the global supply chain.

This chapter deals with the main changes in the processed food world operations and trade in the context of liberalization.

At each stage, consequences for Egypt Processed Food Industry (EFPI) are explained by the consultants.

The section concerns on demand side, supply side, global trade environment, and global regulator environment.

1.2 Demand-side factors influencing development of EFPI

1.2.1 General trends in food demand

Social and demographic changes influence demand and consumption pattern. Demography, income increase, ratio of working women, acceleration of life rhythms, strongly influence and increase demand for convenience products (IQF, TV dinners, Microwavable, etc.) and home replacement consumption (food-service, restaurants, sandwiches).

For example, in Figure 1 food consumption changes trend in U. S. from 1970 to 1998 are presented. The percent changes show that the income growth has resulted in important shift in food consumption in the considered Country. The strongest increase concerns cheese (148%) and carbonated soft drinks (101%) while fruit and vegetables growth was relatively low (21%), that makes reflect on people preferences trend more and more addressed to a “snack society”.

The section of the present study concerning benchmarking (chapter 4) shows the extent of this typology of consumption behaviour in the immediate regions of Egypt for exports, the Gulf Countries.

The development of this snack society is widely demonstrated in the early 2000 by the huge increase in the offer of Home Meal Replacers (HMR) in the EU. For instance, the HMR consumption growth per annum in the last years is about 20-40% in these areas. Such food is even “more fresh” with extra added value, since it has a relatively short shelf life (reliable since huge investments in logistic are achieved).

Moreover increase in income develops the consumers’ attention to organic and nutraceutical food. This sector is characterized by strong research activity and branding and often in the hands of multinationals.

Both directions are favouring the “highly skilled” processed food companies: - marketing companies with intensive branding; - research oriented and innovative companies. They also favour the full expertise for efficient logistic and information system (Decision Support

System -DSS, Electronic Data Interchange - EDI, Efficient Consumer Response - ECR, etc.), i.e. all the infrastructure of the information technologies.


Companies and brands can acquire additional profit through increased pricing of these new products, but they are under severe risk management if they don’t assure the maximum reliability for their products.

Figure 1. Changes in U.S. per capita consumption, 1970-98.

Source: USDA May 2004

To note that global changes and trends in consumers’ taste is strictly related to the science of marketing. Actually the world of processed food offers strong opportunities to communicate a particular fashion on “exotic foods” (i.e. “supplier country cooking and taste”). Examples in this direction are “the Mexican spicy taste” for beans and meat, the “Brazilian grill” for meats. In the recent years a world marketing success was that of Italian Mediterranean cooking (tomato, pastas, olive oil, pizzas, parmesan, dry delicatessen, etc): also in this case Italian cookers obtained an extensive success by exporting themselves with an appropriate marketing strategy.

1.2.2 Prospective demand including Egyptian vegetal crops for processed products

Egypt has a long tradition of cultivation for specific crops such as fruits and vegetables and aromatic plants for the preparation of herbs and spices. In particular Egypt is famous for its long established competitiveness in potatoes and onions, considered as “killer categories”; together with artichokes that are processed and frozen for EU market.

Most of other crops are of new introduction and well developed in selected markets, but not yet established as “killer categories”. The chapter on benchmarking analysis will examine a few cases such as frozen strawberries.

In the spices sector, Egypt does not offer any volume improvement, neither any particular reliability due to specific high quality characteristics for single crops. Continuous up grading and selection of new varieties are considered as prospective ways to reach higher permanent flows for Egyptian spices.

Investing in orchards for fruit processing is nowadays a matter to offer sustainability and reliability to buyers, considering that the cost of production should be competitive and the potential increase in volume should be proven.

Orchards are grown for fresh fruit and fresh juices markets, but when the demand drops and fruit prices become too low, fruits are guided towards the processing chain and utilized for the production


of jams that represent the easiest way of product preservation, of fruit concentrates and pulps, of dried fruits.

In traditional processed fruits producing areas, orchards are often old and scattered in villages: this is the case of Turkey which has a record production and export sales of hazelnuts, dried raisins, dried apricots, etc. All these crops are labour intensive. Australia is a nice example of a high level of investments on new lands in vineyards and wine caves successfully marketed on the world markets, between them Great Britain is an important consumer. Among the opportunities identified in this report there are some important long-term crops that could change the profile of the Egyptian fruit offer.

1.3 Supply-side factors influencing development of EFPI

1.3.1 Global sourcing of raw materials

The liberalization of trade gives strength to the “natural potential” for the most important commodities such as grain, proteaginous, sugar, milk, and extensive cattle breeding. It also favours the supplies of fresh fruits and vegetables from Mediterranean and Southern hemisphere to the Northern hemisphere customer Countries.

Moreover, it stimulates those Countries that have a reserve of new lands: Argentina at first with new possibilities for grain and soy cultivation, Brazil since it has an on-going process of gaining 50 million new hectares of land from deforestation of the Amazonia for soy and corn cultivation and meat production (beef and poultry).

Tropical productive regions, which can grow two crops a year, do get also an enhanced first processing profitability for the consequent longer processing period.

Retail food organizations and processing factories have a definite access to all raw materials at a “world” price: logistic costs are expected to decrease continuously (to the extent of increased price of energy).

Economy of scale has been the driver of maritime transport companies: the concentration in this sector has been rapid with fusions among the first single actors; the size of the future containerships also reflects the concentration and the competition. The port capacity, intended in long terms, is limited (by investment and profitability) and cargo ships number has to be limited.

In this direction, Egypt authorities have decided to widen the Suez Canal to get increased revenue from the European traffic from and to Asia (China at first).

1.3.2 Shifts in production and expected shifts (area to area)

Capturing exports flow formerly subsidized, for the “comers” there are new windows of opportunities with long term competitiveness to gain in “domestic market flows”, at the expense of domestic agricultural production.

1.3.2.1 Fresh fruits and vegetables

Consumption profile varies between continents and main markets: whilst the USA have for long built their diet with fresh production during all the year, Europeans have a tradition of preserving vegetables by canning or freezing them; they eat lower quantities of fresh vegetables during winter time. Frozen vegetable have an important role in human consumption during all the year, since they have nutritional, sensorial and quality characteristics more and more similar to fresh products.

Therefore, Egypt is well positioned in the Middle East to supply most of this category since it does not face the same limitations of water and land availability like Syria and Jordan, and the Gulf Countries. Iraq's high potential is very much degraded and polluted according to present data.


Morocco has succeeded in building 98 dams resulting in increased water supply to population, increased food security and valuable food exports due to renovation in irrigation systems. This policy should accelerate to increase the water supply from dams to cities to 80% (from 60%) of city needs. Dams are responsible also for 14% of rural employment on a scale of 1 million hectares; irrigated land is also resulting in 5-8 times increased revenue per hectare. However, due to the growth of population, irrigated land per 1000 inhabitants is expected to drop in 2020 to 25 has from 35 has in 2000. This should be done at the expense of agricultural lands cultivated with sugar beets, sugar cane, wheat, etc, and land for horticulture will follow demand. Food security will remain the major objective since it is part of the national security strategy. More efficient resource utilization is the key for success.

Concerning Tunisia and Algeria, they have fewer rainfalls. Policies can achieve food security combined with resource conservation within each country and on a regional level. Countries (Morocco) with higher natural resource potential are encouraged to export food; countries (Tunisia, Algeria) with limited land and water resources are encouraged to optimise the use of available resources and invest in other sectors of higher relative economic advantage. Algeria has not been successful in the dam policy and start operating now an ambitious desalinisation unit programme to supply population of cities (high rural exodus due to the civil war).

1.3.2.2 Typical Mediterranean products

Olive oil consumption is growing fast in USA and it is starting in China and India, with EU still showing a stable 3-4% growth. Prices have reached a high level because of Spain deep cut in production and because of high demand.

Tomato derivatives show a stable consumption all over EU and worldwide with a growing supply driven by above the average crop margins. In Italy tomato sauces consumption grow much faster than paste, on the supply side costs are kept low by tomato paste imported from China. China entered the world market exporting 500,000 tons of paste and buying a leading tomato processor, Le Cabanon in France.

1.3.2.3 Dairy products

New Zealand, Australia, Argentina and Brazil have for a few years widely taken over the former export business of European dried milk products. The Ukraine has contributed progressively to the capture of these volumes. It seems that production is shifting from North to South and that the increase in demand will progressively be met more by the regional supply, as shown in figure 2. Figure 2. Trends in worldwide dairy products

US/Canada

Japan

Western Europe

Eastern Europe/CIS

Oceania

Production is shifting from North to South

Source: FAPRI, FAO

China

Latin A merica

India

Region 1991-2000 1999-2010 (Forecast)

% Annual compound growth 1991–2010

1.0

0.0

- 0.1

0.8

3.9

3.6

2.6

2.8

1.4

1.0

- 0.1

- 4.1

5.5

5.9

3.7

4.7

DAIRY

Increasing demand will continue to be metmainly from regional supply (DAIRY)

Source: Rabobank, Fonterra Analy sis

-6% -4% -2% 0% 2% 4% 6%

North America

Latin America

EU

Eastern Europe

Middle East-North Africa

China

India

Other Asia

CIS/FSU

Japan/Korea

Production Consumption

CIS/FSU

Production and consumption growth 1991-2001

More fresh milk processedin Egypt ?

Source: FONTERRA New Zealand World review 2003


The withdrawal of EU from world exports results in increased growth of production in other areas correlated with consumption growth.

Egypt is therefore expected to participate to this shift and to increase its processing of fresh milk. Egypt will also profit from the exports of raw material (dry commodities) from the close Ukraine as well as from Latin America and Oceania to process dairy products for its major domestic market and for exports.

1.3.2.4 Grain

North America, Argentina, Ukraine and south Russia have reasonably better competitiveness for wheat (winter cereals) than intensive European crops. World demand is continuously growing and a possible strategy could be to concentrate the production in few places.

1.3.2.5 Soybean, Sunflower, Rapes

Argentina, Brazil and U.S. have the best competitiveness. GMO varieties have offered increased income in lower arable lands of Argentina and in new Amazonian lands. Spring crops, and in particular sunflower seeds production, are mainly grown in Argentina, Ukraine, South Russia and Turkey. Among winter crops, rape seeds are cultivated especially in Canada and Europe (Not yet allowed for import to Egypt in spite of Canadian trials with Canola oil).

The increasing use of rape seeds oil in the European gasoline industry will provide revenue to the European farmers. In this industry there are also new opportunities for oil extracted from sunflower seeds.

Egypt is importing a lot of crude edible oil, used for edible oil refineries to obtain oil that, after packing and labelling is sold locally and exported to other regions. The cost of logistic is important in this business that is also characterized by a high share of distributor labels.

1.3.2.6 Meat products

EU has decreased its support to cattle meat production, and this has resulted in a continuous increase in purchase of Brazilian beef that reached 600.000 tons of production in 2004-2005. Russia shows a delay in increasing its production of beef since it is now developing mostly dairy cattle to supply its fresh dairy products industry. Russia buys from South America, although strong limitations still occur due to FMD reported in Brazil in late 2005.

Brazil is a strong corn grower and poultry breeding is an important sector of its meat production. This Country developed giant poultry companies who market worldwide poultry meat and processed products. Russia has somehow protected its production through a quota system for all kinds of meat but an increased income results due to a sustained growth of meat consumption. The first main shift for beef and poultry goes from EU to Brazil. Most probably EU will maintain a quota for poultry and pork meat, especially because of the risk of disease that is nowadays considered high.

China, which was for long time an important corn exporter, has fully changed direction and it is now importing soy, corn and poultry in order to satisfy the strong increase of internal consumption. Brazil has taken a big core of this new demand, together with U.S.

Egypt benefits from a good South American supply of frozen beef as a commodity. Egypt also has successfully privatised its importing sector. Efficient processing companies can reveal therefore their competitiveness to supply not only the domestic market but also the regional demand with processed HALAL beef products.

However, the meat world trade remains geared by diseases crisis (such as FMD in Brazil and Argentina in


2005-2006). Egypt should therefore develop a realistic policy of suppliers ban (regional ban and traceability guarantees) in order to avoid harmful effect of such crisis for its major meat processing companies.

1.3.2.7 Fruit juices

Between all, orange and apple juice market shows an evident sectoral consolidation with a trade between few Companies and selected suppliers.

Other juices, like tropical and exotic juices such as mango, guava that anyway represent a small share of the consumption, can have a certain market: Brazil and India offer significant volumes of production and they can be considered commodity price makers.

Efforts in marketing and permanent product range or packaging change have become a common rule on highly disputed modern markets. Fresh juices can now be packed in improved packaging and offer a better quality and a longer shelf life. However, on developed markets, a great variation of prices is observed, confirming the intensity of marketing efforts.

Egypt fruit juices industry is facing adverse effects of this consolidation, in spite of a distinguished taste. Egypt is not yet a partner supplier of International branded high quality juices, not yet a contract supplier or co-packer in the main segment.

1.3.2.8 Sugar

EU has started to implement its commitments to withdraw distortions and cut export subsidies. From 2005, farmers received information on the possibility of future closure of some factories located in low efficient sugar production areas (mostly Italy and Spain). EU production and world market share is expected to shrink.

The price of sugar on the world market has jumped in accordance with oil prices continuous increase since sugar in Brazil is also driven towards the production of alcohol for engines as a substitute of petrol. Therefore the period with low prices for sugar as a raw material for the sugar confectionary industry might well be over. However, the strength of this industry is no more resulting from an advantage on the raw material but a real expertise in running high scale production and marketing.

Egypt is producing sugar from sugarcane and sugar beet, but being not self sufficient yet, its main sugar confectionary factories are still buying most of their raw material on the London market. Effect for Egypt of this shift on volume and profitability is expected to raise costs.

1.3.3 Globalization of food industry

Exports and competitiveness depend more and more on effective participation in the global value chains. The shifts resulting from the liberalisation of trade are those of the most important commodities.

With the exception of processed meat products made in Brazil by two major companies, this liberalization of trade does not concern a shift for processed food industry: these are usually closer to their final markets: the fresher is the product, the closer is the industry, if we don’t consider the option of supplying transport, conservation and distribution costs.

The participation of EFPI to the global value chain starts nowadays with the relationship with the multinationals involved in distribution like, for instance, Walmart, Carrefour, Tesco, Ahold, and other strong regional companies such as Ramstore (Turkey) and Shoprite (South Africa).


A few years ago, Egypt has welcomed on its land such companies like Sainsburry, Carrefour and Shoprite; first results can be seen both at consumer and suppliers’ level: - a more differentiated offer and an improved quality / packaging offer; - opportunities to contract on annual basis; - opportunities to export through a close international distribution partner who is involved in global

sourcing as is some cases were reported by EFPI who exported their products to Carrefour UAE through Carrefour Egypt.

Investing in logistic systems in order to export to foreign markets and so to get closer to the main

global distribution is another step which may be of extreme importance; it may also be rational to invest in a further processing plant which could be a main customer, for example, in EU.

1.3.3.1 Geographical expansion, relocation of industries

The main reason for geographic expansion is the long-term demand, i.e. the demography and social changes, not only in the selected Country but also in the region that can be raised from the Country. Each company has its own criteria to weigh the Country's interest; the size of the domestic market is long term attractive, the ease to get the investment started is also important. Geographical expansion is a strategic way to up-grade or acquire expertise and know-how in a Country. 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 and acquisitions such as FarmFrites, Heineken/Alahram beverages, Hero/Vitrac, Kraft/Family foods are good examples.

The relocation of industries concerns at first the processing of world “easy and valued commodities”, such as further processing dairy skimmed milk or butter into processed cheese and ice creams. This is easily confirmed by the very high number of SME that developed in emerging markets in this segment. When a market is big enough for this industry, and when the Country is attractive enough for FDI, multinationals show their interest and they will consolidate the sector either thanks to a partnership with a strong local leader or directly through a take over acquisition.

The relocation may concern in a second stage the processing of fruits and vegetables whose marketing is not branded “Country of origin” and it may be marketed with a distributor label.

Egypt's investment interest profile for the FPI is a key to relocation of migrating food industries and geographical expansion.

1.4 Global trade Environment of the FPI

1.4.1 EU export / import policy

EU has set a new Common Agricultural Policy in June 2003 that will stop most of the subsidies to its farmers in 2013 to avoid setting distortions in the markets. At the same time for a few years, export subsidies have hardly been granted, although obvious currency variations (EURO / USD) were severely hurting the European export trade.

Late 2005, before and during the DOHA round in Hong-Kong, EU offered to look for ambition: in agriculture, the EU has proved its ambition. Main European farmer's union and sectoral industries view that EU negotiators have gone further than earlier proposals to the risk of not getting in the final round parallel concessions.

EU is removing artificial production incentives. As a result, Europe’s agricultural base is shrinking, creating trading space for others’ exports. The CAP’s focus is shifting to more specialist foods, to less polluting production and to rural development. EU has become the largest importer of food from developing Countries. EU takes in much more than all the other OECD Countries put together - the U.S., Canada, Japan, Australia included - both in volume and on a per capita basis.


• EU is ready to eliminate its much criticised export subsidies completely before 2013 and this will put export markets out of reach for many foreign farm producers.

• Other forms of domestic subsidies that distort trade will be cut by 70%, leading to lower production in Europe.

• The tariff cuts EU proposes will increase imports. EU negotiators have accepted these cuts will be on the basis of the formula suggested by the G20 - "the higher the tariff the greater the cut". Their effect can be predicted because we have accepted that in the higher bands the cuts have to be applied with no flexibility whatsoever except when a product is classified as sensitive.

• Tariff cuts will be a full 60% in the highest bracket. And for the so-called sensitive products - not more than 8% of EU tariff lines – EU is prepared to accept tariff cuts that will be about half of what will apply to other products, and to include new quotas that allow significant additional market access. So, sensitive products are not excluded from EU cuts.

Applied to the Euromed programme, EU ambitious proposals can be understood as an end to distortions, a cut of all export subsidies and potential increased quotas. Egypt has a window of opportunities to increase its quotas for 2013.

1.4.2 Trade agreements

Egypt has in the recent years signed quite a few trade agreements with its neighbouring Countries or regions. Their implementation has not been facing many difficulties and the free trade, which results from them, is simplified.

EU-EGYPT association agreement entered into force in June 2004. Almost all association agreements in the Euromed area are now running, Algeria-EU being last (but hardly concerned yet by exports of food and processed food).

Egypt also develops a policy of bilateral agreements in order to balance the import / export flows with specific countries. This results in the necessity to take in consideration more broadly the Egyptian food regulation system (food law) beyond the needs of the domestic market.

Such agreements are really roadmaps for the business since the norms, regulators and tariffs/quotas are accurately agreed. Within a few years, and of course to 2013, the Euromed trade area will concern 600 million inhabitants, one of the major blocks, if not the major after China.

The CAP has been successfully designed and implemented to balance domestic consumption and production, and offer to the rural farming system based upon private family property and enterprise a fair income. The rule of “communitarian preference (union origin) ” has been prevailing since the early 60’s. In addition, the treaty of Rome gives the right to each member country to organize its own territory for farming to have a relatively even network of farming & 1st processing. For instance, each member country may subsidize a fair network of slaughterhouse allowing the farmers not to depend upon too few units too far from their farms.

The liberalization of trade for agricultural and food products which occur since the 90’s is lead by the “comparative advantage”. It shrinks the farming production in many regions, and the related processing units, which become not competitive from expensive raw material and from lower quantities, are due to close.

For more than 40 years, the CAP funds have been used to support mainly grain and beef production through high prices (and related export subsidy), and to some extent to support fruit production (EU was buying excess fruits to withdraw from the market and offer it to the processing units (jams, preserves, etc). The CAP funds were not geared towards the dairy farmer but to the dairy processor for exports since the raw milk price set by EU was by far higher than “world price” (>35 $cents vs. 12-15 $cents)

The CAP was also designed for Mediterranean products such as olive farming and tomato products. In this scheme, the more recently integrated countries (Greece, Spain and Portugal in the 80’s) profited much to develop either volume or quality. Spain also developed some economy of scale at farming level, creating a comparative advantage (olive) vs. Italy. Quotas were given for industrial


products (tomato) to each EU med country. Euromed association agreements have been developed also with the quotas system.

The forecasted change of EU CAP in 2013 is therefore an invitation to negotiate countries quotas. The benchmarking chapter will show the opportunities and quantify their value.

Integration of Turkey was severely guided by the negotiation process for at least 15 years, other Mediterranean countries could develop some Turkish specificity and include in their quota negotiation. Chapter 4 will deal with theses opportunities.

1.5 Global regulator environment of the FPI The global regulator landscape has not much changed for the recent period; its main orientations

are confirmed: - Human health is number one objective; the new occurrence of the avian influenza strengthens

any measure dedicated to avoid expansion and any kind of target species mutation of the virus (human) with its adverse effect on prospects of exporting Poultry products from Egypt.

- SPS are getting harder on implementing food quality assurance system per Country working on a standard level. This is of special importance for Egypt's Animal Protein products of halal Meats and Seafoods as well as Dairy products and Honey.

- Consumer measures: impact labelling and packaging. - Trade measures in shipping and financial documents, product identity and standards of

measurements. - USA regulations on Bioterrorism act registration, FDA prior notice, Low acid canned foods. The landscape has on the other hand certainly changed in terms of risk management within the

supply chain in the sense that not only certifications for HACCP or ISO are needed by buyers, but also EU 178/02 rule for Traceability has been in forced since January 1st 2005.

Traceability has been designed and is managed in order to protect the consumer but certainly to protect the distributor value and “market share”: the EU 178/02 rule sets the responsibility at each link of the supply: each actor should signal any defect detected at his own level and has responsibility. As a matter of fact, the Retailers have become responsible for their own labels, as much as have always been responsible the original brands.

Traceability measures are therefore very much geared by the need to withdraw a product, a batch, from the distribution in a very short delay wherever the product is physically; afterwards, contractually, the one which created the problem and did not either detect it or signal it will bear most of the costs.

Organizing traceability within the Processing unit and linked with the downwards distribution chain is by far more difficult than organizing the inward field traceability system. It can really be achieved when there is a clear management organization and a definite processing expertise at operator levels. Only the units having developed an HACCP assessment and certification process can reasonably perform in this direction.

At present, bar coding is the cheapest mean for identification; medium term RFID (Radio Frequency Identification) should be made affordable and if so will revolutionize the supply chain management since the product will “talk” to a “detector” wherever it is located.

Overall, the development of this management of risk improves the information system of Food Processing Industries and generates additional network of services.


2 Local Assessment (recent changes and facts, drivers vs. the 2003 figures of the recent study)

2.1 Introduction This section is designed to reflect and analyse the performance of the EFPI and understand which

progress and positive changes have been achieved in the recent period. It is intended as an update of the local assessment in the Food sector study, conducted by IMC in 2004 - 2005, focusing on recent changes and developments.

In addition to the 8 sub-sectors chosen by Project Steering Committee members who were

surveyed and listed in the sectoral ANNEX to the study, the information collected through interviews and data research is listed in this section and it covers:

- Economic context 05 - EFPI Overview - Compliance to technical export requirements (quality & food safety) - Trade performance - Export by sub-sector - Exports by region/markets - Main export companies - Marketing strategies - Government bodies and NGO's involved in EFPI - Export incentive programs - Impediments to FDI in food sector - Demand and supply side factors affecting EFPI, including access to western markets, distribution,

availability of land, agricultural output, packaging, logistics, technical support, access to finance, productivity.

- Trade agreements -Customs -Conclusions The expert team has positioned Egypt Food Processing Industry in a SWOT analysis and finally

updated competitiveness drivers, stressing the directions undertaken towards sustainable competitiveness.

2.2 Economic context end of 2005 In the realm of the continuous reform of the Egyptian economy, Egypt is making wide strides to be

able to catch up with a world where rapid political, economic, and social changes are being witnessed, along with globalisation, technology development, and free flow of investments.

The Egyptian government has recently taken several important steps to liberalize the economy and integrate with the global market, through rapid and full implementation of WTO rules and regulations, and the pursuit of multilateral regional and bilateral trade agreements. These agreements will allow Egypt to gain access to the world's markets, giving investors in Egypt a manufacturing base for exports. Egypt also accelerated the improvement of trade and investment procedures in line with best international practices.


The key economic indicators (table 1) of Egypt are reflecting the positive results of economic reform policies with Economic growth averaging 5.3% in 2005 expected to reach 6% by 2006. Inflation rate is reduced to 3.1% while unemployment rate is reduced to 9.5%. GNP is up to 573 Billion LE (100.5 Billion USD) and the foreign currency reserves are up to 22 Billions USD for the first time in Egypt’s history. The Egyptian pound strengthens along with the $.

Table 1. A few world development bank indicators (sorted by increasing GNI per capita)

Countries 2004export of goods

& services % GDP

FDI net inflows GDP net annual growth %

GNI per capita $1000 Atlas

method

Population annual growth

%

Services Value added % GDP Population total

Iraq .. .. 46.5 .. .. .. ..

Yemen, Rep. 25.3 143 578 000 2.7 550 3.1 48.7 20 329 354

Syrian Arab Republic 35.1 275 000 000 2.0 1 230 2.5 49.8 18 582 152

Egypt, Arab Rep. 28.6 1 253 299 968 4.2 1 250 1.9 48.0 72 642 224

Morocco 33.1 768 892 032 4.2 1 570 3.4 53.8 29 823 706

Jordan 47.6 620 310 016 7.7 2 190 2.5 68.4 5 439 952

Algeria 40.2 881 900 032 5.2 2 270 1.5 33.6 32 357 572

Tunisia 44.6 593 352 000 5.8 2 650 0.9 59.7 9 932 400

South Africa 26.6 584 969 984 3.7 3 630 -0.7 64.9 45 509 236

Turkey 28,9 2 732 999 936 8,9 3 750 1.4 71 727 048

Libya .. .. 4.5 4 400 2.0 .. 5 740 148

Lebanon 21.3 288 000 000 6.3 6 010 1.0 72.3 3 540 290

Oman 57.0 -17 000 000 3.1 9 070 0.9 42.1 2 533 843

Saudi Arabia 52.7 .. 5.2 10 140 2.6 37.2 23 950 032

Israel 44.0 1 664 199 936 4.4 17 360 1.6 .. 6 797 670

Qatar .. .. .. .. 5.8 .. 776 936

Kuwait 60.2 -20 359 688 7.2 22 470 2.6 .. 2 459 534

United Arab Emirates 82.3 .. 8.5 23 770 6.7 42.2 4 320 000Source: World Development

Source: World Development database

In the recently published Egypt Competitiveness report 2004-2005, an analysis of the present status of Egypt competitiveness and a ranking of the Competitiveness in the post devaluation period supported by further reforms and trade agreements designed to ease the daily trade business are showing real signs of a continuous expansion of the external trade.

Picturing the ranking and the growth potential of Egypt invites the business to improve and upgrade their own organization and the domestic organization (market). The joined effects of the LE devaluation and subsidy support and of the industry efforts to set the Egyptian food products flag on the various continents result in increased exports and more differentiated products / demand.

The processed food exports usually result from a core of 70-100 companies within 2400 processors. Meanwhile the objective of offering to foreign customers a national quality assurance system remains important (source: previous IMC Food Study).

2.3 Egyptian food processing industry overview

2.3.1 Egyptian food processing industry performance (recent changes)

Detailed export analysis for eight product groups; frozen vegetables, tomato products, fruit juices and pulp and puree, olive oil and table olives, cheese products, dried vegetables, herbs and spices, tobacco and cigarette are shown in section 4.3 - Opportunities and Benchmark by Product Categories.

2.3.2 Production

During the past three years, some investments in either capacity or improved quality have been performed in a few sectors:


- Frozen vegetables: extended capacities and new IQF technology with colour sorters. - Fruit juices, Pulps and Purees: new PET bottling plants, new Tetrapak lines and Aseptic plants

for Production of quality puree. - Dried onions: improved quality (colour sorter and improved driers). - Tomato products: new additions to processing capacities of both Tomato paste and Ketchup. - Cheese: new additions to processed cheese lines also increased white soft cheese and

Mozarella for the fast-food markets. - Olive oil: higher quality mills and new plantations of olive trees. - Table Olives (Spanish style): a huge increase in existing production capacity and exports also

investment in new factories. The management of quality through Good Manufacturing Practices and further on ISO and HACCP

certification is moving ahead as shown in table 2. Most of these companies belong to the nucleus of 75 main exporters or holdings.

2.3.3 Trade performance (recent changes)

For the last three years the EFPI has enjoyed a boost due to better performance, LE devaluation, export support and improved demand. 2005 estimate results obtained in late December 2005 confirm the expansion, as shown in table 2.

Table 2. Performance of top Egyptian processed agro food exporters (value in million USd).

200 2003 2004 2005 (estimate)

160.80 201.57 270 500

During the third week of January 2006, food exports value amounted 3.891 millions LE, which

represents an enthusiastic record. As shown in table 3, processed foods export growth since 2002 was fairly strong.

Table 3. Processed foods export growth since 2002.

EFPI EXPORTS USD Growth rate LE

2002 158. 7 1 079.2 2003 221. 0 21% 1 370.7 2004 420. 0 47% 2 604.1 2005 668 .2 49% 3 875.5

Source: MOFT Jan.2006

2.3.3.1 Export per sub sector / volume

Table 4 shows EFPI exports for year 2005, calculated on January 2006. Exports of dairy products come first and represent almost 25% of the total exports (901 million LE). The potential of this sector had already been identified. The withdrawal of EU export subsidies opened the path to increased production in many countries and increased processing from powders originating in Australia, New Zealand, Brazil and South America.

The total of vegetable preparations and vegetables products (such as frozen and dried) amounted also to 22.6% of total exports (880 millions LE).


Exports of sugar and confectionary reached 11.4% of total exports (443 millions LE), which is much higher than the exports of food preparation sector, which amounted to 8.7% of total exports (340 millions LE).

Table 4. EFPI EXPORTS 2005

MILLION LE Ranking % JAN. / DEC. 2005

901 23.1 DAIRY PRODUCTS

483 12.4 VEG. PREPARATION

443 11.4 SUGAR and CONFECTIONERY

397 10.2 VEGETABLES PRODUCTS

340 8.7 FOOD PREPARATION

206 5.3 EDIBLE OIL AND FATS

187 4.8 TOBACCO PRODUCTS

178 4.6 BEVERAGES INCLUDING ALCOHOL

136 3.5 BAKERY PRODUCTS

109 2.8 ESSENTIAL OILS

107 2.7 ANIMAL FEED

100 2.6 COFFE, TEA, SPICES

303 7.8 OTHERS

3,891 100 TOTAL

Source :MOFT January 2006

Table 5 shows a remarkable growth of cheese exports especially in 2005, with an increase of its volume by 391 % since 2002 (CAPMAS, 2005). Moreover the cheese exports increased by 12%.

Frozen vegetables show an increase in the considered period although the growth versus 2002 is smaller (value index 133).

Dried vegetables (onions) show an increase (value index 160) and the same is for fruit juices sector (value index 220).

Table 5. Exports Value $ - Variation Index Base 100 in 2002

HS Code Total export value $ - Variation index 2003 2004 2005 est. 0710 Frozen vegetable 79.5 104 133 0712 Dried onions 122 132 160 0406 Cheese and curds 152 207 391 210330 Tomato Products and sauces, Ketchup 36 326 227 Tobacco 116 128 Na 17049000 Sugar Confectionery 115 95 182 2009 Fruit juices, Pulp and Puree 172 172 220

Source: CAPMAS Jan.2006

2.3.3.2 FOB Prices 2005

Table 6 show prices for various food products, evaluated for the year 2005.


Table 6. Prices for various products.

PRODUCT PRICE FOB EGYPT FRUIT JUICE (200ml) 700 – 900 USD/TON FRUIT PULP, ASEPTIC, APRICOT 400 USD/TON DEHYDRATED ONIONS-SemiBulk 1600 – 1800 USD/TON HERBS Semi Bulk 2000 USD/TON FROZEN VEGETABLES-mixed 750 – 1200 USD/TON POLISHED RICE Semi Bulk 140-150 USD/TON POTATO CHIPS 850 USD/TON DRIED LEGUMES 350 – 450 USD/TON JAM (COMMERCIAL) 1500 USD/TON OLIVE OIL-EXTRA VIRGIN, Bulk 2500 – 2800 USD/TON

2.3.3.3 Export per region, per sub-sector and region

In tables 7 and 8 it is possible to see that eight MENA Countries buy about 60% of EFPI exports, first of all being Libya (14.7%) and second Saudi Arabia (14.5%). GCC and Middle East North Africa Countries are the customers of EFPI with exception of the world dried onions commodities. The USA is an existing ethnic customer mainly for juices and jams and also to some extent for frozen vegetables. The EU is rather closed and buys the abundant quantities of dried onions and some frozen vegetables, mainly IQF Artichokes.

Recently, the global number of Countries where EFPI has been selling its goods has definitely increased. This is due to a strong effort for products’ promotion, as indicated, for instance, by continuous exhibition participation. Iraq has started to require food products and it is the first Country for Egyptian cheese exports. Egypt has an important opportunity in the future to satisfy the huge Iraqi demand.

Table 7. Distribution of EFPI exports by Main Destination, 2005

COUNTRY OF DESTINATION MILLION LE Ranking % LIBYA 573 14.7

S. ARABIA 565 14.5

JORDAN 250 6.4

LEBANON 206 5.3

IRAQ 185 4.7

SYRIA 173 4.4

SUDAN 151 3.9

YEMEN 133 3.4

U.S.A 122 3.1

U.A.E 113 2.9

OTHERS 1.420 36

TOTAL 3.891 100

Source: Ministry of trade and Industry, 2005


Table 8. EXPORTS TO THE GCC – 2002 - 2005

HS Code Exports - $ –

GCC

2002 % 2003 % 2004 % 2005 –est.

base 10 m

%

0406 Cheese products 4.508 56.4 2.136 17.5 12.429 75.1 21.112 67.5 0710 Frozen vegetable 11.923 59.6 7.651 48.2 9.162 44.0 13.618 51.3 2009 Fruit juices 1.726 22.0 1.288 9.6 1.351 10.1 1.696 9.8 210330 Tomato products and

sauces 0.001 11.0 0.001 10.1 0.091 38.1 0.104 29.2

0712 Dried onions 0.127 0.7 0.113 0.4 0.250 1.0 17049000 Sugar Confectionary 0.505 16.9 0.449 13.1 0.205 7.3 0.399 7.3 1509 Olive oil 20019010 Table olives

Source: CAPMAS Jan. 2006

Cheese and frozen vegetables are the major segments and the most dynamic: 67.5% of cheese exports are directed to the GCC and Iraq and in the same areas arrive about the 51.3% of frozen vegetables.

On the other hand fruit juices export grow but still represent a lacking amount: the medium distance for close marketing of mineral water and beverages commodities is 350-500 km. GCC is much further.

EXPORTS TO COMESA / MENA

Table 9 shows exports to COMESA and MENA regions. Between these countries, Libya is the first importer for cheese and fruit juices and Sudan and Libya come first for confectionery sector.

Other countries take traditionally low priced tomato products. Interesting to notice are sales of dried onions to Lebanon and Israel: they are unique customers whilst the entire region does not have any consumption indicating re-export activities.

Frozen vegetables, which need a developed and well-organized cold chain infrastructure and some social change are not large export markets.

Table 9. Exports $ to COMESA and MENA

HS Code Exports - $ –

COMESA – MENA

2002 % 2003 % 2004 % 2005 –est.

base 10 m

%

0406 Cheese 3.312 41.4 5.409 44.4 3.886 23.5 9.770 31.2 0710 Frozen vegetable 1.945 9.7 1.761 11.1 3.093 14.9 3.078 11.6 2009 Fruit juices, PulpsandPuree 3.596 46.0 5.390 40.1 6.186 46.1 10.096 58.6 210330 Tomato products and sauces 0.023 27.8 0.001 16.8 0.148 61.9 0.165 46.2 0712 Dried onions 1.040 5.9 1.210 5.8 2.056 7.4 1.250 4.2 17049000 Sugar Confectionary 1.979 66.2 2.193 63.9 2.473 87.4 4.430 80.3 1509 Olive oil 20019010 Table olive


EXPORTS TO THE EU

Tables 10 and 11 show exports of different products to European Union. The three main categories exported to this area are products sold for further processing in the Country of destination. Artichokes mainly represent frozen vegetables sold to Europe. Egypt quality in this field is considered competitive.

The selected sub-sectors in this study represent roughly 32 million $ or 27 million Euros to EU, and a total of 69 millions USD to GCC and EU.

In 2005, the exports of fresh vegetables and fruits to the EU and GCC reached one Billion USD (tables 10 and 11)


Table 10. Exports $ to EU.

HS Code Exports - $ – European Union

2002 % 2003 % 2004 % 2005 –est.

base 10 m

%

0710 Frozen vegetables 4.04 20.2 4.408 27.7 6.119 29.4 7.435 28.0 0712 Dried onions 15.112 86.1 17.330 82.3 21.706 78.4 22.865 76.8 2009 Fruit juices and Pulps, Puree 0.958 12.2 2.495 18.6 2.154 16.1 1.977 11.4 0406 Cheese 0.001 0.1 0.003 0.2 0 0 0.076 0.2 210330 Tomato products and sauces 0.012 14.0 0.001 1.2 0.001 0.9 0.001 0 17049000 Sugar and Confectionery 0.071 2.4 0.432 12.6 0.109 3.9 0.145 2.7 1509 Olive oil 20019010 Table olives


Table 11. EXPORT TO EU (JAN./NOV. 05)

JAN. / DEC. 2005 MILLION LE MILLION $

VEGETABLES and TUBERS 202.3 34.3

VEGETABLES and FRUIT PREPARATIONS 74.8 12.7

SUGAR and CONFECTIONERY 47.9 8.1

ESSENTIAL OILS 44 7.5

ANIMAL FEEDS 29 4.9

BEVERAGES INCLUDING ALCOHOL 24.9 4.2

VARIOUS FOOD PREPARATION 19.7 3.3

OTHER ANIMAL PRODUCTS 19.2 3.2

EDIBLE OIL and FATS (ANIMAL and VEG.) 15.2 2.6

OTHERS 37.7 6.4

TOTAL 514.6 87.2

Sub-total 32.5

Source : FEC jan 2005

EXPORTS TO THE USA and NORTH AMERICA

Sales on traditional ethnic markets do not open any real increase to the Egyptian processed food on this highly competitive market (table 12). Sales of dried onions commodity to the “sector makers” remain an important issue, would there be a real shift from USA to India, China and Egypt. Table 12. Exports $ to U.S.

HS Code Exports - $ – USA – North America

2002 % 2003 % 2004 % 2005 –est.

base 10 m

%

0710 Frozen vegetable 1.791 8.9 1.439 9.0 1.365 6.6 1.237 5.7 0712 Dried onions 0.213 1.2 0.351 1.7 0.249 0.9 0.874 2.9 2009 Fruit juices and Pulps, Puree 1.247 15.9 3.917 29.1 0.943 7.0 2.727 15.8 0406 Cheese 0.146 1.8 0.002 0.16 0.157 1.0 0.200 0.6 210330 Tomato products and sauces 0 0 0.001 24 0 0 0 0 17049000 Sugar and Confectionery 0.200 6.7 0 0 0.02 0.7 0.001 0.0 1509 Olive oil 20019010 Table olives 0909 Herbs and spices



Main development in volume and value relies in the Mediterranean olive products. Partnership in

Egypt with the American world leader McCormick also favours permanent growth.

EXPORTS TO RUSSIA - ASIA – OCEANIA

Dried onions exporters have taken the opportunity in Russia and Japan and do developed a big market, most probably at the expense of European exporters, which used to sell in this part of the world. Interesting is the Russian market, which is an important northern market due to the high consumption of dried onions based meals, like soups and meat preparations (table 13).

Table 13. Exports $ to Russia, Asia, Oceania

HS Code Exports - $ – RUSSIA - ASIA - OCEANIA

2002 % 2003 % 2004 % 2005 –est.

base 10 m

%

0710 Frozen vegetable 0.01 0 0.144 0.9 0.292 1.4 0.152 0.6 0712 Dried onions 0.936 5.3 1.673 8.0 3.435 12.4 4.000 13.6 2009 Fruit juices and Pulps, Puree 0.056 0.3 0406 Cheese 0.02 0.2 0.06 0.3 0.100 0.5 210330 Tomato products and sauces 0 0 0 0 0 0 0 0 17049000 Sugar and Confectionary 0.178 6.0 0.071 2.1 0.001 0 0.322 5.9 1509 Olive oil 20019010 Table olives


EXPORTS TO AFRICA (Comesa excluded)

Export sales are not consistent (table 14); many “sampling sales” seem to have resulted from participation to international exhibitions and could lead to some sustainability, if the currency advantage persists. Changes in global sourcing and distribution could be the key to an increased role of Egyptian processed food in this very scattered and poorly solvable part of the world. Transport and logistic competitiveness from Egypt is the key to improved volumes; any FPI conglomerate industry could open paths in this direction.

Table 14. Exports $ to Africa

HS Code Exports - $ – Africa

2002 % 2003 % 2004 % 2005 –est.

base 10 m

%

0710 Frozen vegetable 0 0 0 0 0 0 0 0 0712 Dried onions 0 0 0 0 0 0 0 0 2009 Fruit juices and Pulps, Puree 0.127 1.6 0.199 0.274 2.0 0.856 4.9 0406 Cheese 0.02 0.2 0.06 0.3 0.1 0.5 210330 Tomato products and sauces 0.039 46.9 0.002 40.8 0.087 24.3 17049000 Sugar and Confectionary 0.056 1.9 0.287 8.4 0.020 0.7 0.147 2.7


2.3.3.4 Main export companies

Further data (table 15) from Food Enterprise Companies offers a more comprehensive view than the 2003 list of 75 companies.

Actually, the MOFTI export figures of EFPI are higher than FEC data since FEC statistics cover only the food items subject to financial Support, for example processed beef is not subject to support while FARAG GROUP, Halwani Bros and AlMarai claim millions of USD exports to GCC and MENA markets.


Table 15. Main Egyptian exporters 2005 (FEC).

Export sales LE Number of companies % of exports Main Category Ownership Above 100 million 5 26.3 Frozen friesandveg

Cheeseandjuice Confectionary Complex

GCC multi GCC multi Multinational Egypt family

50 to 100 million 10 30.1 Cheese Frozen veg Ice-cream Juices Biscuits

Multinational Egypt Multinational Egypt Multinational

20 to 50 million 17 22.4 Dried onions Cheese Frozen veg Juices, pulp Miscellaneous

Egypt Egypt / EU Egypt Egypt Egypt

10 to 20 million 24 13.8 Herbs, Biscuits, Miscl

The first group of “champions” (above 1.5 million $ per month) gathers relatively various company histories and strategies, various competitiveness:

- Frozen French fries broadened to other frozen vegetables: long term competitive advantage from potato and land.

- Egypt complex for food processing: frozen vegetables, tomato, processed meat, cheese, juices. - Cheese and juices: typical start-ups well managed from the Tetra aseptic lines. - Processed cheese: local success sold to main EU Company. - Confectionary: Multinational.

Within the second group appear also multinationals (>0.7 and < 1.5 million $ per m), in addition to strong Egyptian leaders in competitive segments: dried onions, cheese, frozen veg, dried soups.

The third group (<300 000$ per m) is more diversified.

Five main groups (ownership) lead and do 20% of exports.

Each exporting sector is now represented by 3 to 8-10 exporters.

2.3.3.5 Major trade partners (importers of Egyptian products)

Hardly any change has been noticed during the assessment and interviews. Very few exporters have invested in importing Country infrastructure, for example buying equity in retail out lets or distribution companies a few distributor label contracts do perform with American and European distribution companies. Other exports go either for further processing or to the wholesale system.

2.3.3.6 Exporters marketing strategies and methods adopted to penetrate foreign markets.

EFPI interviewed do not allocate sufficient funds for Export promotion as per international practices not even 1% of their export sales revenues, they almost never advertise in specialised trade magazines, the only exception being the MIDDLE EAST FOOD MAGAZINE, published in Lebanon in which only very recently few members EFPI started advertising their products, some said they have used promotion in Satellite T.V. channels which are widely seen in GCC and MENA regions, but the cost is too high and it is not supported by Expolink (exporters association).

Most EFPI interviewed said they usually combine business trips to EU, USA and the GCC markets with pleasure trips or holidays (religious trips to Saudi Arabia) since getting visas are always a problem especially after 9-11 to USA and EU. Therefore reliance on exhibiting or attending local, regional and international Food Expositions has become the main effort done by EFPI in export promotion of their products.


This is done through participation in International events and expositions like ANUGA, SIAL, Gulf Food, IFT, Fancy Foods (USA), Fruit Logistica and ISM (confectionery).

Expolink (now supported by IMC) as well as the Egyptian Organization for Fairs and Expositions play a vital role in facilitating and subsidizing the participation of Egyptian food processors as exhibitors and visitors to such events through a joint Egyptian pavilion at reduced rates (tables 16 and 17).

Expolink also assists Egyptian exporters in creating websites and printing promotional materials and brochures at reduced rates.

Table 16. Food Sector Trade Fairs (Expolink).

Table 17. Other food Sector Trade Fairs (Expolink).

Trade fair No. exhibitors

No. visitors

Traffic/exhib

itor

Anticipated exports (US

$)

No. achieve

d contract

s

Success rate

ISM 2005 13 489 37 € 3 485 000

68 7

GulFood 2005 31 3 538 114 € 50 600 000

29 122

Sial Montral 2005 8 297 37 € 2 139 500

11 27

Fancy Food 2005 10 292 29 € 8 000 000

4 73

Anuga 2005 33 2 344 71 € 21 545 000

112 21

Food Ingredients 2006

10 943 94 € 5,230,000

50 19

ISM 2006 17 GulFood 2006 37 Biofach 2006 (Germany)

8

Alimentaria 2006 (Spain)

8

Foodex 2006 (Japan) 15 Fancy Food 2006 18 Sial Paris 2006 35

IN PROCESS

2.3.3.7 Identify government bodies and business associations related to food exports and the respective duties of each

There are several organizations which provide support to EFPI:

• FOOD EXPORT COUNCIL (FEC)

• INDUSTRY MODERNISATION CENTER (IMC)


• EXPOLINK

• CHAMBER OF FOOD INDUSTRIES (CFI)

• MINISTRY OF TRADE and INDUSTRY (MOFTI)-(WTO TEAM, EU TEAM, QIZ TEAM, COMMERCIAL REP. ABROAD) as well the Export Development Centre, currently being re-activated.

• OTHER NGO's LIKE HEIA, AEC, EAGA, FPEA

A) FEC (www.fccegypt.com)

The FEC is a semi governmental organization representing exporters of processed foods and has been performing the following duties since 2003:

• Liaison between the Ministry of Foreign Trade and Egyptian processed food companies linking both production and exports' policies

• Promote Egyptian exports through enhancing its competitive advantage in international markets, improving Egyptian food products image highlighting its liability as a reputable product in international markets.

• Working hand in hand with Egyptian exporters aiming at increasing exports and scaling up "Made in Egypt" logo in different foreign markets

• Improve the legislative and business environment for Egypt’s processed food industry so that private firms can increase their export capacity, improve their competitive advantage and strengthen their image in world markets.

• Organize dispensing of export subsidy of value of 8-9% of exported processed foods for most sub sectors.

B) IMC

Set up with EU finance to upgrade and promote Egyptian Industry in general through its BRC units performing the following services:

• Sector studies leading to strategy planning.

• Organizing Training Course for factories staff on upgrading their operations and marketing.

• Subsidizing 85% of the cost of specialized Consultation and Technical interventions in industrial plants on various aspects of International Standard (ISO and HACCP).

• Subsidizing 100% of certification cost for ISO and HACCP.

• Supporting soft finance packages for industrial upgrading.

• Facilitate cashing export bills.

• Supporting EXPOLINK in its services to exporters.

• National Suppliers Development Program (NSDP) to support the value chain sub-suppliers. Currently IMC is providing 609 Technical Interventions/Services to agro-food firms.

C) EGYPTIAN EXPORTERS ASSOCIATION (EXPOLINK) – EEA

An NGO founded in 1997 with 600 members to support Egyptian exports abroad, assisting Egyptian exporters in getting market intelligence in targeted markets, assist in match making and export promotion with support for participation in International events and specialized trade fairs worldwide (USA, CANADA, EU, GULF….) to get the necessary exposure in world markets.

EXPOLINK also assists exporters in designing and printing of exporters brochures and websites also participates in Technical Training and Skills, Development programs for Egyptian export Industry.


EXPOLINK has recently inaugurated its call centre to assist in directing trade enquiries from importers abroad to the relevant producers and exporters in Egypt.

D) CHAMBER OF FOOD IND. (CFI)

CFI has 9 sub sectors comprising more than 2050 members employing 300.000 workers and representing investments of over 37 Billion LE.

CFI plays an important role in policy advocacy, representing member’s views and demands, updating food standards, drafting the new unified food Law, sponsoring a soft finance program with Italy for purchase of Italian Food Processing Lines and Machines among other services to food processors.

E) MINISTRY OF TRADE and INDUSTRY - MOFTI

E-1 Negotiating team of EU partnership agreement E-2 SME support unit E-3 TBT support unit E-4 Trade agreements unit E-5 QIZ unit E-6 EXPORT DEVELOPMENT CENTRE (Currently reactivated) E-7 ECS (EGYPTIAN COMMERCIAL SERVICE ABROAD) ECS is the governmental trade promotion organization, within the framework of MOFTI. ECS is currently being upgraded to become the trade advisory reference for the Egyptian Business

Community and a leading international trade and investment promotion agency bridging Egypt and the global markets, through developing and penetrating foreign markets.

Diversifying export markets for Egyptian products and services, also by attracting foreign investments to Egypt and representing Egypt in International organization and events to preserve Egyptian Economic and Commercial interests abroad, through a network of 55 offices all over the world, mostly operating from inside Egyptian Diplomatic and Consular missions, the ECS staff act independently and they monitor and report periodically export opportunities to Egyptian products and services and assist in match making (www.ecs.gov.eg).

F) OTHER NGO’S

HEIA (HORTICULTURE EXPORT IMPROVEMENT ASSOCIATION) that plays an important role in upgrading farming operations among its 420 members from all sectors of Agribusiness (farms, pack houses, suppliers of Agricultural Materials, Logistics and processors).

HEIA’s role in upgrading Egyptian Horticulture to EURO GAP, BRC, HACCP and TESCO’s Standards is an important aspect of providing safe and high quality Agricultural Produce for export as well as processing.

Improving Post Harvest and Cold Chain Logistics by establishing Cairo Airport Perishable Training (Another in Luxury Airport is planned) has been instrumental in reducing waste in export of fresh produce and frozen foods.

Contract farming and introduction of new varietals is another area where HEIA is actively advocating.

AEC

Agricultural Export Council, which plays similar role as FEC but with Agric. Commodities that includes:


RICE, CITRUS, POTATOES, ONIONS, as well as all types of Vegetables and Fruits destined for export. (www.aecegypt.com)

EAGA, FPEA

EGYPTIAN AGRO BUSINESS ASSOCIATION – FOOD PROCESSING & EXPORTERS ASSOCIATION

They assist in providing training courses and policy advocacy in Agrofood related issues, FPEA is the newest NGO with 65 members and has an interesting project with USAID-AERI, CARE to establish a treatment facility for wooden pallets destined for export as per latest export international IPPC requirements (Heat treatment or Fumigation).

ESAS

Egyptian Seeds Association which among other duties also supports programs for importing and local production of higher quality and output seeds and varietals for both Fresh produce exports and processed foods.

ESHEDA

Egyptian Seeds, Herbs Export Development Association, a newly formed NGO encompassing the leading farms, processors, traders and exporters of dried Aromatic and medicinal seeds, herbs and spices.


EGYPTIAN LEGAL AND REGULATORY ENVIROMENT (Schematic) Note:

Additional controls are undertaken by:

Ministry of Social Insurance (workers coverage),

Ministry of Labour (workers disputes), Ministry

of Finance (sales tax, corporate tax, customs) and

Ministry of interior (civil defence, fire dept.),

Ministry of Transport and Ministry of Agriculture

Ministry of Foreign Trade, Industry (MTI)

Ministry of Internal Trade

Inspection of markets and retailers, sample collection for check on commercial fraud, shelf life, weight, labeling compliance, consumer protection

Foreign Trade

Industry

General Organization for Export & Import Control (GOEIC)

Control laboratories for

testing

Chemical Authority

Control laboratories for

testing

Egyptian Organization for Standardisation

(EOS)

Issue of standards, Control laboratories

for testing

Industrial Control Authority Inspiction of factories for compliance with EOS standards, Collection of samples for testing

Quality Control

Authority

Inspection of compliance to

Egyptian quality Standards and

certification

Ministry of Health

Food Control Authority Inspection of factories for compliance with food health laws and decrees . Control of imported foods at ports of

entry (sample collection)


2.3.3.8 Identifying the sector exports incentive programs

In addition to the government subsidized fuel and water cost and the infrastructure development in telecom, roads, airports and seaports, also the signing of trade facilitation agreements, the government has also introduced in 2003 an 8-9 % tax rebate on FOB cost as export support for many Agrifood products exported from Egypt to any destination, this 8% represents the indirect cost of import tax and tariffs on ingredients and packaging components that can’t be directly calculated for direct refund.

Exporters apply with their export invoices for this export support to the FOOD EXPORT COUNCIL (FEC) that examines and verifies the claim then forward to MOFTI for issuing rebate cheques, a process that takes a few months but still appreciated by exporters especially in products with a low profit margin like Bulk Dehydrated onions.

The GOE has allocated 800 millions LE for this export support and now being increased to 1.2 Billions LE. The IMC has also sponsored the creation of a 50-Millions EURO investment fund (HORUS) for food sector development to finance investments in capacity building and upgrading. Export guarantee bank is also assisting exporters in reducing the risks in exporting to markets where financial settlements are at risk.

In 2005, an export value of 2802 millions LE within the 3891 millions LE of EFPI exports have benefited from the 8% support (table 18). One hundred per cent of the dairy products are subject to this support.

Table 18. Export values in 2005 for different products.

JAN. / DEC. 2005 MILLION LE Ranking %

DAIRY PRODUCTS 889.9 31.8 %

VEG. PREPARATIONS 482.9 17.2 %

SUGAR and CONFECTIONERY 442.5 15.8 %

VEGETABLES 395.1 14.1 %

VARIOUS FOOD PREPARATION 236.8 8.4 %

GRAINS and FLOUR PREPARATION 136.4 4.9 %

BEVERAGES INCLUDING ALCOHOL 91.2 3.2 %

ESSENTIAL OILS 58.7

CACAO and PREPARATION 41.9

EDIBLE OIL and FATS (ANIMAL and VEG.) 23.5

MILLED PRODUCTS 3.4

FRUIT PREPARTION 0.1

TOTAL 2,802.4

2.3.3.9 Obstacles and challenges facing food exports

Including: raw materials supply, packaging, infrastructure, local regulatory environment, product quality, retail sector, food safety requirements, TBT, and structural impediments such as an underdeveloped retail sector in Egypt and weak cold chain logistics.

2.3.4 Impediments to the attraction of foreign direct investment to EFPI

In spite of obvious improvements in Egyptian Agrofood Industry performance in general, there is still constraints that hinder further advancement (table 19), which if corrected could reduce costing, increase competitiveness and attract additional FDI to Food Processing Sector, the following notes, demands and constraints has been highlighted from EFPI interviews:


• Bureaucracy in regulatory authorities, (17 Authorities) especially Egyptian Standards that needs to be upgraded to Intl. levels – a unified food law and a unified food regulatory authority need to be in acted.

• Delays in clearance and high fees in Egyptian ports for imported ingredients and packaging materials (up to 16% of added cost).

• Cancelling of 10% sales tax on imported capital equipment and goods, raw materials and ingredients.

• Establishing of a centre of Excellence to Coordinate Research and Developments efforts to better service the Agro food sector.

• Support training programs for Agro food Sector staff on Quality, Traceability, Food Safety and Environmental Management system, by directing Donors financial packages to such programs.

• Legalize and integrate informal food sector into the economy

• Maintain Export support for 3 more years or until customs reform is completed.

• Continue support to Export and Marketing promotional efforts and subsidy participation in Intl. Fairs and Expo (ANUGA, SIAL, IFT).

• New labour law and social security fund fees are considered too high. .

• Provision of soft finance for upgrading of processing facilities and know how transfer.

Table 19.Impediments to attracting FDI

Source (World Bank 2006)

The World Bank in a recent publication (2006) compared time needed to start a new project in various Countries, as an indicator of bureaucracy, investor friendly climate, as shown in table 20.

Table 20. Time needed to start a new project in various Countries

Country Delay Steps Cost related to per capita incomeMalaysia 30 days 9 25.1% Singapore 8 days 7 1.2% Egypt 43 days 13 63%

Source World Bank, 2006

2.3.5 Multinational and Foreign Investments in EFPI

Due to Egypt's large domestic market size and participation in several multinational trade agreements (ARAB FREE TRADE, COMESA, AGHADIR, QIZ…) as well as the availability of labour and many Agric. raw materials, many multinational food processors have decided to establish factories, co-produce or co-pack and /or acquire existing food processing factories in Egypt, not only to cater for the biggest consumer market in M. East but also to export to Comesa and Arab markets, such names include: LEVER, KRAFT, NESTLE, HERO, DANONE, LACTALIS, BEL, BONGRAIN, CADBURY-SCHWEPPS, PEPSICO, MOVENPICK.


Egypt needs to portray that it is a an investor-friendly market, by simplifying the procedures of setting up companies, adopt international accounting measures, transparency, correcting weakness in its juridical system specially affecting bad cheques cases, curbing unpredictable municipal level decisions affecting investors and activate trade mark protection and intellectual property laws.

2.4 Demand side factors influencing development of EGFPI

2.4.1 Access to western markets

The requirements of food safety is a right for all consumers, and while the most widely used system for food safety is HACCP Hazard Analysis Critical Control Point which was basically a U.S system that was used in guaranteeing food safety for Astronauts food in the fifties during NASA space program, it has evolved now into a world wide used system that has been adopted by CODEX ALIMENTARIUS and even integrated with quality aspects in the latest edition of ISO standard no 22000.

EFPI has started complying with HACCP since 1999 when a USAID program named ALEB was established in Egypt mainly to upgrade and promote the Agrofood Industry geared for export.

US and Egyptian experts have been training more than 250 EFPI members and staff on all HACCP related requirements including the Prerequisites for HACCP, mainly GMP, Sanitation and Hygiene, Pest Control, Preventive maintenance, Training, Coding for traceability and recall of products, also complying with FDA rules on LAC foods, Bioterrorism act and labelling.

The majority of EFPI are in various degrees of compliance to HACCP requirements which were incorporated in a voluntary Egyptian food standard 3778 for 2002, and the number of certified HACCP food processors is steadily rising (Currently 60) thanks to IMC sponsored supportive program of consultation and certification which is facilitating the establishing of such systems as quality (ISO series) and Food safety (HACCP and ISO 22000) in all Food processors who are participating in IMC sector development program.

The compliance with export requirements in product quality, food safety, packaging and labelling requirements is a necessity for market entrance to many markets in the world today specially USA, EU, Australia and soon the Gulf

2.4.2 Organisation of distribution

After SAINSBURY failure to last enough in Egypt and to overcome the Egyptian difficulty to change to an improved efficient distribution, others of which CARREFOUR have invested and started to influence the EFPI behaviour and understanding.

CARREFOUR has “classically” invested in product differentiation and in Brand differentiation of which its own Distributor brand starting with the 1st PRICE label.

For the time being, it seems to promote First prices range and the various private brands based upon product differentiation. Only a few Distributor brands may be found.

Having introduced the category management and looking for Egyptian modern supplier, this Distribution Entity has selected a range of Brands within each sector or product category. Not all main brands can be found on the shelf in supermarkets.

Long term this offer will change the customer selections of products; opportunities will be offered to contract annual higher volumes at lower prices to the EFPI and also to answer to innovative demand of these distribution chains.


2.5 Supply-side factors influencing the development of EGFPI

2.5.1 Availability of land

Egypt is not only getting increased exports from its EFPI but also from the fresh vegetable producers. These have had the same kind of boost from the devaluation. Every time they come on to a new market they feel they have enough capacity to face constraints or customer’s request for an improved price. Exports of fresh vegetables and fruits have grown 28% (+224million $) within two years (figure 3). Average value of fresh produce exports was 430 USD per ton in 2003.

Figure 3. Egypt Food export value trend 2003 – 2005 (million $).

0 200 400 600 800 1000 1200

Freshproduce

ProcessedFood $m 2005

$m 2003

476

224

Source: FEC / Studies

Such an export increase represents 500 000 tons of fresh produce and it has already resulted in a

continuous search for new areas and big plots for farming.

2.5.1.1 Land for agriculture and horticulture.

Out of Egypt’s one million Square kilometres of total area, the farmed area is only 8.4 million feddans (one feddan is 4200 Square meters). By using multiple crops farming cycle and better irrigation in this area, the crop area reaches 15 million feddans in the recent years.

Price of Agricultural Land in Egypt is high (50.000 LE/feddan in the Delta and 20.000 LE/feddan in reclaimed Land) – this high price has been reported as an obstacle to investments by major Agrofood Companies aiming to enlarge the regulated modern farms which may provide good quality and traceable raw materials for processing.

Egypt’s water allocation from the Nile is still the same as it was 50 year’s ago (55 billion Cubic meters/annum) – but Egypt has managed it rather well through efficient irrigation programs, reservoirs and dams (drip, sprinkler and pivot) also utilizing Agric drainage water and underground water, though some reservation remain on the quality of the irrigation water in Egypt (pesticide residues, heavy metals), water is still almost free for agriculture (65 LE/Feddan/annum) and charged a reasonable fee for industry including waste water fee.

The statistics of the Agricultural Export Council (AEC) indicate that the export allocated farmed area is 541,000 feddans – out of which 89,000 feddans (16%) for Citrus, Grapes and Mango there are plans to enlarge to 185,000 feddans (32%).

The current farmed area for vegetables is 913,000 feddans out of which 60% is allocated for export varieties (600,000 feddans) with Potatoes, Onions, Garlic, Green Beans, and Tomatoes …etc.


As for Herbs, Seeds and Aromatic it is allocated 54,000 feddans, out of which 10,000 feddans (22%) are allocated for export.

The expected increase in demand for export of fresh and processed foods to EU, USA, GULF and COMESA markets requires an increase in allocated farmed land for Horticulture to meet the demand until one million feddans, of which Toshke can provide 540,000, East Owinat 200,000 feddans, Sinai 400,000 feddans and Belbis 23.000 feddans.

The current trend to increase wheat-farmed areas for strategic reasons should not contradict the land allocation for horticulture.

Agrofood Processors interviewed propose that the GOE would allocate one million feddans in lots of say 500 feddans of reclaimed lands for leasing to EFPI to be farmed exclusively for export by processing varieties for a period of 50 to 99 years thereby reducing the investment cost of buying the land to be used in purchase of Processing lines and packaging materials, while preserving land for horticultural exports and processing raw materials.

Such a proposal would also allow for Banks to use leased land as collateral to finance EFPI operations for farming and processing, also allowing Insurance companies to insure the investments in such projects.

2.5.1.2 Industrial land

The Prices of industrial land in new industrial satellite cities like 6th October, 10th Ramadan, Obur, Badr, Saddat, Borg El Arab. etc. has been rising steadily due to the advantages of tax exception and infrastructure. (From 250 to 600 LE/Meter Square)

However, the new Tax law of 2005 has cancelled the Tax exemptions in all Industrial zones in return of a lower Corporate tax of 20% instead of 45-60% in the old tax law.

Therefore the prices of land in such industrial areas has to be reduced (to less than 180 LE/metres square) to continue attracting investments to these areas, this is being studied now and a reduction in price has already been done and a transfer of the jurisdiction and Control over the land allocated for industry from the Ministry of Housing to MTI is being considered now, since MTI would be in a better position to guide Industrial growth and distribution of various industries in theses cities, the Industrial Development Authority within MTI is being re-organised to handle the allocation of Land for industry.

2.5.2 Agricultural production

Mostly Food Processors in Egypt purchase from the production what is offered to them as a surplus; they usually do not contract for their future needs.

Although Processors do not complain, it is amazing to see some erratic behaviour of export sales in the fruit juices for instance: exporting more, the sector is obviously moving from one area to the other, finding it difficult to achieve long term strong growth on ancient markets.

This is confirming that it is fairly difficult for Egypt to export in such sectors that are not category killers (not enough volumes). On the other hand, the customer who would be ready to purchase more would certainly visit his supplier partner and get an overview of the investments he has made to be in a position to supply the volumes1.

2.5.2.1 Conventional agriculture

The 2004 statistics of AEC shows (table 21) the following major Agricultural commodities average productivity/yields per feddan (the most commonly used raw materials for processing).

The yields are averaged from all over Egypt farmed areas (AEC-MALAR 04).

1 This is particularly true in fruit juices


Table 21. Major Agricultural commodities average productivity/yields. CROP YIELD – (TON/FED.)RICE 4.10 WHEAT 2.70 TOMATOES 16.45 GREEN BEANS 4.87 GREEN PEA 4.39 OKRA 6.68 MOLOKHIYAH 8.77 ARTICHOKES 8.16 CARROT 11.5 CAULIFLOWER 10.14 PEPPER 6.61 SPINACH 8.26 TARO 14.14 STRAWBERRIES 11.49 POTATOES 12.40 SUGAR CANE 45.68 ONIONS 14.06 APPLES 5.92 ORANGES 8.00 MANGOES 8.18 GUAVA 7.68 APRICOT 3.30 PEACHES 4.94 FIGS 3.48 FENNEL 0.800 BASIL 2.31 CARAWAY 1.00 MARJORAM 2.01 KARKADEH 0.300 SPEARMINT 1.418 PEPPERMINT 2.278

Source AEC-MALAR 2004

The average yields given by AEC-MALAR statistics are considered within normal world yields for NON-GMO varieties, except for some crops like Sugar Cane, Rice and Artichokes in which Egypt has achieved high yields.

2.5.2.2 Organic products

In addition to the NON-GMO status of Egyptian Agrofood Industry, another clear advantage of Egyptian Agrofood sector is the ability to use newly reclaimed land in farming organic products (BIO – no pesticides and no fertilizers) which is required for exports as fresh and processed products to Bio Organic markets in EU mainly (tables 22 and 23).

There are at least 6 leading Organic Food Processing and Exporting firms in Egypt (the pioneer being SEKEM Group) who are farming and producing Organic foods as per the German Organic standard (DEMETER) which is a prerequisite for Organic certification.

Table 22. Exported certified organic products (tones) during 2004/2005.

Products Total Vegetables 10,182

Fruit 984 Medicinal plants 571

Processed foods 485 Essential oils 104

Total 12,326 Source: ECOA 2005


Table 23 Land area under organic agriculture and the number of certified businesses working in Egypt

in 2004/2005 (for acronyms see page 8 and 9).

Certification body Soil association

ECOA COAE IMC QCOI Total

Total Organic cultivated area

(Feddans)

2 406 1 002

15 076 6 281

10 283 4 284

2 345 977

1 850 771

31 960 13 316

Number of certified businesses

1 44 32 10 7 94

Source: ECOA 2005

The growth in demand in EU for Organic foods has stabilized in the past 2 years after a steady

growth in the past 10 years, the price difference between conventional and organic product being 1 to 6 currently, lower than 1to 10 five years ago.

2.5.3 Subsidized and Imported food products

With more than half of the population of Egypt classified poor, the GOE has been committed to subsidising basic foods and some services as an inheritance from the socialist Nasser Era, also due to an extended World Wars effect and confrontation with Israel since the 40's.

The GOE estimates that the subsidy has reached 120 Billion LE, eating 2/3rds of the Budget, while a careful examination of the subsidy reveals that it only represents 20% if we exclude the subsidy on the free services of Education and Health services, also the subsidy to Pension funds.

If we also exclude the subsidised fuel load (42 Billion LE) which is calculated on the basis of the difference between the International prices of fuel and its subsidised prices, then we can concentrate on the actual direct food subsidy which is put at 12.7 Billions LE in 2004/2005 budget.

The high figure is attributed to the steady increase in population and the continued rise in cost of imported foods combined with the devaluation of the Egyptian pound against most currencies in 2003.

The main 9 food commodities that are subsidised are:

Grain Flour, Fava Beans, Lentils, Rice, Pasta, Vegetable Ghee, Tea, Sugar cane.

Although the subsidised foods are controlled in distribution to ensure it reaches the needy levels of consumers, however many local food processing industries utilising any of the above commodities as ingredients may directly or indirectly benefit from unspecified quantities of the subsidised foods which are traded in the "Black" market, such as Confectionery, Bakery products, Packing dried legumes and Pasta.

Efforts and studies are being made to substitute this food subsidy system by a direct financial payment to Pre-identified eligible levels of consumers, using Smart I.D Cards, which if successful is believed would reduce the subsidy, figure drastically.

Although Egypt Produces many of the commodities specified, specially Rice in which Egypt is self sufficient and a net exporter, but remains short of sustaining the consumption in many the other food items like Sugar, Grains, Vegetable Ghee and specially Tea in which Egypt is net importer.

2.5.4 Imports for re-exports

EFPI depend on many imports for their production mostly ingredients and packaging, also some raw materials like Frozen Beef (which is cheaper than using local Beef) for production of Processed Beef which is re-exported mainly to neighbouring markets (Sudan, Palestine, Jordan and Libya), Edible Oil seeds Like Soy and Sunflower, for local extraction, refining, mixing and packing into retail packs of edible oil, which some of it is re-exported to Yemen and Libya.


Imported crude Palm oil and palm kernel oil from S. East Asia (mainly Malaysia) for local refining, mixing, Hydrogenation into ghee substitution, flavouring and retail packing has grown into a huge business that involved building special Crude oil reception facilities on the Gulf of Suez (Adabiyah, Attaka) which included offshore facilities to receive and pump crude edible oil from bulk tankers to the shore processing facilities. Many of these retail products are re-exported to Palestine, Libya, Sudan, Iraq and Yemen.

One of the high value examples of successful processing of imported food for re-export is MISR CAFÉ, where imported Coffee is processed in modern lines to NESCAFE for production of instant coffee then remixed unpacked with local brands and exported.

Importing Bulk Powdered Milk and Sugar for repacking used to be a huge business for the Iraqi market before the invasion of Iraq in 2003, and is reported to be slowly returning through other Jordanian and Kuwaiti trading channels.

Importing Frozen fish from EU and Norway for Canning and smoking as a cheaper alternative to expensive local fish, is also another example where Frozen Mackerel is imported for canning as well as thawing and direct selling, also Frozen Herring is imported for local salting and smoking, and a smaller quantity of Frozen Salmon is imported for local processing (Filleting, Salting and Smoking), and eventually some of these value added products are re-exported again to neighbouring markets.

Some canning grade dried legumes are imported like Fava Beans for local canning, then re-exported as canned beans.

Recently an emerging trend was detected, which is utilization of Egyptian recipes in mixing and repacking imported ingredients, flavours and colourings with- some local ingredients- mostly for export to juice bottlers, Powdered dessert mix (Jelly) and bakeries in neighbouring markets, the interviewed firms are talking about a 6 million USD monthly business and that trend should be monitored to see if it's worth enhancing.

2.5.5 Packaging supplies

The cost of retail packaging for foods in Egypt can be up till 45-65% of the total cost of a final product (table 24), due to reliance on imported packaging, since Egypt does not have natural timber resources (paper, pulp, board and wood).

The Association of Packaging in Egypt estimates that Egypt spends 4 billion LE on packaging per annum (a separate breakdown for Food Processing packaging cost is not available).

Table 24. Use of packaging materials in food industry in Egypt by volume.

Relative use of packaging in EFPI 2004 PAPER/BOARD/CARTONS 39.10 % PLASTICS 29.50 % METAL 21.00 % GLASS 7.20 % WOOD 3.20 % TOTAL 100%

Source: Packaging study 2004

Glass packaging shortage in Egypt is a problem that has affected all glass packers (Juice, Jam, Oil and Tomato Paste bottlers) due to the unanticipated high demand on Egyptian food exports after the LE currency devaluation in 2003 and the extensive investments required in glass manufacturing and moulds acquisition – this shortage drove many bottlers to importing glass from Lebanon and Gulf factories as the 4 existing glass manufacturing plants struggle to keep up with demand, a fifth glass factory (Kama Glass) is operational now and a 6th factory is under construction.2

2An IMC study has covered the packaging in Egypt extensively (Egypt’s Packaging Sector Development Strategy (PSDS) and Action Plans - 21st October 2004)


2.5.6 Bar coding Food Products

Barcodes are a group of computer filled mixtures of bars and numbers which can classify each Country, producer, product and other product specification so it helps in identifying products, source, origin, manufactures etc. which is very useful in retailing products in Super and Hyper Markets (inventory control) also in tracing and recalling a troubled product and assigning the liability, through scanning the code.

The code allocated for Egypt by EAN (Egyptian Article Numbering) is 622 so any product beginning with these numbers, originates in Egypt, the numbers that follows it defines the manufactures (unique to each manufactures), item ref. Number allocated by the factory to identify its product and so on.

Bar coding became such a standard identification instrument, that it is now mandated by all major export markets worldwide.

The number of EFPI that has registered in EAN has now reached 724 companies (table 25).

Table 25. Number of Egyptian Foods and Beverages Firms Registered with EAN (BAR CODING).

Year Firms registered with Bar Coding before 1997 14

1997 12 1998 22 1999 25 2000 181 2001 81 2002 70 2003 109 2004 69 2005 141 Total 724

Source : EAN Cairo Jan.2006

2.5.7 Logistics

Egyptian Merchant fleet is the biggest in Middle East with 133 Vessels, 80% privately owned, 17% Public Sector and 3% Arab Investment, however 94% of Egypt’s foreign trade is carried to and from Egyptian Sea Ports by non-Egyptian flag vessels.

The Inter-Arab and Inter-Comesa trade are not serviced regularly by Arab shipping companies in spite of attempts by independent operators like Yamani Filfila Co. which has operated a North African shipping line from Alexandria Sea Port to Libya and Tunis with limited success, most Egyptian/Arab and African Sea trade have to use Intl. carriers with transhipments in several ports with added cost and transit time.

The recent Red sea ferry tragedy with the subsequent cancellation of many Red Sea ferry traffic due to tightening of Marine Safety rules – has demonstrated the dependency of Egyptian – Arab Trade on Sea freight – routes with a lot of delays in delivery, loss of cargo and higher Sea freight rates from the few vessels that remain approved for Red Sea traffic.

As for Airfreight, the state owned national carrier, Egypt Air has a monopoly over Air Cargo exports from Egyptian Airports, with limited cargo space on International Airlines carrying passengers to and from Egyptian Airports.

The operation of the Cairo Airport Perishable Terminal has improved the export condition of Fresh and Frozen Foods.

The shipping situation from Egyptian seaports to EU (and USA) has improved in the past 3 years mainly due to “Green Corridor project with Italy”. This has provided a projection to the seasonal agro food exports needs from Egypt to EU shipping firms, also the introduction of 2 new RORO vessels by Naggar Shiping on Italian and Slovenian ports, especially in Reefer cargo.


However, shipping to GCC ports and Comesa remain difficult where the shipping rates for Reefer containers can be as high as 7500 USD to East Africa.

The situation of Dry containers from Egypt to EU ports is better since Egypt imports more than it exports to EU and the availability of empty dry containers going back to EU makes it advantageous to EFP exports in dry containers with rates as low as 350 USD per 20ft dry container and 500 USD for 40ft dry container from Alexandria or Damietta to Rotterdam or Hamburg. Only in major export crops like Potatoes and Oranges yet still ships are chartered each year due to continuation of Reefer containers shortage in that season.

2.5.7.1 Transportation rates Egypt – Europe Via Sea/Land (2005)

2.5.7.1.1 Reefer Containers

Table 26. Land Transport through flat Trucks for reefer transport.

From Alex. Port Port Said / Damietta Nubaria L.E 850 L.E 1500 Sadat L.E 900 L.E 1500 Faium L.E 1000 L.E 1500

• Prices Sources: Magdy El Sheikh Establishment-20/40 ft

• Add 80-100 USD for day lease of Clip-on Genset for Reefer containers

Table 27. Transit time from Egyptian ports to European ports (Alexandria, Dekhaila, Port Said,

Damietta).

Port Transit Time (days) Italian Ports Genoa 3 Ravenna 3 La Spezia 2 – 4 France Fos 3 – 5 Holland Rotterdam 6 – 10 UK Felixstowe 8 – 9 Thamesport 9 Tilbury 10 Slovenia 3 Koper 3

Table 28a. Italy.

Line Destination Transit Time Cost CMA-CGM La Spezia ( every 10 days) 28/5, 7/6, 17/6,

27/6, 7/7 3 ( Port Said ) $ 1800

P and O La Spezia ( Weekly Wed.) 2 ( Damietta) $ 1850 Safmarine Goia Tauro ( Weekly Sat. ) 2.5 Port Said $ 1900 K- Line Naples ( Weekly Wed. ) 3 Port Said $ 1700 K - Line Genoa ( Weekly Wed.) 5 Port Said $ 1700 Maersk Goia Tauro ( Weekly Tue.) 3 Alex. $ 2050 Hyundai Genoa (Weekly Fra. ) 3 Port Said $ 2100


Table 28b. UK Transport, Direct shipment.

Line Destination Transit Time Cost K – Line Felixstowe ( Weekly Wed. ) 7 Port Said DM 3700 Pand O Thamesport ( weekly Sun. ) 9 Port Said $ 1850 CMA-CGM Tilbury ( 10 Days ) 18/5, 28/5,

7/6 10 Port Said $ 1735

CMA-CGM Thamesport ( Weekly Sun. ) 9 Port Said $ 1735 Safmarine Thamesport ( weekly Sun. ) 8 Port Said $ 1850 Maersk Felixstowe ( Weekly Wed. ) 9 Damietta $ 2050

Table 28c. Holland, Belgium and Germany.

Line Destination Transit Time Cost K-Line Rotterdam ( Weekly Wed. )

Bremenhaven ( Weekly Wed.) 6 Port Said 9 Port Said

$ 1800 $ 1900

CMA-CGM Rotterdam ( Weekly Wed. ) 10 Damietta $ 1800 CMA-CGM Hamburg ( Weekly Sun. ) 9 Damietta $ 2000 Safmarine Antwerp ( Weekly Sun.)

Hamburg ( Weekly Sun.) 11 Port Said 10 Port Said

$ 1850 $ 1950

Maersk Bremenhaven ( Weekly Sat. ) Antwerp ( Weekly Sat. )

7 Damietta 9 Damietta

$ 2050

Norasia Hamburg ( Weekly Mon. ) Rotterdam ( Weekly Mon. )

9 Damietta 10 Damietta

$2000 and1900

Table 28d. Total Direct shipment to Europe. Description Direct to Mediterranean Ports Direct to North Europe and UK. Reefer Length 40 ft 20 ft 20 ft 40 ft Ocean Rate (Average )

$ 1800 $ 1425 $ 1425 $ 1850

Forwarder Fees $ 220 (L.E 850)

$ 220 (L.E 850)

$ 220 (L.E 850)

$220 (L.E 850)

Committees and Receipts

$ 90.2 (L.E 350)

$ 90.2 (L.E 350)

$ 90.2 (L.E 350)

$ 90.2 (L.E 350)

THC and Electricity

$ 74.74 $ 14.18 / day

$ 43.81 $ 14.18 / day

$ 43.81 $ 14.18 / day

$ 74.74 $ 14.18 / day

Gen.Set / Day ▼ Leasing Shipping Line

$ 150.0 $ 58

$ 150.0 $ 58

$ 150.0 $ 58

$ 150.0 $ 58

▼ 2 Days notice will be needed for the generator units

All prices for 40 ft reefer container only.

Table 29. Sea/Land (Intermodal by truck) freight transit time through Italian and Slovenian ports to

major cities in Europe.

Destination from Egyptian ports to

Through Italian Ports ( days ) ♣

Through Slovenian Port ( Koper ) ( Days ) ♣

Ousted 4 – 5 4 London 5 – 5.5 4.5 – 5 Amsterdam 4 – 5 4 Warsaw 5 – 5.5 5 Frankfurt 4 – 4.5 4 Köln 4 –5 4


Rotterdam 4 –5 4 Berlin 4 –5 4 Hamburg 5 4.5 -5 Copenhagen 5.5 5

♣ Based on direct truck (2 drivers.)

Table 30. Sea/Land freight costs through Italian and Slovenian ports to Europe.

Description Via Italy Via Slovenia ( Koper ) La Spezia Genoa Ocean Rate $ 1800 $ 2100 $ 1250 Forwarder Fees $ 220

$ 220

$ 220

THC and Electricity/day

$ 74.74 $ 14.18

$ 74.74 $ 14.18

$ 74.74 $ 14.18

Gen. Set ( Leasing) /trip

$ 150 $ 150 $ 56

Handling Charge at the first arrival port

$ 950 $ 950 $ 675

Land transport ( from the first arrival port to the final destination Holland Belgium UK ( London ) DK(CPH)

$ 1300 $ 1200 $ 2200 $ 1800 $ 2400

$ 1300 $ 1200 $ 2200 $ 1800 / 2100

$ 1260 $ 1200 $ 1950 $ 1700 / 2100

3.5.7.2 Via AIR

Table 31. Land transport through refrigerated trucks*to Cairo airport.

From To Cost Nubaria Cairo Air port L.E 850 Saddat L.E 800 Faiym L.E 850

*Prices sources: Magdy El Sheikh Establishment.

3.5.7.2.1 Airfreight

Table 32. Land transport from Cairo airport.

Airline/Destination from Cairo Airport Airline freight fee/Kg Freight rate/Kg (about) Egypt Air London Paris – Amsterdam Rome – Milan Zurich – Geneva KLM Amsterdam Air France London

L.E 5.75 L.E 5.75 L.E 5.75 L.E 5.75

Euro 1.50

Euro 1.30


Paris British Air ways London Lufthansa Frankfurt Alitalia Rome – Milan Charter Ousted

Euro 1.30

Euro 1.25

Euro 1.20

Euro 1.50

$ 1 Warehousing fees ( about ) $ 4.38 / ton Bill of Lading Fees ( about ) $ 8.77 / each Others ( about ) $ 5.88 per B/L Land Transport ( refrigerated ) As above schedule

* Egypt Air cargo service is partly subsidised

3.5.7.2.2 Additional Information

Table 33. Reefer Container Leasing (DAN REEFER).

Period Price (40ft) / day ($) With Gen- Set / Day 2 Months 40 80 Month 50 90 Week 75 125

A new shipping service from Sokhna to East African ports is charging 1500 and 2875 USD per 20 and 40ft dry containers respectively, also 1680 and 3085 USD to Port Sudan, via Jeddah.

The Alexandria Seaport Container terminal grants exported containers a 45% discount on handling fees.

2.5.8 Technical support “Centre of Excellence”

The COE chosen to provide Technical support to EFPI is Food Technology Centre (FTC), under MFTI patronage.

FTC is to work as a catalyst to help meet the technological needs of the Egyptian food processing industry and its export sector to become competitive in a sustainable manner. FTC should bridge the gap between the industry’s technological needs, market demands and technical resources available locally and abroad.

By 2006 FTC will employ approximately 30 people: food technologists, quality specialists, agricultural experts and administrators. The management team will consist of a Steering Committee (with representatives from industry, MFTI and IMC) working closely with FTC’s Managing Director.

Line groups are to consist of Quality Systems, Product/Process/Package Development, Agricultural Research and Training. Areas of support will include training and technical assistance, development (product/process/package) and agricultural research.

2.5.8.1 Services

Training and Technical Services

• Most of the services envisioned to be demanded by industry fall into the general category of training and technical service. In this context, “Technical Service” refers to consulting services;

• Training and technical assistance in product development, product improvement, processing technology, packaging and creativity;


• Training and technical assistance on Quality Management Systems (QMS) including good agricultural practice systems;

• Training and technical assistance for introducing new varieties that are more amenable to growing and processing under local conditions;

• Training and technical assistance on the operation and maintenance of field coolers, cooling/packing sheds, refrigerated warehouses and transport;

• Training and technical assistance on post harvest handling techniques;

• Training and technical assistance in production planning;

• Training of trainers;

• Providing feasibility studies to assess the impact of new equipment on the over-all operation;

• Providing industry-specific training and technical assistance in developing Market Information Systems (MIS) data;

• Providing training on computer and Internet skills;

• Having available the services of native English, French and German speakers for editing and proof-reading labels, applications for import, ad copy and other promotional material and newsletters. This activity could also include regulatory compliance for labels and other regulatory compliance issues in target export markets;

• Encouraging the local manufactures of industrial bulk commodities to replace some of their production with branded or private label retail packages.

2.5.8.2 Other Services

Those services that do not fit the category “Training and Technical Services” are referred to as “Other Services”:

• Developing internally, or upgrading existing institutions where appropriate, analytical services that are critical to certain sectors of Egyptian industry. These include but are not limited to Salmonella for the spice industry and pesticide residue for processors who have inputs of raw agricultural commodities. This also includes FTC’s current sensory evaluation laboratory, the only such facility in Egypt;

• Encouraging and helping organize contract farming practices between processors and growers;

• Developing training manuals and templates (where none exist) on subjects important to the food industry such as HACCP, GMP, productivity, quality, etc.;

• Establishing a database of local and key export market regulations and Standards.

There are other Research and Development centres that also provides Microbiological and Chemical analytical and calibration services to EFPI such as:

FTRI, HIPH, Mubarak scientific city, Pesticide Residue La, Central feed lab and many labs belonging to the various Agricultural. and Science faculties in Egyptian Universities.

2.5.9 Access to finance

Access to finance did not show any major change for the last two years. The lending rates of commercial loans to EFPI are still high (13-15%) compared to the low profit

margins of this sector by nature. Due to some lending scandals in the past few years, the commercial banks are very tight on lending and require many types of collateral and take too long time to approve.

Many Food Processors have opted to change status to a Joint stock entity and sell some of their shares on the stock market to provide liquidity to finance their expansion on the expense of loosing partial control. Arab finance came into EFPI and solved many of these liquidity problems and secured profitable investments (Americana, Alajwa, Arab Diary).


Many of the Donors funds and grants allocated through Industrial Development Bank of Egypt remain unmarketable due to being burdened by high interest rate and bureaucracy.

Finance from Commercial Banks in Egypt is available on Commercial terms; currently the interest rate for LE loans is 15% per annum and 6% for USD and EURO loans annually. As for soft loans and credit, these could sometimes be made available for Agro food projects that can present feasibility study and acceptable collaterals, through various sources such as:

- Industrial Development Bank of Egypt. - Agricultural Development and credit bank - Export Credit Guarantee co of Egypt - Export Development Bank. - Social Fund for Development (small entities). - Islamic Development Bank (JEDDAH). - EIB (FEMIP) – EURO MED 2. - ARAB TRADE FINANCE PROGRAM (ABU DHABI). - KUWAIT Fund for Development. - INTER-ARAB INVESTMENT GUARANTEE CORPORATION – (KUWAIT) The IMC has entered into an agreement with finance institutions in Egypt to provide finance for

Industrial projects named HORUS PROGRAM.

2.5.10 Agro-Food Industry productivity

Many reports picture the Egyptian competitiveness, of which the recent Competitiveness report 2005.

Although such reports conclude that Egypt is anyway due to gain competitiveness at a macro-economic scale, it is not clear to what extent the general national infrastructure from farms to sea ports will improve as much as the potential estimated gains in productivity.

It is clear that processed food industries have found better productivity when integrating the farming with upstream processing (Farm Frites, Heinz, Egyptian Canning), the same way than did the major fresh produce exporters. This is pushing them into a claim for new lands and big plots.

On the other hand, the gap analysis project submitted to the project team indicate thanks to a “quality audit” that general up-grading of SME’s is needed, starting from Organisation of companies, Delegation of responsibilities and all management principles. Graduates who enter the food –processing industry meet not only a technical challenge, but also meet the challenge of contributing to a fluent “reliable product” supplying organisation.


Table 34. Agro-food industry productivity in Mediterranean Countries (2002). Source Comtrade.

Productivity 1

Production/Emp

Productivity 2

VA/Emp

VA rate

VA/Production

$ thousand Rank $ thousand Rank % Rank

Israel 140.0 1 36.0 1 26% 5

Lebanon 100.0 2 23.3 4 23% 6

Turkey 95.6 3 25.0 2 26% 4

Tunisia 91.2 4 14.7 7 16% 11

Malta 80.0 5 23.3 4 29% 2

Syria 75.0 6 16.7 6 22% 7

Cyprus 68.8 7 25.0 2 36% 1

Morocco 50.0 8 10.3 8 21% 9

Jordan 34.4 9 7.5 10 22% 8

Algeria 33.3 10 8.9 9 27% 3

Egypt 30.0 11 6.0 11 20% 10

Total of above 61.9 14.7 24%

Source: CIHEAM (2004), based on UNIDO, World Bank and CIAA data, and author’s own calculations

2.6 Egyptian trade environment of the FPI

2.6.1 WTO

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.

2.6.2 Regional trade agreements

2.6.2.1 COMESA

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 current trade value between Egypt and COMESA members is 350 million USD, mainly Egypt export Rice, Onions, Oranges, Processed and packed foods and imports Tea, Sesame, Beef, Frozen Fish, Peanuts and Legumes.

Shipping, Logistics, Similarity in many agricultural products and payment guarantees are the main obstacles to COMESA bilateral trade. 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 Countries.

Egypt can also be the centre of trade for the products for re-exports to other Countries in the COMESA association.


2.6.2.2 MAFTA (Maghreb Free Trade agreement)

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.

Morocco has entered a free trade agreement with the US effective Jan 06 that allows import of Moroccan products to US free of import duties, and such products may have Egyptian raw materials or ingredients, but it is still too early to evaluate the impact of MAFTA agreement on EFPI.

2.6.2.3 GAFTA (Greater Arab Free Trade Area)

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) has started in 2005-2006, allowing free trade with zero tariffs from January 2005, although some Arab Countries still maintain some "negative or exempted" lists of some protected products.

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 for example 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-export to Egypt.

Yemen, Morocco, Libya, Algeria and Palestine still impose high import duties on Egyptian foods.

2.6.3 QIZ (Qualified Industrial Zones for USA)

On December 15th 04, Egypt and USA signed the protocol for Q.I.Z agreement (Qualified Industrial Zone) which gives special trading privileges to products made in 3 Industrial Zones in Egypt Greater Cairo (including 15th May, 10th Ramadan, Shobra Elkhema and Badrashin) and Alexandria (Borg El Arab and Ameriyah) and Port Said with possibilities of inclusion of additional areas in future; Ismailiah and Mahalah and Portsaid follows.

The trading privileges for processed foods products manufactured in these areas allow it to enter U.S.A markets without customs or tariffs or quotas.

The conditions for enjoying such privileges is a minimum of 35% of raw materials of Egyptian origin to a maximum of 88.3% and an Israeli component of minimum 11.7% to qualify for Q.I.Z privileges.

Although it is still early to see the results but this agreement is expected to have a positive effect on increasing exports of EFPI products to USA markets, judging by the success of Q.I.Z agreement in boosting Jordanian exports to USA to more than 800 million USD in 2003.

The Israeli component can be in packaging or ingredients or flavours which EFPI is used to importing anyhow also sea freight on Israeli flag shipping, Insurance, sales agents commission and the cost of Kosher certification of some food plants in Egypt which makes its products more desirable in the US Kosher market.

The QIZ agreement unit at MOFTI expects it to allow for tripling of Egyptian Processed food exports to the US market in 2 years providing the Agrofood capacity allows it also the compliance with FDA regulations on exporting foods to US (FCE registration for Low Acid Canned foods, HACCP, Labelling regulations, Bioterrorism act, Shipment arrival prior notification...).

Egyptian foods exported to USA under the QIZ agreement can receive up till 77% import duties waiver like some Dairy products (Cream), also condiments like Mustard 73% (www.qizegypt.gov.eg).


Table 35 (obtained from the QIZ unit at MOFTI) reflects that Egyptian Food products can have a share of a 4 Billions USD Tariff based food imports per annum, out of which an estimated one Billion USD is for food items that are produced in Egypt.


Table 35. QIZ program "Egypt / USA / Israel". Detailed analysis of the "food and beverages" product group sorted by decreasing importance of total import value

(year 2004).

HTS8 Brief Description MFN AD VAL Rate

MFN SPECIFIC

RATE

Trade Barrier

Total Imports Total Imports Under No.

Special Import Programs

Share Under Special Import

Programs

1604-14-30 Tunas and skipjack, not in oil, in airtight containers, n/o 7 kg, not of U.S. possessions, over quota

12.50% 0 12.50% $500,952,885 $467,101,169 6.76% A2

0710-80-97 Vegetables nesi, uncooked or cooked by steaming or boiling in water, frozen, reduced in size

14.90% 0 14.90% $275,673,077 $13,592,060 95.07% A4

0202-30-80 Bovine meat cuts, boneless, frozen, not descry in gen. note 15 or add. US note 3 to CH.2

26.40% 0 26.40% $222,939,427 $221,356,396 0.71% A1

0406-90-95 Cheeses and subst. got cheese (incl. mixt.), nesoi, w/cows milk, w/butterfat o/0.5% by wt, subject to Ch 4 US note 16 (quota)

10.00% 0 10.00% $185,847,356 $182,923,518 1.57% A3

0406-90-41 Romano, Reggiano, Parmeson, Provolne, and Provoletti cheese, nesoi, from cow's milk, subject to add. US note 21 to Ch.4

15.00% 0 15.00% $81,011,084 $52,539,412 35.15% A3

2005-90-80 Artichokes, prepared or preserved otherwise than by vinegar or acetic acid, not frozen

14.90% 0 14.90% $76,318,741 $59,608,005 21.90% A4

2005-90-97 Vegetables nesoi and mixtures of vegetables, prepared or preserved otherwise than by vinegar or acetic acid, not frozen, not preserved by sugar

11.20% 0 11.20% $66,571,402 $23,542,402 64.64% A4

0811-10-00 Strawberries, frozen, in water or containing added sweetening

11.20% 0 11.20% $62,279,423 $7,780,150 87.51% A5

2009-69-00 Grape juice (including grape must), of a Brix value exceeding 30, unfermented

0.00% 0.044 13.51% $56,446,927 $50,798,139 10.01% A8

2008-92-90 Mixtures of fruit or other edible parts of plants, otherwise prepared or preserved, nesi (excluding tropical fruit salad)

14.90@ 0 14.90% $52,270,781 $18,270,436 65.05% A5

0406-90-42 Romano, Reggiano, Parmesan, Provolone, and Provoletti cheese, nesoi, from cow's milk, not subject to GN 15 or Ch4 US note 21

0.00% 2.146 19.35% $51,339,681 $51,339,681 0.00% A3

2001-90-25 Artichokes, prepared or preserved by vinegar or acetic acid

10.20% 0 10.20% $41,767,923 $39,088,190 6.42% A4

0406-90-08 Cheddar cheese, neosi, subject to add. US note 18 to Ch. 4

12.00% 0 12.00% $40,391,728 $36,788,242 8.92% A3

0406-90-84 Cheeses and subst. for cheese (incl. mixt.), 0.00% 1.055 38.42% $38,655,865 $38,655,865 0.00% A3


nesoi, w/ or from Am. Cheese except cheddar, not subject. To add. US note 19 to Ch. 4, not GN 15

1904-20-90 Prepared foods obtained from un-roasted cereal flakes or from mixtures of un-roasted cereal flakes or swelled cereals, nesoi

14.90% 0 14.90% $34,147,806 $466,123 98.63% A9

0405-10-20 Butter not subject to general note 15 and in excess of quota additional US note 6

0.00% 1.541 72.75% $31,770,962 $29,578,707 6.90% A3

0406-90-33 Goya cheese not from cow's milk, nesoi, not subject to gen. note 15 or to add. US note 21 to Ch. 4

21.30% 0 21.30% $31,551,988 $31,551,688 0.00% A3

0406-90-16 Edam and gouda cheese, nesoi, subject to add. US note 20 to Ch. 4

15.00% 0 15.00% $31,174,939 $31,174,939 0.00%

A3

0201-30-80 Bovine meat cuts, boneless, fresh or chld., not descry in gen. note 15 or add. US note 3 to Ch. 2

26.40% 0 26.40% $31,139,441 $21,120,940 32.17% A1

0405-90-20 Fats and oils derived from milk, other than butter or dairy spreads, not subject to gen. note 15 and excess of quota in ch. 4 add US note 14

8.50% 1.865 77.72% $30,568,431 $30,568,431 0.00% A3

2105-00-50 Edible ice, except ice cream, not described in add US note 1 to CH. 4, nesoi

17.00% 0 17.00% $29,119,597 $6,216,527 78.65% A7

2103-20-40 Tomato sauces, nesi 11.60% 0 11.60% $28,033,269 $2,211,549 92.00% A7 1806-20-83 Chocolate / oth preps w/cocoa, o/2kg but

n/o4.5 kg (dairy prod. Of Ch 4 US note 10), n/o 65% sugar, 21%or more milk solids, not GN 15

8.50% 0.528 21.20% $28,019,597 $163,917 99.41% A6

0714-10-20 Cassava (manioc) fresh, chilled or dried, whether or not sliced or in the form of pellets

11.30% 0 11.30% $24,434,463 $71,513 99.71% A4

2004-90-85 Vegetables and mixtures of vegetables, nesoi, prepared or preserved other than by vinegar or acetic acid, frozen not preserved by sugar

11.20% 0 11.20% $23,832,835 $4,922,759 79,34% A4

2009-61-00 Grape juice (including grape must), of a brix value not exceeding 30, un-fermented

0.00% 0.044 13.63% $22,771,471 $17,185,751 24.53% A8

0712-90-40 Dried garlic, whole, cut, sliced, broken or in powder, but not further prepared

29.80% 0 29.80% $22,733,083 $22,323,771 1.80% A4

2005-90-55 Fruits of the genus Capsicum or Pimenta, not pimientos, prepared or preserved otherwise than by vinegar or acetic acid, not frozen

14.90% 0 14.90% $20,919,987 $3,414,562 83.68% A5

2204-29-60 Grape wine, other than sparkling, not over 14% vol. alcohol, in containers holding over 4 litres0.00%

0.00% 0.14 14.07% $20,915,367 $20,817,569 0.47% A8


0710-80-70 Vegetables nesi, uncooked or cooked by steaming or boiling in water, frozen, not reduced in size

11.30% 0 11.30% $20,388,776 $5,673,851 72.17% A4

2101-20-58 Preparation ov 10% sugar (CH 17 add US note 3) w/basis of extract / essence/concentrate or w/basis of tea or mate, ov Ch 17 add US note 8 quota

8.50% 0.305 20.17% $20,230,662 $452,363 97.7% A8

0201-30-30 Bovine meat cuts ( except high-qual. Beef cuts), boneless, processed, fresh or chld. Decr in add. US note 3 to Ch 2

10.00% 0 10.00% $17,999,711 $0 100.00% A1

0405-90-10 Fats and oils derived from milk, other than butter or dairy spreads, subject to quota pursuant to chapter 4 additional US note 14

10.00% 0 10.00% $17,846,232 $17,719,479 0.71% A3

2008-40-00 Pears, otherwise prepared or preserved, nesi 15.30% 0 15.30% $15,435,275 $14,963,416 30.6% C1 2008-19-90 Other nuts and seeds nesi, excluding

mixtures, otherwise prepared or preserved, nesi

17.90% 0 17.90% $15,075,844 $3,782,167 74.91% A5

0403-10-90 Yogurt, not in dry form, whether r not flavored or containing add fruit or cocoa

17.00% 0 17.00% $13,073,210 $11,537,473 11.75% A3

1604-30-20 Caviar 15.00% 0 15.00% $11,908,834 $7,776,696 34.70% A2 0406-90-97 Cheeses and subst. for cheese (incl. mixt.),

nesoi, w/cows milk, w/butterfat o/o.5% by wt, not subject to Ch4 note 16, not GN 15

0.00% 1.509 18.15% $11,553,239 $8,894,319 23.01% A3

2005-60-00 Asparagus, prepared or preserved otherwise than by vinegar or acetic acid, not frozen

14.90% 0 14.90% $11,341,507 $1,969,984 82.63% A4

1704-90-90 Sugar confectionery, w/o cocoa, nesoi 10.40% 0 10.40% $11,280,816 $4,180,347 62.94% A6 2103-30-40 Prepared mustard 0.00% 0.028 73.68% $10,575,066 $6,185,265 41.51% A7 2002-90-80 Tomatoes prepared or preserved otherwise

than by vinegar or acetic acid, nesoi 11.60% 0 11.60% $10,076,340 $5,710,910 43.32% A4


2.6.4 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, 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 years3. 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 globalization.

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 there are only from 4 EU approved factories.

EU has also strengthened all areas that make a processed food product a reliable one for the consumer: as a result, all actors of the food supply chain are responsible for any non-compliance to the norms and standards. They have to set a traceability system (EU 178/02 compulsory Jan 1st 2005) and prove that it is efficient.

Impact of such general food supply chain organisation will get stronger on those suppliers who do not invest to comply: “traceability and information system go together with improved efficiency” between actors (competitiveness)

2.6.5 Customs procedures

Reducing transaction costs in Egypt is an important aspect of upgrading the business environment in general and the Agro food Industry in particular being very price sensitive (figure 4).

Port fees and custom clearance delays are two of the main obstacles to competitiveness of Egyptian Agro food Industry due to high percentage of imported ingredients and packaging materials.

A recent UNIDO Study shows that the average time needed to custom clear an imported shipment through Egyptian Seaports is more than 12 days

3 2013 is the DOHA cycle deadline


Reforms in such areas is underway and already has reduced the procedures from 42 till 6 steps and when completed will have a positive effect on EFPI competitiveness.

Figure 4. Reducing transaction costs in Egypt.

Source: UNIDO – NORTH AFRICA Sub-regional development report 2005

2.6.6 Egyptian organizations involved with Processed Food exports

FEC, EXPOLINK have been related earlier in this document. HEIA is the main NGO responsible for Horticulture Improvement in Egypt, (there is also UPEHC

dealing with small horticulture growers but its mostly governmental); in addition to training of Eurogap, BRC, HACCP and Traceability, HEIA played a vital role in establishing the Perishable Goods Air Cargo Terminal in Cairo airport which has helped raise the rate of success of exports of fresh produce by air, but within the processed foods its role has been limited to the positive effect of upgrading agric. and farm/pack house operations to use less pesticides and provide cleaner and traceable raw material production for processing.

FPEA is still a new entity representing 65 members of EFPI and has an ambitious first project to upgrade wooden pallets sanitation in Egypt to fulfil International requirements in export.

ESHEDA is the new NGO set up to encompass Egyptian Producers and exporters of Seeds, Herbs and Aromatics in Egypt, and are planning a new Steam Lab sterilization service for exported herbs, seeds and aromatic plants.

Other accreditation such as HACCP and ISO or Traceability of the process are managed through private contracts with international certification bodies (Moody, SGS, TUV etc) mostly subsidized by IMC.


2.7 Egyptian legal and regulatory environment

2.7.1 The harmonization of Egyptian Standards

The Harmonization of Egyptian Standards (obligatory and voluntary) with International Standards, FDA and CODEX Alimentarious is in progress with co-funding from International Donors.

The newly proposed unified food Law and a unified Regulatory Authority (instead of current 17) is expected to go a long way in responding to Egyptian Agrofood processors requests and help reduce cost and increase competitiveness.

2.7.2 Export and Import law

The new Export and Import Law introduced by MOFTI is expected to have a positive effect on exports in general and processed foods in particular as it regulates many aspects directly related to Food Processing, such as the import and customs release procedures for imported ingredients, raw materials and packaging by facilitating their clearance through stream lining the various procedures, thereby allowing faster release time and lower costing of imported raw materials, ingredients and packaging.

A white list of regular importers and exporters who have not recorded import violations has been in practice for 2 years now and being enlarged, those are given random checks, less sampling and subsequent faster release.

The new Import and Export Law has also responded to large manufactures and exporter requests by limiting exports of their brands to brand owners and authorized exporters only, this has reduced the number of customer complaints abroad and safe guards the reputation of the original brand manufactures.

However this law and its stricter regulations for export licensing has limited the activities of export offices and smaller – non original brand exporters, but the overall effect of regulating exports and penalizing non conformities to export requirements is expected to be positive on enhancing the image of BRAND NAME EGYPT in general.

2.8 Conclusions and comments

2.8.1 Recent changes

Egypt Food Processing exporters had mainly anticipated the liberalization of trade and could gain sales further to the devaluation.

This currency policy has given some competitiveness that has stimulated quite a few investments in processing in Egypt Mediterranean crops (tomatoes, olives).

The period also shows an intense effort towards improved organization at institutional level: setting a Food law is a major step towards up-grading a sector.

Impact of liberalization of trade reveals that new foreign investors do come mainly for the domestic market and the regional: best example is “processed cheese”, but also Biscuits.

However, new comers hardly come to cope with the local infrastructure to collect local raw materials: this is a brake for FDI since coping with poor local collection system may costs a lot. On the other hand, such foreign investors are ready to pay more their “entrance ticket” when the job linking the processing unit to the local raw material is done and runs.

During the last ten years, this linkage has been performed first by the main fresh produce exporters in the new lands, then by Farm Frites and Heinz respectively for potatoes and tomatoes. As a matter of fact, such process learning gives huge competitive advantage. A few have started and many of them now understand that it is valuable and will claim allocation of big plots.


EFPI is at a crossroad: getting increased export performance and having been stimulated by the GOE which did cancel most of import taxes (etc), it is now fully in the world of competitiveness.

Far beyond the former period of gaining the first market shares through interstate Trade and quota negotiation with EU or the USA, EFPI is now competing.

2.8.2 S.W.O.T

The study team proposes thereafter an analysis of strengths and weaknesses on the basis of the recent changes (2003 – 2005) in global and local assessment.

The export performance significantly measures the improved competitiveness after the devaluation of 2003. Obviously there are entrepreneurs who have anticipated their own development (own strategy). On the positive side, there are many more strengths than weaknesses. On the negative side, opportunities and threats show that there is an obvious need to improve global competitiveness: cost of not doing it would be expensive. Strength and weakness points, opportunities and threats are summarized in tables 36 and 37.

Table 36. Strength and weakness points EFPI EXPORT SWOT – 2006.

EFPI EXPORT SWOT – 2006 – Food Study based on recent changes Strengths Weaknesses

• GOE has taken broad measures of liberalization of economy towards integration to the global market.

• Acceleration of trade and investment procedures • >5% growth although not yet in the 7-10% range. • EFPI has investments in capacities, in quality

improvement (export price is up) • EFPI has investments in new processing and new

factories • Increased management of quality (certification

HACCP ISO) • Export performance – enthusiastic record + 49% • Sustainable export growth cheese + price up • Similar pattern Frozen Veg although lower. • All continents expansion of relocated products

(dried onions) • Improved perceived image of some Egyptian

sectors (dried onions, • Egypt supplies 8 Arab Countries, 60% of its

exports • Partnership with foreign marketing companies

show positive results (ex Spices in the Usa) • GOE support to exports is active • Expolink for exhibitions, fairsandcommunication • FEC for trade and export subsidy • ECS active and attracting FDI • Better clarification of roles in general, in progress • Improved “refer” logistic to EU and the USA,

Green Corridor project • Conventional agri-support and certified organic

farming • Productivity gains through big farm integration,

acquisition of traceability expertise • Bar-coding in progress, i.e. improved participation

of SMEs to domestic and export market

• Ethnic sales in traditional markets (The USA) are disappointing, do not open doors for expansion of Egypt flag products.

• Weak expenses of EFPI for export promotion • Export champions seldom practice intensive

marketing efforts • Insufficient compliance in product quality, food

safety, packaging and labelling with international demand.

• Difficulty to meet the concerns for quality. • Weak logistic infrastructure to the immediate

region Arab and GCC Countries especially bureaucracy in over land trucking regulations.

• Expensive refer logistic to the GCC. • Price competition for farming land with fresh

exporters • Raw material is often still a surplus not a specified

good. • Access to finance is still expensive and difficult • Collective efforts too rare to solve / invest in

practical solutions. • Still many impediments to FDI


Table 37. Opportunities and threats EFPI EXPORT SWOT – 2006.

EFPI EXPORT SWOT – 2006 – Food Study based on recent changes Opportunities Threats

• accompany investments in international distribution to increase exports

• anticipate Iraq needs • develop strategic Alliance RD-EFPI when FTC is

staffed • attract FDI for new global sourcing and

processing location. • strengthen many practical issues to have the

products “meet the concerns”, the deliveries on time, to improve the perception abroad

• no acceleration in competitiveness improvement • slow improvement of port fees and clearance. • no investments in competitive infrastructure to the

GCC (to get additional market share) • no strengthening for compliance with global

supply chain efficiency (traceability, information system)

2.8.3 Gaps4

The “QUALITY AUDIT” offers a fair picture of most of the EFPI (not the champions). As a quality audit, it is a long check list designed to clarify whether organization, roles, procedures, skills, abilities, information system, accounting, marketing, etc are present in the company: answers are “YES” or “NO”.

Therefore, such an audit doesn’t offer any programme to close the gaps. In order to introduce short and long-term improvement of human resources and other resources in

a company, it is major at first to check whether there is in the Company a Strategy and an organization (Delegation) dedicated to achieve the strategy (in this case “Development”).

When applied to export strategy, the findings and recommendations are even more valuable since the “distance” with the market is important, the delay to get the goods on the final destruction place and the delay in information feedback.

This means that there cannot be a fair export development on markets unless dedicated resources and organization are present within the company

Diagnostic of the training needs from the Euregap report is shown in Table 38. The Food Study team suggests directions and order of implementation.

Table 38. Euregap report PBC - 2005.

Diagnostic - by order of

importance (PBC)

Diagnostic of the “training needs” Food Study Analysis, by order of Implementation

Marketing Building brands develops equity whilst promoting company name does not.

2 all marketing starting by market study and market understanding

Sales and distribution

Sales and distribution is an urgent development area

2

Supply chain Obvious needs to revise their planning systems to include demand planning. In turn, demand planning will need much better sales plans which bring us to the above recommended sales and distribution optimisation project.

4 demand planning is the most difficult planning to achieve in emerging markets and export sales unless product attractiveness is proven (mature)

Finances and accounting

This is important to ensure flow of business in healthy directions and to align managers on business objectives and goals.

3

4 This review of “local assessment of EFPI” has benefited from a few recent studies and interviews of leader managers within all the sub-sectors. Among the sources, the gap report given by IMC project team to the consultant team has been performed in a developing SME known to the consultant team. It was performed as a “Quality Audit”.


Human resources

It is also very important to promote a work environment that encourages and empowers teams, delegation, role clarification, alignment and job ownership.

1 – upgrading the skills and ability for the management cycle and the management by objectives (management of the performance)

Information technology

It is important to have an IT support function either through hiring an IT coordinator or through outsourcing

5 or in parallel

The consultant team recommends strengthening collective means within the EFPI for item 2: all

marketing starting by market study and understanding. Such collective means may be offered by an export agency with dedicated market experts in valuable markets.

The consultant team recommends also to IMC to implement Item 1 (Human Resources) in order to allow to companies management to reach a full ability to implement the management cycle and the management by objectives. Organizational learning and internal process improvement are the first subjects for a strategy improvement in the companies.

Such company management improvement programs can be profitably linked to “market needs” improvement programs, led by export agencies.

Performing gap closing programs gives fairs opportunities to create “clusters” within the industries, i.e. groups of companies dedicated to the same target that need a mutual cooperation to get a better result.

2.8.4 Competitiveness drivers for EFPI

The former Food Study had identified 8 major competitiveness drivers for the Egyptian food processing industry, listed in table 39 together with their main expected outputs.

Going through the local assessment, the consultant team has noticed what has changed recently Existence of a Policy.

This is the main output of the recent period: Egypt policy is dedicated to free brakes to the enterprises.

For instance, gaining in custom clearance delays, they better organise their supply chain (inward and downward). They become more reliable. They get more easily additional orders. (Driver 4c)

Improvements of the domestic market. Once the international distributors have set in a Country, they bring a new power in the supply

chain: EFPI is no more struggling daily with bargaining at street level its goods in a network of low

efficiency of wholesaling, not saying a word about the organization of the financial flows (banknotes cash payments). EFPI is being selected by broad and powerful consumer expertise.

EFPI is offered another way to define the profile of its consumer goods and a competitive approach of costs.

This driver is gaining outputs and will contribute to clarify the terms of competition, branding and efficiency within the EFPI.

EFPI is asked to be a partner in the supply chain to the consumer, not left alone in a jungle of streets. EFPI is projected in the world of reliability, evidence of efficiency and success.

Distribution chains, by setting “their rules”, are also projecting EFPI in a different financial world: EFPI is asked to finance with some delays of payment.


Table 39. Competitiveness drivers for EFPI. Competitiveness

drivers Food Study 2004 Food study findings

2006 Driver 1 Raw Material Supply Output 1.1 Better policy for efficient use of natural resources In progress

Output 1.2 Reduced post harvest losses of agricultural/raw materials

Mainly in big plots and integrated farms

Driver 2 Labour Productivity and Management Output 2.1 Trained, motivated and productive labour force Improved Output 2.2 Trained business development managers No change Driver 3 Access to Finance

Output 3.1 Increased access to finance for technology and working capital

Hardly any change

Output 3.2 Increased knowledge of access to finance No change

Driver 4 Increased supply of safe processed food to the domestic market Broader range of Egyptian products, improved labelling

Driver 4a Integration of micro and cottage industries into the formal sector

Not assessed

Output 4.1

Reduced negative food trade balance through development of micro, small and medium scale food processors

Not assessed

Driver 4b Development of the domestic retail market system

Output 4.2 Development of domestic retail system

Big retail gained experience but the logistic does not yet support it.

Driver 4c Increased role of SMEs in the domestic and regional market

Output 4.3 EFPI's position strengthened in product groups with presence of SMEs

More SMEs companies have stronger export sales Champions become even bigger

Driver 8 Export Performance

Output 8.1 Increased export of processed food Above 40% growth for two years

Driver 5 Support institutions coordination

Output 5 Establishment of coordination body/board

Unified food authority not yet formed, FTC as Centre of excellence defined.

Driver 6 Strategic Alliance between university and industry

Output 6 Technology transfer and trained (graduate) manpower

In progress

Driver 7 FDI attraction

Output 7 Increased inflow of FDI into EFPI A few more EU regional or multinational

Further policy impact

The economic reform policies adopted in Egypt in the past two years have had a positive effect on the competitiveness of Egyptian Industry in general and EFPI in particular being more cost sensitive, especially in reliance on imported ingredients and pack again materials, for example the custom tariffs reduction and procedures reforms made in the past a two years have relatively reduced not only duties but also clearance time for imported inputs to a certain extent, as the customs USD rate was adjusted after the devaluation which sort of offset the import duties reduction.

EFPI look forward to further facilitation and speeding up of tests on imported inputs as the upgrading of the port laboratories continues also a reduction of sampling procedures which reduces waste and in total reduces costs to EFPI, thereby enhancing their competitiveness.

2.8.5 Sustained added value processed food export growth

The global context and perspectives and the local assessment invite to question about the sustainability of the present export growth process. Main shifts and relocations within the global sourcing concern the commodities.

The assessments offer a fair idea of Egypt profile of resources for commodities:


- long term low rural labour cost, potential new lands, two-season cropping, improving water management, improving seed inputs, improving fret (not yet cheap). All these advantages are hampered by huge harvesting and collecting wastes in the older farming structures.

- FDI is attracted by the size of the domestic market and develops often a permanent import flow of raw materials (easier than investing in local sourcing)

- Egypt has a limited number of products with a strong economic power (the so-called “category killers”): potatoes, dried onions, artichokes, frozen strawberries. Within the Mediterranean products portfolio, Egypt has not yet developed any sizeable volume (tomato, olives, and dry raisins).

The picture is about the same for branded products (domestic and FDI). Frozen fried potatoes and

vegetable have positions in GCC but their competitiveness is hampered (vs. EU products) by a lacking logistic from Egypt.

Processed cheese is unique: one multinational claims to have a domestic market share of 60%. Export growth is higher than all other products (Iraqi driver). Raw material is mainly imported.

Confectionary – Chocolate sector has also domestic and export market share and relies on imports.

All other resources, know-how and expertise show a fair development but this is rather recent (i.e. bar coding,..). Moreover there is a dynamic of general moving of the country towards efficient economy. This general move will result in improved revenues for workers, and in a development acceleration of organized domestic distribution. Only by then, EFPI will attract many FDI for not only domestic market but also regional export targets and markets.

The devaluation resulted in a strong export growth, especially in the close MENA-COMESA markets and after three years there are signs of Egyptian Pound strengthening to the USD.

The 8% export subsidy is another input to help opening markets and gaining market shares. Participation to international exhibitions is strongly supported by EXPOLINK. It has to be

considered the importance for this agency to maintain and to increase invoicing services to companies for participation to the international events.

Concerning policies, GOE has chosen an export volume support system, based upon an 8% subsidy on export turnover. It is fairly important since it may be as high as export margin.

Cheese has a closed sector structure (oligopoly having a high domestic market share). The 8% subsidy could most probably be put into a development of the supply chain (such as small cheese branches with adequate cooling system). However, it has to be considered if it is still convenient to let the multinational do the strategic development work (Domiati cheese) and show the directions. Listening to their requirements would also help.

All the other sectors would gain export volume (competitiveness driver) with an extended 8% export subsidy program, between which tomato products.

Instead of waiting for 2013, looking at increased quotas for EU for most of the commodities will have the advantage to make the most of short-term available production growth.

In order to up-grade the reliability, Egypt has acquired a strong position in this sense. Both for products and services. Most of industries do perform quality products and have an adequate staffing.

Starting the upgrading program from an analysis of the champion’s cases and their customers and suppliers behaviour (strategic organization and management) would definitely help gathering efforts and dedication to competitiveness.


3 Benchmark Analysis

3.1 Benchmarking focus, Definition and Objectives In its origin the benchmark analysis was restricted to the area costs measuring companies’ cost

competitiveness within the same industry. Nowadays benchmark has become a byword for a comprehensive often strategic comparison, a

point of reference against which progress may be monitored. Specifically in our study the benchmark analysis aimed at shedding light on:

• Which country Egypt is competing with, by product, and by market.

• The drivers underlying competitiveness in different markets.

• The dynamics of competitiveness, how can be achieved, pursued and maintain along the time. In few words how can be turn into a competitive advantage.

The benchmark analysis we propose builds on “buyers”5 perception in the market, and is therefore a “demand driven” benchmark. In our analysis, as in any “competition-oriented study” market shares is the key indicator to measure country’s’ strength and competitiveness.

The final objective of the exercise is to highlight a roadmap for Egypt’s export opportunities. Spain, Turkey, Morocco, and Italy - as Egypt’s leading competitors in the Mediterranean - will

deserve a particular attention although many other countries such as Brazil, Israel, Syria, Macedonia, France, Mexico, Jordan, Iran, will eventually be analysed.

In regard to the sectors, we favour a wide spectrum analysis aimed at identifying new potential sectors and market in addition to those where Egypt is already present.

The FPI6 is on dynamic move all over the world: in EU25 the industry suffers from structural sluggish demand and low demographic increase, a process of consolidation is under way and four food groups - Unilever, Kraft, Nestle, and Danone – have emerged with a dominant position after years of mergers and acquisitions.

Factories are being closed all around Europe and constantly relocated in more competitive countries with lower labour costs.

After a rush to Asia, and particularly China, food companies, especially from Europe, started looking at the MENA region as real growth opportunity establishing regional headquarters and production facilities in Dubai, Egypt, Saudi Arabia.

The benchmark analysis we propose for FDI in the region aims exactly at understanding:

• How competitive is Egypt at a present stage in attracting FDI in the food processing industry (FPI).

• Which countries are currently competing with Egypt in attracting FDI, what do they offer to investors, how they positioned themselves.

• Which industry could be migrating to Egypt in the relentless process of factory-relocation towards low cost producer countries.

5 “Demand driven” benchmark analysis was built on interviews and questionnaires with Buyers of the following Food companies: Danone Groupe, LU, Unilever, Kraft Suchards, Nestle, Numico, Ferrero, Barilla, Star Italia, Gallina Blanca, Heinz, Campbell, General biscuits UK, Lactalis, Hershey’s, Dole, Chiquita, Del Monte, La Violetera, Sacla, Ponti, Galbani,, Al-Safi, Al-Marani, Perfetti- Van Mellen, Arcor, Hero, Grupo SOS, Carapelli, Monini, Italconserve, Catz International, McCormick, Fuchs, Daregal, Ajinomoto, Linguanotto, La Pulpe, Gerber Foods, Calvo, Pepsico, Coca cola company, Granini, Ducros, Kellogs, Fonterra. And of the following Retailers: Carrefour, Kaiser-Tangelmann, Esselunga, Aldi, Lidl, Tesco, Sainsbury’s, Wal Mart, ADSA, Coop, Gigante, Casino, Migros, Pao de acucar, Sonae, Continent, Extra, Aholds, GS. 6 FPI= Food Processing Industry.


• Which companies are more likely to make of Egypt their regional MENA headquarter and which reason.

• What’s the current perception of Egypt among the investors.

Once again we favoured a “demand approach benchmark” based on investors’7 perception, trying to understand the underlying forces behind the investment drivers and how Egypt is positioned in this process.

3.2 Identified Key Factors or Strategy to Attack the Export Market

Egypt export local assessment analysis clearly pointed out a geographical diversification of the Egyptian exports in the categories covered by the study (figure 5).

Figure 5. Egypt: Export Geographical Diversification

In fact, and unlike Countries like Morocco, which concentrates 90% of its exports in the EU25,

Egypt export has two main customers: the GCC and the EU25 which alone represent more than 70% of the total.

The importance of U.S. as a potential market is probably overestimated and its share is decreasing from 12% in 2002 to 7% in 2005. There are, in our view, high chances this export pattern will not change in the foreseeable future and good reasons to give EU25 and GCC + ME (Middle East) clear priority in Egypt’s export strategic planning. These reasons are worth being considered in details.

3.2.1 The GCC + Middle East

There are five powerful drivers in place in the area offering exceptional export opportunity for a Country like Egypt.

3.2.1.1 The Demography and Disposable Income Driver in the GCC and ME

The GCC - and some of the Arab Countries in the region - offer a unique combination of booming population8 and increasing income per capita - also fuelled by record oil prices (table 40). Long term, the processed food industry only thrives in countries with demographic growth, low growth rate - and an ageing population - are actually the two main factors hampering the industry growth in Europe.

7 Benchmark has been based on seminar and interviews, questionnaires with: Financial Institutions – Goldman Sachs, JP Morgan, SAMBA Bank, IMF, Islamic Development Bank. The EU Chambers of Commerce in particular Turkey, Dubai, Italy, France, Germany, Russia, U.K., PROCHILE, USDA Foreign Agricultural Service, WTO Officials in Geneve, Officials USA Department of state, The World Bank, The Economist Intelligence Unit, and investment decision makers – board of directors - in Food multinationals Nestle – Danone – Unilever – Pepsico Inc – Coca cola company – Ferrero International – Heinz International – Arcor International – Lactalis France – Ducros International – Kraft Suchards International – Altria Strategic committee – Findim International. 8 CIA Fact Books Population Growth Forecast, 2005.

Egypt Export Value 2002 by Region

35%

11%38%

12% 4%

GCC Arab Countries EU USA Others

Egypt Export Value 2005 by Region

36%

24%

30%

7% 3%

GCC Arab Countries EU USA Others


Table 40. GCC and Other Arab Countries Leading Indicators, 2005.

Population Indicators Iraq Yemen GCC5 Libya Jordan Saudi

Arabia Egypt

Population – Million 26 20 9.7 6 5.7 26.4 77.5 Population growth/year. 2.70% 3.20% 1.50% 1.70% 2.60% 2.30% 1.80% Fertility rate 4.2 5.7 2.9 3.1 2.7 4 2.8 Population 2025 Millions 40.4 39.6 15.2 8.3 8.6 35.7 103.3 Population 2050 Millions 56.4 69 24.4 10 11.8 49.7 126.9

Source: The Economist intelligence unit

The combined population of GCC5 + Saudi Arabia – currently standing at 35 million - will exceed

50 million by the year 2025 and 75 million by 2050. Also Iraq, Yemen and Libya are set to more than double their population in less than forty years.

Egypt is well positioned to take full advantage of this booming trend not only in the sectors where already owns a strong position in the region - processed cheese and frozen potatoes - but potentially also, as we will analyse later, in confectionery and fresh fruit and vegetables.

3.2.1.2 The Scarce Natural Resources Driver in the GCC

The scarcity of suitable land in the GCC (table 41) will offer a tremendous opportunity to the Egypt export industry especially for fresh vegetables and fruit but potentially also in the frozen vegetables - especially potatoes - and in the diary sector - especially in cheese and curd.

Table 41. GCC: Arable Land Available.

Arable lands GCC Arable lands GCC

Country % Land Arable

% Land taken Country % Land

Arable % Land taken

Bahrain 7.2 100% Qatar 1.5 70% Oman 0.4 71% Saudi 1.8 63% Kuwait 0.3 100% UAE 1 89%

Source: Icarda Agricultural Institute Amman

The majority of the potentially arable land in the GCC has already been cultivated9, therefore increasing demand for vegetables, fodder, fruits can only be satisfied with imports from neighbour countries (table 42).

Table 42. GCC: Fruit and Vegetables Imports by Origin Country, 2004.

HS Importing Country

$ Imports million Country Origin

07 UAE 270,817 Jordan India Iran China Lebanon Syria Saudi Arabia Pakistan

57,713 31,395 24,903 19,603 13,190 12,086 17,934 8,957 07 Saudi Arabia 162,069 Syria Egypt Turkey China Yemen 54,335 20,359 14,583 10,646 10,604

9 Survey of Icarda Institute in Amman on Middle East Land arable and cultivated, 2004.


07 Kuwait 98,793 Jordan Syria India Egypt Iran Lebanon 22,357 11,645 10,267 8,928 8,295 7,290

07 Qatar 30,936 India Syria Iran Saudi Arabia

Importing Country

Export $ million 4,826 4,266 2,633 3,958

07 Bahrain 41,886 Saudi Arabia India Jordan Syria Egypt

10,018 8,627 6,298 2,723 2,490

07 Oman 32,175 UAE Syria Saudi

Arabia.

12,996 5,113 2,041 07 Yemen 14,291 China 6,064

07 Tot. Vegetables 650,967

08 Saudi Arabia 352,805 Egypt South Africa Syria Philip. Iran Yemen India

61,323 45,761 29,308 29,196 19,594 17,675 16,761

08 UAE 420,138 Iran USA India South Africa Philip. Pakistan Egypt

130,881 51,057 36,687 26,777 25,480 17,110 13,860 Turkey Chile Lebanon

12,462 11,415 11,204 08 Kuwait 115,278 Lebanon Iran India Syria Philip. Egypt 17,064 16,721 11,869 10,829 9,743 7,904 08 Bahrain 56,631 Lebanon Syria Philip. Iran India 10,429 8,365 6,084 4,766 3,644 08 Qatar 31,192 Syria Philip. Iran 5,919 5,120 3,272

08 Oman 42,800 UAE Syria Egypt India 20,619 5,905 4,152 2,351

08 Yemen 21,971 Saudi Arabia UAE

14,956 3,974 08 Total Fruit 1,040,815

Source: UN UNIDO STATISTICS, 2004

Egypt holds already an enviable position in frozen potatoes and processed cheese, sectors both with high demand growth and inelastic supply in GCC.

Table 43. GCC: Estimated Imports Needs of Fruit and Vegetables (tons).

Fruit and Vegetable Markets – tons - Saudi Arabia Total Market Self -sufficiency Imports

Fruit 1,970,000 66% 670,000 Vegetables 2,500,000 88% 200,000

Fruit and Vegetable Markets (tons) GCC-5 Total Market Self-sufficiency Imports

Fruit 895,455 28% 644,727 Vegetables 1,086,957 35% 706,522

Source: Dubai Agricultural Trade Centre


3.2.1.3 The “Brand Oriented” Young Consumers Driver

The GCC not only is growing fast but it is also characterized by a high percentage of young population, whose consumption pattern tend more and more to be similar to that of western world10.

The young consumers are also highly brand oriented, fast food addicted and driven by advertising. The GCC distribution system and in particular the super and hypermarkets have very different

characteristics from those in EU25: in GCC stores, the average number of brands in each product category, is almost three times higher than in Europe – a total 9-10 brands compared to only 4 in EU25.

The supermarkets shelves in the GCC markets are competitive and crowded; while all over EU25 retailers are currently reducing the number of brands following strict Category Management Programs11.

In the highly competitive GCC market, with “stylish” young consumers only heavily advertised brands are winners; only “brands” make their way in the consumer prospect mind.

Egypt, thanks to its successful brand oriented multinationals established in its territory is well positioned to fully exploit a booming demand for branded cheese and frozen potatoes both in the retail and in the fast food market.

The key to succeed in the GCC is to create brands, especially for young consumers; multinationals with their expertise in marketing and communication and their conspicuous financial resources are well positioned in this process: multinational make brands, in turn Egypt and has to develop a strategy to attract these multinationals. For its big domestic market and friendly business environment12 Egypt is well positioned to attract leading brand and marketing oriented multinationals becoming a veritable hub in the MENA region.

Confectionery could soon become Egypt next success story with export to the GCC fuelled by brand-oriented multinationals like Cadbury, for instance.

3.2.1.4 Egypt as Regional Hub for Brand Oriented Multinationals Driver

Americana, Lactalis, Cadbury success stories are a shining example of how to increase export to the GCC: as already pointed out, only brands make their way in the competitive GCC market, but multinationals usually avoid factories “proliferation”, concentrating their production facility only in few Countries: the regional hubs.

Egypt paramount strategy should be that of attracting these multinational able to generate strong export flows in the region with their powerful, global brands.

Two areas look particularly promising for Egypt in the GCC: the sectors directly depending on agricultural output - as fruit, vegetables, milk – and the sectors with a segmented demand requiring investment in multiple production lines as it happens in Confectionery and chocolate.13

At the moment GCC absorbs an impressive amount of confectionery imports from EU25, USA and also Mercosur since consumer demand is very diversified and segmented - candy, candy bars, wafer coated, chocolate snack and tablets – and local supply limited.14

10 Magazine: Advertising age UK “global trends”, 2005. 11 Category Management Programs calculate the “shelves” profitability and the optimal number of brands in each product category. They are extremely popular with all the big retailers leading often to drastic reduction of brands in many categories. 12 A perception shared, as it will be analyzed by most of the top investment institutions and managers interviewed. 13 Hershey’s and Nestle along with Ferrero confirmed this trend, in their estimate a minimum of 8 different production lines would be necessary to produce a basic product range of snacks to satisfy actual existing demand among teenagers. No matter confectionery manufacturers tend to concentrate factories in few countries, exporting to others. 14 All the confectionery companies interviewed discarded investment in GCC for its limited market size, and segmented demand.


Egypt could soon become the regional hub for the confectionery industry thanks to its big domestic market and build a strong export in the GCC where Brazil and Argentina currently export of $ 72 million and the EU 72 million Euros (table 44).

Table 44. Confectionery: EU25 Exports to GCC Countries – Value and Volumes.

VALUE Euro

million

VALUE Euro million

VALUE Euro million

VOLUME TONS

VOLUME TONS

VOLUME TONS

EU CONFECTIONERY EXPORT 2002 2003 2004 2002 2003 2004

TOTAL 668,825 548,759 482,094 26,077 25,439 21,958 TO GCC 78,692 67,961 72,437 24,264 23,174 26,002

Source: Eurostat, 2005

On the contrary perspective do not look promising for the bakery15, biscuits and the beverages16 sectors where the GCC Countries managed to attract high investment and where export face a strong sophisticated, competitive, local supply.

As a matter of fact, 8 new lines of biscuits and crackers have already been ordered in Italy and Turkey and will be operational in GCC in 2006.

3.2.1.5 The Iraqi Driver

For a long time to come, Iraq is likely to be a huge processed food importer17 since there is no local production for anything but fresh vegetables and fruit and a limited amount of wheat and rice (table 45).

15 Trend confirmed by Turkish chamber of commerce based on Turkish Bakery companies. 16 Trend confirmed by Pepsico Inc, Middle East based in Dubai. 17 Studies on Iraq Food habits by The World Bank and UNDP, 2005.


Table 45. Iraq: Current Imports and Future Imports Trends Estimate.

Source: World Bank, 2005

CONSUMPTION KG/person Market. 000 tons

Prod. 000 tons

Imports est. 000

tons

Imports Millions $

Imports %

Iraq Pre-War

Egypt GCC Jordan Syria Avg. Iraq Iraq Iraq Iraq Iraq Iraq

1988 2002 2002 2002 2002 2002 2005 2005 2005 2005 2005 2005 Wheat 170 232.6 156 188.9 178 188.9 160 4,320 1,320 3,000 465 69% Potatoes 18 13.2 9 26 16 16.1 16 432 432 0 0 0% Rice 44 45.5 56 47 42 47.1 40 1,080 200 880 226 81% Sugar 35 58.9 65 47 45 54.0 30 810 0 810 168 100% Pulses 12 11 14 10.9 12.7 12.2 4 108 38 70 25 65% Vegetables 102 142.3 88 74.3 91.2 99.0 85 2,295 2,295 0 0 0% Fruit 105 102.6 79 86.4 97.2 91.9 87 2,349 2,349 0 0 0% Red meat 11 18.2 12 12.7 10.8 13.4 4.5 122 72 50 66 41% Poultry 15 7.8 38 23.5 19 22.1 4.5 122 72 50 50 41% Total meat 26 26 50 36.2 29.8 35.5 10.5 244 144 100 116 41% Fish 2.5 8.3 12 3.7 4.5 7.1 0.8 22 12 10 18 46% Eggs 5.5 3.6 7.8 6.8 6 6.1 3.9 105 100 5 n.a 5% Milk 60 51.2 96.4 71.3 79.5 74.6 55 1,485 485 1,000 508 67% Cheese 4 7.8 1.3 35 32 3 6 9% Edible Oil 15 15.7 17 14.7 13.9 15.0 15 405 0 405 278 100% Other 3 4 6 3.2 3.2 4.1 2 54 4 50 55 93% Tea 2.2 2.2 59 0 59 99 99% Barley 70 40 1,080 700 380 52 35% Maize 25 8 216 90 126 13 58%

TOTAL 14,666 7,769 6,898 2,029 47%


In particular all the edible oil, sugar and most of the poultry, dairy and cheese will have to be imported (table 46). Oil revenues flows into the country will furthermore push up the real exchange rate in Iraq strengthening the local currency – a phenomenon commonly referred as “Dutch disease” - making Egyptian exports all the more competitive.

Egypt could establish itself as a leading supplier of frozen potatoes and processed cheese, both in very high demand and with limited regional competition in Iraq.

Vegetables oil, on the contrary is mainly imported from UAE where big refineries are currently operating18.

Table 46. Estimate of Iraq’s Imports by 2020 and 2040.

Imports Imports Needs

Imports Needs

Imports Needs

Million $ Million $ Million $ Million $ IRAQ Import Needs

2005Est. 2008Est. 2020Est. 2040Est. Wheat 465 533 823 1,113 Rice 226 265 390 655 Sugar 168 203 283 414 Pulses 25 107 155 202 Red meat 66 314 474 701 Poultry 50 350 516 933 Total meat 116 664 990 1,634 Fish 18 104 153 335 Milk 508 607 943 1,659 Cheese 6 149 232 407 Cheese Volume 000 tons 80 124 218

Edible oil 278 289 392 505 Maize 13 62 90 169

TOTAL 2,029 3,419 5,107 8,233

Source: World Bank, 2005

3.2.2 The EU25 Opportunity

The EU25, after the GCC, possibly offers the best opportunities19 for Egypt’s export and a powerful driver for its short- medium term expansion.

3.2.2.1 The Opening of the Protected Industry of Tomatoes and Olive Oil Driver

In perspective olive oil and tomatoes derivatives represent two of the best opportunity for Egypt. They are both markets with high volumes; a characteristic attractive to Egypt, a Country in short supply of “high volume export categories”.

Both industry are heavily protected by subsidies and import tariffs: imported olive oil (table 47) - from countries outside EU25 - is currently levied with a tariff of 1 Euro/litre - while tomato production is subsidized with 35 Euro/tons - a considerable amount in a market where the average production cost is approximately Euro 60/ton20.

18 UAE Chamber of commerce. 19 An analysis totally shared also by The Economist Intelligence Unit. 20 An estimate of COI, 2005.


The olive oil import tariff will end in 2012, while for the tomatoes subsidies there is only a vague21 EU25 commitment to eliminate them by 2013.

Olive oil, in particular looks extremely attractive to Egypt as a potential export driver due to the combination of three factors:

• Demand is currently outpacing supply due to strong consumption in EU2522, growing consumption in USA and a promising product acceptance in China and India.

• Spain, the biggest olive oil producer in the world, has drastically reduced its production from 1.4 million litres – in the year 2002 - to an actual 0.9 million.

• Prices of raw material have doubled since 2002 and reached an ever-high peak of 4.20 Euro/litre, which easily offsets the 1 Euro/litre import tariff enforced by EU25.

Table 47. Olive Oil: EU25 Imports from Country outside the EU25

Olive Oil EU25 Import Extra EU Euro 000 2002 2003 2004 Value Share

Argentina 451 2,599 103 0.02% Egypt 435 642 449 0.1% Lebanon 113 600 962 0.2% Morocco 105 592 39,552 7.5% Syria 1,049 42,308 41,890 8.0% Tunisia 35,116 72,198 402,066 76.4% Turkey 27,445 83,858 40,986 7.8% Total 64,715 202,797 526,007 100%

tons 2002 2003 2004 Vol. Share Argentina 224 1,220 41 0.02% Egypt 252 367 203 0.1% Lebanon 60 301 443 0.2% Morocco 38 268 18,881 8.0% Syria 541 21,745 19,251 8.2% Tunisia 19,705 36,311 179,216 76.0% Turkey 14,941 40,896 17,923 7.6% Total 35,761 101,108 235,958 100%


Tomato derivatives (tables 48 and 49) also may become a promising driver for Egypt23 export once - and if - the massive subsidy of 35 Euro/ton for production within EU25 will be removed.

The current three biggest producers of industrial tomatoes - Italy, Spain, and China, excluding the USA that produces only for its domestic market - have started a price war -triggered by China - and Italy, the biggest tomato derivatives exporter in the world, is looking for new sources of competitiveness to keep its dominant position in the market24.

21 WTO’s official’s statement. 22 Grupo SOS intelligence 23 A potential shared by all the five buyers in Tomatoes derivatives interviewed. 24 Source: Tomato news: Dec, 2005.


Table 48. Tomato Paste 2: EU25 Imports from Countries outside the EU25

Import Euro million

Import Euro million

Import Euro million

Import tons

Import tons

Import tons

Tomato Paste 2 EU Imports

2002 2003 2004 2002 2003 2004

China 16,933 26,737 15,458 34,774 55,372 36,166 Turkey 2,098 3,454 4,347 3,712 6,080 8,084 Import Extra EU 20,486 31,520 20,906 40,181 63,379 45,536 Greece 15,039 14,777 13,135 24,954 23,263 20,336 Italy 48,556 42,535 38,552 81,530 71,823 64,390 Portugal 18,835 17,890 18,591 34,251 31,301 31,963 Spain 24,746 26,117 23,827 45,843 47,843 41,989 Import Intra EU 117,183 105,475 104,522 200,183 180,245 174,034 Import I+E EU 137,669 136,995 125,428 240,364 243,625 219,571


EU25 and Italy in particular are currently big importers of tomato paste concentrated 2 (25-27 brix)

and even bigger of tomato paste 3 (32-37 brix). Italy currently reprocesses part of the tomato paste imported from China25 mixing it with local

production and re-exporting it as sauce marketed “made in Italy”. The use of imported tomato paste to make tomato sauce - mixing and diluting - is no longer

allowed in EU as of January 2006.

Table 49. Tomato Paste 3: EU25 Imports from Countries outside the EU25

Import Euro million

Import Euro million

Import Euro million

Import tons

Import tons

Import tons

Tomato Paste 3 EU Imports 2002 2003 2004 2002 2003 2004

China 60,881 52,065 83,036 103,629 94,105 178,728 Iran 2,395 1,184 4,275 2,244 Israel 1,032 737 1,144 1,091 1,008 1,921 Turkey 2,800 2,651 1,300 4,054 3,827 2,132 Import Extra EU 73,957 68,710 90,790 124,100 118,081 191,516 Greece 22,957 19,353 12,591 30,583 31,296 20,429 Italy 19,206 13,871 13,544 21,471 13,229 14,652 Portugal 29,194 20,863 19,564 30,542 23,107 20,110 Slovakia 1,625 135 846 1,426 191 1,287 Spain 34,983 42,396 37,832 37,372 47,408 39,258 Import Intra EU 119,421 103,069 92,683 131,294 120,170 103,673 Import I+E EU 193,378 171,779 183,474 255,394 238,251 295,188


3.2.2.2 Italy Competitiveness - lost - Driver

Italy, unlike Spain is suffering from a deteriorating competitiveness in most of its traditional Mediterranean crops - tomato and olive oil but not only.

25 A practice severely criticized by Parma Chamber of Commerce.


Spain has emerged in the last decade as a modern efficient producers making full usage of the EU generous agricultural funds. Spain has now the highest productivity in EU25 in olive oil and tomatoes, modern26 mechanized harvesting machines and a very efficient supply chain.

Italy strongest advantage, on the contrary, lies on the marketing, with its recognized image of quality Mediterranean food27 maker. It is thanks to this image that the Italian export conquered Germany, Northern Europe, USA and Japan.

To preserve its export position Italy needs to improve competitiveness and to reduce costs and therefore could well be forced, short term, to relocate part of its production in “low cost” countries such Egypt. This could be the case of olive oil - where traditionally Italy is a big importer, exporter and consumer - and tomato derivatives, where Italy is a big producer and exporter.

Italian quest for competitiveness represents an opportunity for Egypt, a country with low production costs but no image as a Mediterranean quality processed food maker.

Peeled tomatoes28, as it will be analysed later, is another category where Italy could well lose its significant export if it doesn’t improve its competitiveness.

3.2.2.3 The Labour Intensive Crops Relocation Driver

Europe as a whole is becoming less and less competitive in “labour intensive” crops even in countries such as Poland with lower labour costs.

The strength of the Euro versus the US Dollar is likely to accelerate this process ever further. Artichokes, asparagus, olives, peeled tomatoes, frozen strawberries, raspberries, blackberries

raisin, syrup fruit are among the most labour intensive crops whose production could soon be relocated outside Europe. To the experts it looks a question of when rather than if.

3.2.2.4 The Fresh Fruit and Vegetable Drivers

Europe is a big importer of fresh fruit - mainly tropical like banana and pineapple and out of the season fruit - but only a reasonable importer of vegetables (table 50).

Table 50. Fresh Fruit and Vegetables: EU25 Imports from Countries outside and inside the EU25

EU25 2002 2003 2004 2004

IMPORTS Value Euro billion.

Million tons

Value Euro billion

Million tons

Value Euro billion

Million tons Share Value

Fresh Fruit Total EU 15.78 21 16.3 21.5 17.1 22.1 100% Intra EU 9.3 12.1 9.5 12.4 10 12.4 59% Extra EU 6.4 8.9 6.7 9 7.1 9.7 41% Fresh Vegetables Total EU 8.45 9.83 9 10 9.19 10.38 100% Intra EU 7.27 8.56 7.73 8.7 7.81 8.89 85% Extra EU 1.18 1.27 8.76 1.36 1.38 1.49 15%

Source: CBI Fruit and Vegetables Study, 2005

The expansion of the EU25 occurred in 2004 added a country like Poland in itself a very strong vegetables producer with more than 5.4 million tons/year.

To become a leading fresh fruit and vegetables supplier to EU25 would have been a strong positioning for Egypt were not for the fact this positioning has been pre-empted by Morocco29 early in the 90s.

26 COI EU25 Industry evaluation: Nov, 2005. 27 Marketing Study Italian Typical Food Italian Chambers of Commerce, 2004. 28 Buyers Statements and Parma Chamber of Commerce, 2005.


3.2.3 The USA

The USA is far from being a clear30 opportunity for the Egypt PFI. First of all the USA is itself a strong competitive producer of most of the fruit and vegetables it consumes (California).

Second, the NAFTA treaty, the proximity to the USA market and a competitive labour cost make Mexico a strong competitor in fruit and vegetables – fresh and processed. Chile also is a threat being an efficient producer and NAFTA affiliated with free access to the USA market since.

The USA is also a market driven by “image”, by marketing31 with established positions: Italy is famous for tomatoes derivatives, Spain and Greece for olives, countries like Egypt with little or no image and poor marketing will find difficult to build a strong profitable position, it will have to compete mainly with low prices.

In olive oil, for example, (table 51) the only Countries with considerable exports to the USA are Italy and Spain both with a strong image and a consolidated brand positioning among the American consumers.

Table 51. USA Import Value Olive Oil $ million. OLIVE OIL: USA

$ IMPORT 2002 2003 2004 2005 ARGENTINA 2,189 5,499 3,622 18,031 GREECE 11,063 12,517 12,721 15,112 ITALY (*) 321,517 369,833 495,396 570,303 MOROCCO 1,548 815 15,232 5,807 PORTUGAL 4,022 6,901 9,126 10,104 SPAIN 83,847 95,366 124,194 151,079 TURKEY 12,080 28,553 27,740 57,266

TOTAL 443,148 529,495 735,652 864,758

Source: Fast USDA, 2005

The same could be said for tomato derivatives (table 52) a market where only Italy and Spain have a significant share in the American market while Turkey, Morocco and Israel have a poor image and limited strength.

Table 52. USA: Imports of Tomatoes Derivatives – Value – and Volumes.

Tomato Derivatives Import US $ million

Import US $ million

Import US $ million

Import US $ million

Import tons

Import tons

Import tons

Import tons

2002 2003 2004 2005 2002 2003 2004 2005 CHINA 4,191 1,996 1,668 2,277 6,581 1,500 1,017 2,334 DOMINICAN REPUBLIC 6,033 4,951 4,437 4,411 9,847 7,904 7,112 7,233 ISRAEL (*) 6,954 5,773 8,613 10,473 7,355 5,671 7,649 9,649 ITALY (*) 38,220 38,082 44,130 44,567 87,541 69,319 78,070 84,871 MOROCCO 6,852 7,455 5,048 6,043 2,359 2,512 1,667 2,034 MEXICO 15,398 13,176 15,249 15,311 14,168 12,702 13,896 12,775 SPAIN 14,467 10,068 7,517 6,276 7,814 4,936 3,356 2,944 TURKEY 5,708 6,968 8,721 12,079 2,858 3,325 3,702 6,278

TOTAL 127,247 112,250 117,941 129,231 169,206 134,456 138,663 152,083 Source: Fas USDA, 2005

29 Conclusion Study CBI fruit & vegetables in Europe from developing countries. A statement shared by leading wholesalers contacted (four). 30 WTO’s official’s statement based on market analysis of Morocco and USA FTA Agreement. 31 Italian Typical Food: Italian Chambers of Commerce Study, 2004.


Table 53 shows Imports of Dried Onions in USA.

USA is also a heavily protected Country32 in agriculture, despite its declared commitment to free trade with stro1ng local lobbies advocating and able to enforce subsidies, import tariffs and quotas.

Table 53. USA: Imports of Dried Onions – Value.

Dried Onion Import $ million Country 2002 2003 2004 2005 CHINA 1,272 1,578 1,621 2,011INDIA 706 779 417 1,104TOTAL 2,412 3,060 3,277 4,462

Source: Fas USDA, 2005

In synthesis the USA market seem to offer limited opportunity for the Egyptian export, probably

confined to ethnic food and some B2B - such as Spices with McCormick - or in specific segments like canned artichokes where the image of the “country producer" is irrelevant and only cost counts and where Mexico is not particularly focused.

There is an exception33 anyway: the high cost of fuel is driving the industry of dried vegetables out of California and other areas of current production.

If Egypt has the capacity to be competitive as it would seem to be the case, the country could establish itself as a leading supplier to the huge American market of dried vegetables, a prospect well worth a specific feasibility study led by a team with a real insight in the American market, a task indeed well beyond the reach of this study. Competition for potential investment will be anyway fierce and leading suppliers of dried vegetables, currently based in California, have already started feasibility studies in Mexico.

3.2.4 Africa and COMESA

Neighbour countries should never be underestimated even if, as it the case of Egypt, have a low purchasing power. Proximity is always a powerful driver to export as it the case of Portugal with Spain, Italy with Switzerland, Turkey with Iraq but income per capita is also vital and – as far as COMESA is concerned – only Libya has a significant one with $8,000, while most of the other Countries are well below the barrier of $1,000. As a matter of fact fifteen out of the twenty-three of the COMESA countries are classified as Least Developed Countries (LDC’s) by the United Nations (figure 7).

Notwithstanding the political significance of COMESA, the import potential of its members’ remains very limited to only few countries: Libya – actually already a strong Egypt’s commercial partner – and possibly Angola especially in light of the recent where rise in oil prices.

Brazil34 has multiplied fivefold its export to Angola in only two years. Libya has undoubtedly a great potential for almost any imported processed food product since very

few factories are operating in the country because of its limited population – market size – insufficient to reach the required critical mass for a production facility investment.

For other countries, apart from the purchasing power constraints, focus should be given to the few product categories usually with high penetration %35 - notably confectionery, especially biscuits - tomatoes derivatives, especially paste – powder milk – possibly processed cheese – edible oil for cooking.

32 WTO Least developed countries analysis of export markets, 2004. 33 Only two of the four American agronomists agree, the others see the industry moving to Mexico. 34 Itamaraty intelligence service. 35 Penetration is expressed as % of the household regularly buying the product on the total households existing in the country: a 60% penetration means the product is regularly consumed in 60% of the households.


Egypt could possibly reach - short term - interesting volumes in confectionery in powder milk – as a “mixer”36 using imported raw material – and processed cheese, in tomato paste on the contrary – it will have to compete with aggressive “low price” brands from China, Iran, Turkey and also Italy.37

3.2.5 Russia

Russia and some of the ex Soviet Union Republics are emerging as dynamic fast growing importers of fresh vegetables and fruit and packaged goods.

Turkey, also for its strategic position, has fully exploited the opportunity positioning itself as a strong supplier in Russia and Ukraine, two markets – unlikely EU25 – growing fast.

The saturation of the EU25 market, its extreme competitiveness and the difficulty to attack the American market could well be reasons enough to consider Russia and the ex Soviet Republics potential prospects for Egypt.

The recently signed trade agreement between Egypt and Russia should help in making Egyptian food exports (already enjoying a good name in Russia from Nasser era) become more competitive in the Russian market.

3.3 Opportunities and Benchmark by Product Categories

3.3.1 Olive oil

The olive oil is a category where Egypt could eventually emerge as strong worldwide competitor in spite of its current weak export position. In fact the olive oil market is experiencing a real revolution38 where, probably only modern players will survive and thrive.

The modern concept of olive oil production is based on irrigation, optimal number of trees (200 – 250 per/ha), horizontal hydraulic extractors (two phases decanters), storage in stainless steel tanks and, above all, mono variety strains – such as Leccino, Frantoio, Picual, Manzanilla, Arbequina -.

The appearance of this new technology will open opportunities for “newcomers” countries, at the moment only Spain seems well positioned in the process having already modernized its industry.

Actually, “new comers” like Egypt39 may have the chance to structure the entire supply production according to the new technologies, with little or not “exit costs” – due to the fact of abandoning an old technology for a new one -.

Olive oil is right now a very profitable product in high demand with an inelastic supply after Spain decision to reduce its production. Prices (figure 6) have doubled between 2002 and 2004 and the current quotation of 4Euro/kg seems to be, based on experts’ analysis, the new “price floor” for the product.

36 Also mixing powder milk with cereals. Brazil achieved interesting exports to Bolivia, Paraguay, Peru utilizing Argentinean raw material. 37 Italy has an expressive tomato paste export to Africa, almost 30.000 tons with low quality product mixed with imported Chinese tomato paste. INSTAT and Tomato news magazine. 38 COI – the future of Olive oil in EU25 - Dec, 2005. 39 An opinion shared by three of the five buyers of the sector interviewed.


Figure 6. Olive Oil Prices: Euro/kg.

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

J F M A M J J A S O N D

2001 2002 2003 2004 2005

Source: COI, 2005

Olive oil consumption trend is very positive pushed by growing acceptance in USA - for its healthy properties – and with growing acceptance in China and India putting under strains its relatively rigid supply.

Table 54. Olive oil production by Country, 2005 (000 tons)

Olive oil 2000 2001 2002 2003 2004 2005 Spain 669 973 1411 861 1412 984 Italy 735 509 656 634 685 750

Greece 420 430 358 414 308 435 Portugal 50 24 33 28 31 44 France 4 3 4 4 4 5

Tot EU15 1878 1939 2462 1941 2440 2218 Argelia 33 26 25 26 69 33

Morocco 40 35 60 35 100 50 Syria 81 165 92 165 110 175 Tunes 210 130 35 130 280 130 Turkey 70 175 65 175 79 160 Others 61 93 84 93 88 122 Total 2374 2565 2825 2565 3166 2888

Source: COI, 2005

Countries like Morocco, Syria, Tunisia and Turkey (table 54) have all increased their production and exports (table 55) to Europe - basically to Spain and Italy - in spite of a strong tariff of 1 Euro/litre enforced for product imported from outside the EU25.

Tunisia is the only country with a relevant free tariff quota of 56,000 tons, currently exporting well above this quota.


Table 55. Olive Oil: EU25 Imports from outside the EU25.

Olive Oil: EU25 Import Extra Virgin tons Olive oil 2002 2003 2004 Vol. Share

Argentina 224 1,220 41 0.02% Egypt 252 367 203 0.1% Lebanon 60 301 443 0.2% Morocco 38 268 18,881 8.0% Syria 541 21,745 19,251 8.2% Tunisia 19,705 36,311 179,216 76.0% Turkey 14,941 40,896 17,923 7.6% Total 35,761 101,108 235,958 100%


Italy and Spain are both big importers of olive oil with respectively 520,000 tons and 509,000 in the year 2004. In Italy olive oil production is losing competitiveness because of high labour costs and lack of harvesting mechanization. In Spain many experts look at the climatic changes experienced over the last two years – with erratic rains and very high temperatures and occasional frost - as a potential factor of supply disruption.

Italy, in particular is currently importing (figure 7) from most of the Mediterranean countries where olive oil supply is not stable neither in quantity nor in quality.

Climatic changes are also a major concern40 in the sector especially in Europe - frost and droughts - and in Mediterranean Countries like Turkey and Syria who could possibly face smaller harvests in the future affecting their exports - now mainly directed to Italy -

Figure 7. Olive Oil: Italy Imports by Country.

Source: COI, 2005

But the most important fact in the sector is the removal of the import barrier of 1 Euro/litre for oil imported from outside EU25 countries scheduled for the year 201241.

Countries like Egypt seem to have a unique chance to position themselves now as efficient, modern producers to take full advantage of the forthcoming free market in 2012.

3.3.2 Table olives

Table olives is also a deep “labour intensive” industry facing unbearable growing cost in EU25 including in Spain since the harvest - unlike the olives used for the olive oil production - has to be totally manual (on average 250 kg/hour42 per person).

Spain and Greece compete in the most sophisticated segments43 with highly processed olives importing, nevertheless, more and more quantities from “low labour cost” countries such as Morocco, Turkey, and Jordan (tables 57 and 58).

40 Grupo SOS – Carbonel _ buyers. 41 European Commission. 42 Greek olive association estimate.

Italy Import Virgin Oil 2005

70.3%

1.6%

19.9%

6.7% 1.4%

Spain Tunisia Syria Greece Others

Italy Import Lampante 2005

32.1%

9.4%9.4%

5.4%

1.4%

6.9%

Spain Tunisia Syria Greece Turkey Morocco


Egypt should consider the table olives sector as a priority due to the fact: The country has a competitive product cost based on low salary structure – the average cost of

table olives is $210/ton of which $150 for the harvest/labour -.

• The industry is a strong low skills job creator.

• Only actual competitors are Morocco - both in the EU market and USA - a country hampered now by hard currency and relatively high minimum wage of $240 - and Turkey which is a country facing growing labour costs and moving to a premium positioning directly competing with Italy, Greece and Spain.

Table 56. USA: Table Olives Imports – $ million -.

USA IMPORT $ million 2002 2003 2004 2005

Price Index 2005

ARGENTINA 346 2,905 7,500 11,065 109 GREECE 43,484 46,654 58,969 62,836 EGYPT 0 808 674 3,898 100 EGYPT Value Share 0% 0,3% 0,2% 1,2% ISRAEL (*) 1,106 1,241 1,047 1,307 ITALY (*) 4,670 5,610 6,177 7,397 MOROCCO 20,410 18,378 28,577 20,508 126 MEXICO 3,757 1,107 2,794 4,312 SPAIN 133,187 158,092 175,764 188,775 TURKEY 3,045 4,529 6,558 7,263 140 TOTAL 215,411 246,081 297,509 317,604

Source: FAS USDA, 2005

Egypt seems to have a promising potential44 in USA for Spanish or California style olives where it is competitive in pri8es and it has adapted the product to local demand characteristics.

Table 57. EU25: Imports of Table Olives.

Table Olives EU25 Import Table Olives EU25 Import Value Shares 2002 2003 2004 Value Shares 2002 2003 2004

Egypt million Euro 1.40 1.40 2.20 Spain million Euro 121.40 128.00 138.00

Value Share % 1.9% 1.6% 2.9% Euro/Kg 1.22 1.16 1.14

Euro/Kg 1.00 0.74 0.93 Italy million Euro 8.10 18.80 12.30

Morocco million Euro 52.00 50.70 46.20 Euro/Kg 3.00 3.50 3.30

Value Share % 69.7% 59.0% 61.2% Greece million Euro 67.80 72,1 67.90

Euro/Kg 0.95 0.94 0.94 Euro/Kg 1.16 1.29 1.32

Turkey million Euro 21.20 15.80 22.80

Total million Euro Import Extra EU25

74.60 86.00 75.50

Value Share % 28.4% 18.4% 30.2% Euro/Kg 1.39 1.53 1.57


43 Nielsen Study: Olives in EU25 Differentiation and Segmentation. 44 Two USA top olives companies buyers interviewed.


In the EU25 market Morocco enjoys a very strong position45 and is competitive in price with Egypt. Taking into account Egypt higher transportation cost to enter to EU25 market46, a higher quota

should be negotiated to increase the current 2.9% market share.

3.3.3 Dried Vegetables (Dried Onion, Other Dried Vegetables) – Dried Tomatoes

Egypt is universally recognized by buyers47 in the sector as a leading supplier of dried onion, strong in quality and competitive in price. Among all the categories analysed in the study, dried onion is the one where Egypt enjoys a leading image with the buyers’ - top awareness as the best supplier48 (tables 59 and 60). Table 58. Dried Onions: EU25 Imports – Value Share -

Import Value Share

Import Value Share

Import Value Share Dried Onion EU25 Import

Market 2002 2003 2004

China 13.5% 9.1% 9.8% Egypt 20.9% 26.5% 32.7% India 19.2% 21.1% 25.0% Syria 3.2% 3.9% 4.4% United States 39.9% 36.7% 25.2% Import Extra EU Euro million 62,787 43,703 52,595 Import Extra EU tons 32,036 26,089 34,702 Import Intra EU Euro million 52,920 52,008 51,896 Import Intra EU tons 29,360 26,642 26,147 Import I+E Euro million 115,707 95,711 104,491 Import I+E tons 61,397 52,730 60,849


Egypt has a leading market share in the EU25 market (32,7%) followed by India49 - very competitive in price, but less in quality and quality consistency standardization - and by China (less than 10% of the market).

Table 59. Dried Onions: EU25 Imports Prices/Kg.

Price/kg Euro Price/kg Euro Price/kg Euro Dried Onion EU25 Import Market 2002 2003 2004

China 1.78 1.94 2.10 Egypt 1.76 1.47 1.38 India 1.62 1.32 1.29 Syria 1.93 1.77 1.51 United States 2.56 2.13 1.79 Import Extra EU 1.96 1.68 1.52 France 1.98 2.02 2.03 Germany 1.81 1.93 2.14 Netherlands 1.02 1.25 1.40 Spain 2.21 2.48 2.48

45 A unanimous assessment among the five vegetables importers interviewed. 46 Leading fruit & vegetables importers in EU25 estimate an additional cost for Egypt of minimum $180 for a 20 feet dry container, with average of $268 CIF to Amsterdam from Tangier or a port in Egypt. 47 Totality of buyers interviewed including leading Nestle, Unilever. 48 Food Industry best practices: countries scoring cards, only cited by buyers, a confidential survey in the sector. 49 Country buyer’s assessment Food Industry .


Import Intra EU 1.80 1.95 1.98 Import I+E 1.88 1.82 1.72


Western markets register very little growth50 (2.8%) while demand for dried onion in Eastern EU is

growing fast (+ 6% 2005 vs. 2004).

Egypt growth will depend more and more on its ability to gain export in Eastern Europe51, also keeping in mind the USA52 market is much protected with very little import (tables 61 and 62)

Table 60. USA: Import Dried Onion – Value -

Dried Onion Import $ Million COUNTRY 2002 2003 2004 2005 CHINA 1,272 1,578 1,621 2,011INDIA 706 779 417 1,104TOTAL 2,412 3,060 3,277 4,462


Egypt current position in other dried vegetables (table 63) doesn’t look particularly strong neither in EU25 - clearly dominated by China - nor in USA - where is virtually non-existent.53

Table 61. USA: Import Dried Vegetables – Value -

Other Dried Veg. Import $ Million COUNTRY 2002 2003 2004 2005CHINA 23.4 29.5 32.9 35.7CHILE 6.3 4 4.1 4.7ISRAEL 7.9 7.8 10 8.0MOROCCO 7.2 7.7 5.6 7.0MEXICO 7 4.8 5.5 5.0SPAIN 13.1 9 6.8 5.8TURKEY 5.9 6.9 8.2 10.5TOTAL 91.8 90.7 92.8 94.9


Table 62. Other Dried Vegetables (rather than Dried Onions): EU25 Imports – Value -

OTHER DRIED VEGETABLES EU IMPORT MARKET

2002 2003 2004 Chile 3.0% 1.0% 1.0% China 37.2% 31.5% 35.5% Egypt 3.5% 3.2% 3.5% Egypt EU Import million Euro 3,236 2,706 3,105

50 Nielsen Retail Index, 2005. 51 Buyers leading food company assessment. 52 WTO Officials. 53 USA Trade Import Statistics, 2005.


Egypt EU Import 000 TONS 2,231 2,266 2,784 India 2.1% 2.0% 2.1% Israel 1.8% 2.1% 2.8% Peru 2.8% 1.4% 7.5% Turkey 16.6% 22.8% 17.8% United States 19.3% 21.0% 13.6% Import Extra EU 100.0% 100.0% 100.0%


3.3.4 Tomato derivatives

The world production of tomatoes has increased drastically over the last two years mainly pushed by Italy, China and USA54 (table 64).

China has become in few years a leading tomato paste player producing 600.000 tons/year of which 500.000 for the export.

Italy, the main importer of the Chinese tomato paste is losing competitiveness55 in costs, but is still the world export market leader in sauce, peeled tomatoes, pulp and “Passata” made, partially with raw material imported from China, Portugal, Greece (table 64).

Table 63. Industrial Tomatoes: EU25 Production - 000 tons -

Industrial Tomato Production in EU

Country 2003 2004 2005 Index

05vs04

EU 7,817 9,153 11,201 122

Italy 4,325 5,316 6,400 120

Med. Out UE 2,718 3,155 3,254 103

USA 10,501 8,897 11,076 124

China 2,300 2,800 4,200 150

Total 25,109 28,520 34,725 122

Source: Tomato news, 2005

Table 64. Italy: Export of Tomato Derivatives - 000 tons -

Export - 000 tons - Italy Import Export Paste Peeled Others

2000 234.3 675 155.8

2001 365.3 797.1 169.4

2002 362.2 814.1 173.7

2003 420.9 885.2 197.7

2004 465.9 873 211.9

2005 475 874.1 233.9

Source: Camera di commercio Parma

54 Tomato news, 2005. 55 Parma cluster tomato producers, STAR Italia.


Table 65 shows EU25 Imports for peeled and dice tomatoes. Table 65. Peeled and Dice Tomatoes: EU25 Imports – Value and Volumes –.

Peeled and Dice Tomatoes EU Import

Import Euro million

Import Euro million

Import Euro million

Import tons

Import tons

Import tons

Country 2002 2003 2004 2002 2003 2004 Turkey 6,333 10,567 10,186 9,775 20,593 33,406

Import Extra EU25 11,375 37,071 23,109 17,076 73,263 58,369

Italy 279,417 335,284 314,138 583,247 555,703 560,140

Spain 25,623 29,865 23,815 55,139 60,897 46,296

Import Intra EU25 348,520 414,844 396,062 725,760 696,738 701,444

Import I+E EU25 359,895 451,915 419,171 742,836 770,001 759,812

Peeled and dice Tomato EU Import

Import Value Share

Import Value Share

Import Value Share Price/Kg Price/Kg Price/Kg

Country 2002 2003 2004 2002 2003 2004

Turkey 1.8% 2.3% 2.4% 0.65 0.51 0.30

Import Extra EU25 3.2% 8.2% 5.5% 0.67 0.51 0.40

Italy 77.6% 74.2% 74.9% 0.48 0.60 0.56

Spain 7.1% 6.6% 5.7% 0.46 0.49 0.51

Import Intra EU25 96.8% 91.8% 94.5% 0.48 0.60 0.56

Import I+E EU25 100.0% 100.0% 100.0% 0.48 0.59 0.55


The entire EU25, currently imports more almost 220,000 tons of tomato56 paste 2 (table 66 and 67).

Table 66. Tomato Paste 2: EU25 Imports.

Tomato Paste 2 Import Euro million

Import Euro million

Import Euro million

Import tons

Import tons

Import tons

Country 2002 2003 2004 2002 2003 2004 China 16,933 26,737 15,458 34,774 55,372 36,166

Turkey 2,098 3,454 4,347 3,712 6,080 8,084

Import Extra EU25 20,486 31,520 20,906 40,181 63,379 45,536

Greece 15,039 14,777 13,135 24,954 23,263 20,336

Italy 48,556 42,535 38,552 81,530 71,823 64,390

Portugal 18,835 17,890 18,591 34,251 31,301 31,963

Spain 24,746 26,117 23,827 45,843 47,843 41,989

Import Intra EU25 117,183 105,475 104,522 200,183 180,245 174,034

Import I+E EU25 137,669 136,995 125,428 240,364 243,625 219,571

56 Eurostat estimate 2005.


Table 67. Tomato Paste 2: EU25 Imports – Value Share and Prices/kg -.

Tomato Paste 2 Import Value Share

Import Value Share

Import Value Share

Price Euro/kg

Price Euro/kg

Price Euro/kg

Country 2002 2003 2004 2002 2003 2004 China 82.7% 84.8% 73.9% 0.49 0.48 0.43

Turkey 10.2% 11.0% 20.8% 0.57 0.57 0.54

Import Extra EU 100.0% 100.0% 100.0% 0.51 0.50 0.46

Greece 12.8% 14.0% 12.6% 0.60 0.64 0.65

Italy 41.4% 40.3% 36.9% 0.60 0.59 0.60

Portugal 16.1% 17.0% 17.8% 0.55 0.57 0.58

Spain 21.1% 24.8% 22.8% 0.54 0.55 0.57

Import Intra EU 100.0% 100.0% 100.0% 0.59 0.59 0.60


And even higher quantity of tomato paste 3 - almost 300,000 tons- is also imported by EU25, almost exclusively from China (tables 68 and 69). Table 68. Tomato Paste 3 : EU25 Imports – Value and Volumes -.

TOMATO PASTE 3 Import

Euro million

Import Euro

million

Import Euro

million Import

tons Import

tons Import

tons

Country 2002 2003 2004 2002 2003 2004 China 60,881 52,065 83,036 103,629 94,105 178,728

Iran 2,395 1,184 4,275 2,244

Turkey 2,800 2,651 1,300 4,054 3,827 2,132

Import Extra EU25 73,957 68,710 90,790 124,100 118,081 191,516

Greece 22,957 19,353 12,591 30,583 31,296 20,429

Italy 19,206 13,871 13,544 21,471 13,229 14,652

Portugal 29,194 20,863 19,564 30,542 23,107 20,110

Spain 34,983 42,396 37,832 37,372 47,408 39,258

Import Intra EU25 119,421 103,069 92,683 131,294 120,170 103,673

Import I+E EU25 193,378 171,779 183,474 255,394 238,251 295,188


Table 69. Tomato Paste 3 : EU25 Imports – Value Share and Prices/kg -.

TOMATO PASTE 3 Import Value Share

Import Value Share

Import Value Share

Price/Kg Price/Kg Price/Kg

Country 2002 2003 2004 2002 2003 2004 China 82.3% 75.8% 91.5% 0.59 0.55 0.46

Iran 0.0% 3.5% 1.3% 0.00 0.56 0.53

Israel 1.4% 1.1% 1.3% 0.95 0.73 0.60

Turkey 3.8% 3.9% 1.4% 0.69 0.69 0.61

Import Extra EU25 100.0% 100.0% 100.0% 0.60 0.58 0.47

Greece 19.2% 18.8% 13.6% 0.75 0.62 0.62


Italy 16.1% 13.5% 14.6% 0.89 1.05 0.92

Portugal 24.4% 20.2% 21.1% 0.96 0.90 0.97

Spain 29.3% 41.1% 40.8% 0.94 0.89 0.96

Import Intra EU25 100.0% 100.0% 100.0% 0.91 0.86 0.89


Egypt could position itself57 - especially if EU25 subsidies of 34.5 Euro/tons will be reduced or

eliminated - either as a raw material provider of Italy (for peeled, diced tomatoes and paste) or replacing Portugal and Greece as tomato paste exporters to EU.

Competing with China58 looks on the contrary difficult looking at China very low prices both in tomato paste 2 and paste 3.

Spain, it is useful to be remembered, is well above the quota imposed by the EU and therefore not in the position to increase its production.

3.3.5 Frozen Vegetables and Fruit

Egypt export position of frozen vegetables and fruit is particular strong in the GCC but concentrated in the frozen potato59 segment (table 70).

A recent study of the Italian Chamber60 of commerce on typically Italian Export Food estimated the frozen and vegetables consumption GCC market is worth $101,2 million and 92,000 tons in the year 2005 - GCC re- export is excluded.

Egypt frozen potatoes are estimated to hold 25% of the total Frozen Vegetables market with a competitiveness rate classified as “parity A+” vs the European61 export in the same area and with projected increasing level of market share for the future.

Table 70. Frozen Vegetables: Egypt Export to the GCC – Value -.

Frozen Vegetables Year 2005 Year 2025 Year 2050 GCC $ million tons $ million tons $ million tons Frozen Veg.+ Pot. 101,200 92,000 176,640 147,200 264,000 220,000

FROZEN VEG. GCC 2003 2004 Egypt Share Value 19% 25%

Source: Italian Chamber of Commerce, 2005

European frozen potatoes exporters hold an advantage62 in logistic classified parity + - or with less than 5% cost advantage vs the Egyptian product - but suffer from strong Euro. European margins are estimated half of the Egyptian exporters with pre-tax marginal profit of only 4%. Price rises are under analysis and probably to be introduced by mid 2006 (+5.6%) making the Egyptian product even more competitive.

57 A potential shared by the vast majority of the interviewed buyers and traders of tomatoes in EU25. 58 Buyers of the three leading Tomato sauce producers in EU25. 59 Study GCC Food habits and Imports Chambers of Commerce EU25 and Dubai. 60 A tracking study conducted every four years to assess the position and image of the Italian food export in the world – Middle East region included. 61 Italian and EU25 Chambers of commerce. 62 Logistic competitive advantages Mc Kinsey and Hamburg sul.


Medium term also there could be a potential for Egypt to develop more added value products based on potatoes such as “Pringles” in high demand all over the Middle East and with high acceptance among young consumers.

EU Chambers of commerce survey on food estimated GCC will become in 15 years a strong market for frozen potatoes - 8 kg/capita - but not for other frozen vegetables – where it will stabilizes around an estimated 3 kg/capita.63

Frozen strawberries is the fastest growing market64 for frozen fruit and vegetables in EU25 - an average +7% between 2001 and 2005 - while frozen vegetables show little or no growth in EU25 - +0.2% in 2004 vs. 2003 and +0.3% in 2005 vs. 2004 according to Nielsen data - Frozen potatoes have a negative trend (- 4% in 2004 vs. 2003 and -2.7% in 2005 vs. 2004).

Egyptian frozen strawberries are still gaining awareness65 and “credibility” with European buyers gaining fast acceptance because of quality and a competitive price.

Poland in losing market share, due to rising costs, while Morocco owns now 50% of the import market from Country outside the EU25 (tables 71 and 72).

Table 71. Frozen Strawberries: EU25 Imports – Value and Volumes -.

Market Share Value

Import Euro

million

Import Euro

million Import tons Import tons

FROZEN STRAWBERRIES: EU25 IMPORT MARKET 2004 2003 2004 2003 2004 China 24.6% 27,088 18,564 36,995 30,643 Egypt 1.9% 616 1,430 705 1,916 Morocco 51.3% 34,615 38,783 34,911 47,079 Turkey 14.2% 15,356 10,729 9,252 7,089 Import Extra EU25 86,415 75,597 89,781 91,851 Belgium 10.1% 14,650 15,531 13,425 12,347 Germany 7.4% 21,744 11,354 14,153 8,785 Netherlands 11.6% 23,911 17,867 17,666 15,070 Poland 44.5% 111,616 68,324 75,115 61,515 Spain 15.5% 26,436 23,785 33,421 29,283 Import Intra EU25 225,501 153,393 172,318 139,343 Total I+E EU25 311,917 228,991 262,099 231,194


Egypt product is also competitive in price with all the Countries but China (table 72). Table 72. Frozen Strawberries: EU25 Imports Price/kg.

Price/kg Price/kg Price/kg Price/kg Price/kg Price/kg FROZEN STRAWBERRIES 2002 2003 2004

FROZEN STRAWBERRIES 2002 2003 2004

China 0.74 0.73 0.61 Poland 1.01 1.49 1.11

Egypt 0.87 0.87 0.75 Portugal 0.97 0.94 0.86 Morocco 0.82 0.99 0.82 Spain 0.73 0.79 0.81


Frozen artichokes is still a relatively low market of 18.0 million Euro where Egypt looks competitive66 - 28% market share - and competition limited to Spain and Morocco (table 73).

63 Estimate is based on tracking study on food habits with DFK. 64 EUROSTAT and Wholesalers data. 65 Of ten specific operators in Strawberries eight had already been presented Egyptian products.


Table 73. Frozen Artichokes: EU25 Imports – Value -.

ARTICHOKES EU25 IMPORT MARKET

Import Euro million

Import Euro million

Import Euro million

Import tons

Import tons

Import tons

Years 2002 2003 2004 2002 2003 2004 Egypt 3,402 4,293 5,097 1,579 2,242 2,728

Morocco 549 1,304 2,010 243 578 946 Total Extra EU25 4,733 6,212 8,292 2,191 3,108 4,231

Spain 7,308 8,354 7,600 3,580 3,933 3,347

Total Intra EU25 9,067 10,335 9,796 4,331 4,605 4,378

Total I+E EU25 13,800 16,547 18,088 6,523 7,713 8,609 ARTICHOKES EU25 IMPORT MARKET

Import Value Share

Import Value Share

Import Value Share Price/Kg Price/Kg Price/Kg

Egypt 24.7% 25.9% 28.2% 2.16 1.91 1.87

Morocco 4.0% 7.9% 11.1% 2.26 2.26 2.13

Spain 53.0% 50.5% 42.0% 2.04 2.12 2.27


Probably Egyptian expertise and market know-how in frozen artichokes could well be an export driver67 in the canned artichokes market quite important both in EU25 and USA68 and dominated by Spain (tables 74 and 75).

Table 74. Canned Artichokes: EU25 Imports – Value -.

Import Euro million

Import Euro million

Import Euro million

Import tons

Import tons

Import tons

CANNED ARTICHOKES EU25 IMPORT 2002 2003 2004 2002 2003 2004

Peru 1,231 3,374 7,916 735 1,934 3,519 Import Intra EU25 2,058 3,949 8,442 1,355 2,261 3,927 Spain 31,492 32,200 42,359 18,793 17,343 23,570 Import Extra EU25 45,709 47,582 57,760 24,153 22,374 27,836 Import I+E EU25 47,767 51,531 66,202 25,508 24,635 31,763 Spain Price/Kg 1.68 1.86 1.80


Table 75. Canned Artichokes: USA Imports – Value -.

Import Volume tons US $ Million CANNED ARTICHOKES IMPORT USA

2202 2003 2004 2005 2005

CHILE 1,657 3,030 4,298 7,410 13,960 ITALY(*) 1,844 1,883 901 1,582 5,343 SPAIN 39,137 41,348 40,027 30,887 64,391 TOTAL 43,923 48,600 50,105 49,911 105,501


66 Statement of the totality of six specific importers – distributors in EU25. 67 Totality of distributors and importers of canned artichokes ask for an additional strong supplier as alternative to Spain because of alleged 68 Potential confirmed by three agronomist and three buyers interviewed.


3.3.6 Juices and Pulp

Juices and pulp is an Egyptian export with competitive positioning in Libya and, reportedly, in the ethnic USA market- especially with mango juice- but with little potential in the GCC where the beverage industry is highly developed with the presence of both Pepsico and Coca Cola Company and little developed in EU25 where tropical Juices consumption is limited and growth flat (tables 76, 77 and 78 and figure 8).

The Juices industry is increasingly dominated by global multinational (Coca Cola Company and Pepsico Inc.) looking for diversification and trying to dominate the non-carbonated soft drink sector that, although smaller, is growing at a faster rate than the traditional carbonated drink. But there are also cases of dairy company (like Danone or Pinat sur in Turkey) entering the juice market with new products targeting the same consumers they target with flavoured yoghurt drinks. In synthesis juice is fast becoming a global market with powerful multinational holding leading positions and investing heavily in factories and marketing.

The leading multinational in the sector have also a policy of global “sourcing” for the raw materials (fruit concentrate) usually in South America, South Africa and some Asian countries (to a lesser extent) with very high exigencies of quality standard and specifications and high volumes requirements.

Broadly speaking Egypt seems poorly positioned in the market with perceived “poor quality” erratic volumes and limited product range.

Table 76. Juices: EU25 Imports – Value, Volumes and Shares -

2000 2005 2000 2005 2000 2005 2000 2005

Juices Euro Euro tons tons Value Share Volume Share

Argentina 20,671 22,969 16,842 28,251 1.5% 2.1% 1.1% 1.6%

Brazil 878,180 624,041 794,754 1,019,098 62.2% 57.2% 54.0% 57.3%

China 52,208 44,059 58,444 79,729 3.7% 4.0% 4.0% 4.5%

Costa Rica 22,026 29,630 21,137 46,245 1.6% 2.7% 1.4% 2.6%

Cuba 58,202 33,896 52,155 53,245 4.1% 3.1% 3.5% 3.0%

Egypt 323 978 615 3,119 0.0% 0.1% 0.0% 0.2%

Indonesia 15,522 16,129 18,767 16,282 1.1% 1.5% 1.3% 0.9%

Israel 78,991 54,753 82,251 78,805 5.6% 5.0% 5.6% 4.4%

Romania 5,663 11,440 8,683 22,593 0.4% 1.0% 0.6% 1.3%

Switzerland 35,101 66,143 107,777 211,350 2.5% 6.1% 7.3% 11.9%

Turkey 41,056 40,550 38,474 50,879 2.9% 3.7% 2.6% 2.9%

U.S.A 158,100 87,320 212,500 102,998 11.2% 8.0% 14.4% 5.8%

Thailand 46,645 59,959 59,985 67,036 3.3% 5.5% 4.1% 3.8%

TOTAL 1,412,687 1,091,867 1,472,383 1,779,629 100.0% 100.0% 100.0% 100.0%


The market is dominated by Brazil thanks to its leading position in the orange juice, which drives – for its significant volumes - the negotiations with key customers.


Table 77. Juices: EU25 Retail Market – Volumes by Flavours - , 2005. JUICES: VALUE SHARE 1990 1995 2000 2005

Orange 35% 33% 36% 31%

Other Citrus 6% 8% 7% 8%

Stones Fruit 8% 7% 6% 8%

Apple 34% 32% 33% 36%

Pineapple 6% 5% 6% 8%

Tropical 0.8% 1.2% 2.4% 2.5%

Energetic ACE 0% 0% 0% 3%

Mix 5% 6% 5% 3%

Others 6% 8% 6% 2%

Total 95% 92% 95% 100%

Source: Nielsen Retail Index, 2005

Table 78. Tropical Juices: Country Export Share in Volumes in EU25.

TROPICAL MARKET SHARE 1990 2003 2005 Brazil 25% 52% 68% Peru 7% 6% 4% South Africa 13% 3% 3% Egypt 0.2% 1.2% 1.3% Mexico 11% 10% 6% Pakistan 5.0% 3.0% 1.2% Costa Rica 8% 6% 3% USA 23% 15% 9% Others 8% 4% 4% Total 100% 100% 100%


Figure 8. Tropical Juices: EU25 CIF Import Prices.



Egyptian price competitiveness in the guava and mangoes segment is probably affected by low volumes - on average, in fact, Brazilian (figure 9) product is 13% cheaper69.

3.3.7 Spices and Herbs

Egypt competitiveness is limited to four herbs70: marjoram, fennel, caraway and basil (table 79).

Table 79. Spices: USA Import – Value -.

USA Spices $ million 2000 2003 2004 2005 05vs04 Marjoram Market 3.9 5.1 6.1 5.9 -4% Egypt Share 10.8% 23.1% 29.5% 27.1% Basil Market 9 11.8 14.9 18.9 27% Egypt Share 4.4% 31.4% 29.5% 19.0% Fennel market 3.7 3 3.3 3.2 -3% Egypt Share 59.5% 66.7% 60.6% 65.6% Caraway Market 2.8 3.5 2.7 3 11% Egypt Share 2.1% 10.2% 11.8% 10.0%


They are all, both in USA and EU25 slow growing markets in a range of -2% + 3% in the years

between 2002 and 200571 (table 80)

Table 80. Spices: Egypt Value Share in EU25.

EU25 Value Share Import for Egypt Spices 2003 2004 2005

MARJORAM na na na BASIL na na na FENNEL 25% 23% 21% CARAWAY 54% 67% 65% CORIANDER 15% 14% 14%


In particular in USA Basil is now grown successfully in Mexico72 and caraway widely available both

in USA and Canada. In EU25 fennel and coriander are increasingly available73 in Bosnia, Macedonia and Eastern

Europe – where they are supported by generous European development programs - so that the only very strong position Egypt holds is in caraway.

Buyers have usually a buying policy74 to have at least four suppliers for each spice so that a dominant positioned can never be reached by any Country.

Spices are also a buyer market with four companies controlling 65% of the worldwide market.

69 Data given by EU25 three top importers in volumes. 70 Statement buyers five top spices company worldwide. 71 Nielsen Retail Index, 2004. 72 Linguanotto – Mars – spices company buyer. 73 Leading French and Cannamela Italian spices company buyers. 74 Practice adopted in USA – with objective no supplier > 17% - and EU25 – three suppliers in small markets, at least five in major markets . Volumes are very fragmented to avoid supplier’s dominance.


Leading players are shown in table 81.

Table 81. Spices: Leading Trade Companies in EU25 and Global.

McCormick USA Karl Ostmann Germany Fuchs Gewurze Germany Paulig Finland Catz International B.V Netherlands Van Heeghen International B.V Netherlands Euroherb Netherlands Bart and Spices U.K Lion Food U.K Van Sillevoldt B.V. Netherlands Euroma Produktie B.V Netherlands Fabio Cannamela s.r.l Italy Daregal France Danske Kridderie Denmark Ajinomoto Brasil Linguanotto Brazil, USA Master Food (Mars) USA

Source cbi spice study, 2003

There is growing evidence, although with no precise numbers, but based on buyers commentaries,

for a profitable organic niche in EU25, a segment growing at rate of 25% year.

Potential for Egypt export growth looks limited unless new spices are added into the portfolio, new customers won’t be easily gained since Egypt already supplies leading McCormick company controlling trough acquisitions most of the EU and USA market.

3.3.8 Cheese and Curds

Egypt is very well positioned to become a regional leader of processed cheese75 in the Middle East.

Strong competitiveness has been achieved through FDI in particular with leading French cheese-maker Lactalis extremely aggressive in the market and investment oriented76.

Egypt’s share in the region and competitiveness are likely to further enhanced by Lactalis aggressive branding promotion and cost competitiveness - raw material will probably imported from low cost Ukraine where Lactalis has factories -.

Processed cheese turned out to be a very competitive product in the region where leading dairy Countries like Saudi Arabia77 - with integrated dairy farms - has no competitive cost with local raw material - high cost of milk and animal fodder.

Egypt imported raw materials for processed cheese are estimated 35% cheaper than domestically78 produced raw material produced in Saudi Arabia and GCC and highly competitive also

75 Interviews Lactalis word export manager, and Turkish cheese exporters to GCC. 76 Statement top retailer in Dubai and Kuwait, Saudi Arabia. 77 Danone Al Safi confidential report. 78 Lactalis competitive analysis.


with Iran costs and Turkey - a strong cheese producer but only for the domestic market with little focus on exports79 (figure 9). Figure 9. Cheese: Cost of Product Sold Benchmark in MENA and Middle East Countries

-15

0

22

12

4

-20 -10 0 10 20 30

Egypt

UE25

GCC

Iran

Turkey

COST OF PRODUCT SOLD Index - Cheese


Current competition is mainly with imported processed cheese from EU25, and anyway limited by the fact Lactalis policy is to promote Egypt as the regional exclusive supplier in MENA as soon as supply chain of raw material from Ukraine is finalized (table 82).

Table 82. Cheese: GCC Imports Share in Value and Total Import Cheese Market – Value and

Volumes

GCC - CHEESE and CURDS Countries 2002 2005 2015 2025 Egypt 7.5% 22.0% 30% 37% N.Z+ Aus. 4% 5% 4% 4% EU25 58% 43% 38% 33% USA 6% 5% 4% 4% Others 25% 25% 24% 22%

Total 000 tons 94,000 128,000 192,000 260,000 Total $ million 263,200 345,600 518,400 702,000


According to the Italian study of the Chamber of Commerce80 on typical food, Egypt holds 22% of

the industrial cheese market - excluding “Fresh soft white cheese” for immediate consumption -. It is a strong positioned likely to be strengthened in the near future by cost competitiveness and strong support to the brands.

On the contrary Egypt position in EU25 is non existent (table 83), not surprisingly and notwithstanding the ban on Egypt dairy imposed by EU25, Egypt has no image of cheese maker in an area where “country of origin” is one of the leading buying criteria for the consumers81.

79 Danone Turkey analysis. 80 Study with more than 1,400 store checks. 81 EU25 Survey on Typical European food, 2003.


Table 83. Cheese: EU25 Imports – Value, Volumes and Shares –.

Country Import Euro

million

Value share

Import tons

Australia 53.5 13.3% 23,740 Bulgaria 15.3 3.8% 5,376 Canada 19.2 4.8% 4,060

New Zeeland 61.8 15.3% 29,047 Norway 14.9 3.7% 2,919

Switzerland 238.7 59.2% 40,334 Total Extra EU25 403.4 100% 105,476

France 1,650 21.1% 416,346 Austria 240 3.1% 68,303 Belgium 422 5.4% 136,435 Denmark 704 9.0% 198,350 Germany 1,725 22.0% 615,059 Ireland 457 5.8% 126,803

Italy 722 9.2% 17,041 Netherlands 1,520 19.4% 435,315

Spain 106 1.4% 33,305 U.K. 169 2.2% 50,955

Total Intra EU 7,838 100.0% 2,128,757


Soft white cheese - like Domiati - has little chances of regional success in an area as the MENA widely dominated by local strong brands82. Nevertheless results could be achieved with marketing support (especially with multinationals) if a Domiati brand were created.

Buffalo Mozzarella is a premium cheese selling for more than 8 Euro/Kg. Egypt could perhaps position itself as a producer of the expensive Italian “Buffalo Mozzarella”

taking into account the high and growing cost of the Italian producers and the Italian constraints on the current supply chain83.

3.3.9 Others

Others categories, for different reasons are potentially promising for Egypt who could compete either positioned as a “low cost producer” or challenge competitors with “unusual” high – dominant – market shares. They are shown in table 85.

As a general idea we assume, based on the current minimum wages, Egypt could successfully compete in labor-intensive industry. After the devaluation of the Egyptian pound in 2003 and because of the abundance of dedicated labour force Egypt looks well positioned and potentially competitive with Turkey, Greece, Portugal, Italy, Serbia, Spain (to a certain extent), Tunisia in a series of typical Mediterranean products (table 84). Also a successful attack could be moved to countries with dominant market share in some markets (raisin and dried apricots in Turkey, dates in Tunisia) since dominant position are always hard to maintain and not always worth defending at any cost.

82 Statement wholesalers cheese in Dubai, Jordan, Iraq. 83 Napoli associazione produttori Mozzarella di bufalo.


Table 84. Others interesting categories for Egypt.

• Dried tomatoes • Raisin • Canned artichokes • Canned Asparagus (see Frozen Artichokes) • Syrup fruit • Frozen raspberries • Pickles in vinegar • Dates • Dried apricots • Dried figs

3.3.9.1 Dried Tomatoes

Tables 85 and 86 show dried tomatoes EU25 Imports and Import Shares. Dried tomatoes are a highly promising market for Egypt since highly labour intensive and requiring

a climate with low humidity, a synergic potential line extension of the herbs industry. Egypt export potential/target could easily amount to 5,000 tons if a 5% market share were achieved generating a turnover of $9-10 million. Turkey is currently by far the biggest exporter to EU25 with 60% market share (a dominant position). In Italy, Spain, Greece and Portugal there is also a considerable demand of dried tomatoes domestically produced or imported within the EU25. Dried tomatoes have gained popularity over the last ten years and have become an important ingredient in the “Mediterranean diet” conspicuously used also in pizzas and in the salads.

Table 85. Dried Tomatoes: EU25 Imports – Value and Volumes -.

Import Euro million

Import Euro million

Import Euro million

Import tons

Import tons

Import tons

DRIED TOMATOES IMPORT EU25 2002 2003 2004 2002 2003 2004 China 2,329 1,582 1,273 1,096 891 1,115 Israel 1,271 1,388 2,250 484 545 833 Tunisia 847 1,209 1,529 364 597 869 Turkey 11,965 16,622 12,864 4,255 6,990 6,578 Import Extra EU25 19,184 24,327 21,582 7,118 10,253 10,693 France 6,979 5,215 7,491 1,259 1,792 1,268 Germany 2,002 2,689 2,907 493 830 784 Greece 5,385 7,291 9,090 8,002 11,616 13,882 Hungary 2,569 220 1,486 821 70 449 Italy 9,777 11,166 12,251 3,514 4,586 4,592 Portugal 7,334 14,611 15,448 11,138 17,968 18,040 Spain 14,023 14,068 14,846 4,881 6,266 6,975 Import Intra EU25 51,591 59,694 66,795 31,785 46,005 47,999 Import I+E EU25 70,775 84,021 88,377 38,904 56,258 58,692


Table 86. Dried Tomatoes: EU25 Import Shares – Value – and Prices/Kg.

Import Value Share

Import Value Share

Import Value Share

Price/kg Price/kg Price/kg DRIED TOMATOES IMPORT EU25 2002 2003 2004 2002 2003 2004 China 12.1% 6.5% 5.9% 2.12 1.78 1.14 Israel 6.6% 5.7% 10.4% 2.63 2.55 2.70 Tunisia 4.4% 5.0% 7.1% 2.33 2.02 1.76 Turkey 62.4% 68.3% 59.6% 2.81 2.38 1.96


Import Extra EU25 100.0% 100.0% 100.0% 2.70 2.37 2.02

Italy 19.0% 18.7% 18.3% 2.78 2.43 2.67 Portugal 14.2% 24.5% 23.1% 0.66 0.81 0.86 Spain 27.2% 23.6% 22.2% 2.87 2.25 2.13 Import Intra EU25 100.0% 100.0% 100.0% 1.62 1.30 1.39


Egypt export potential/target: 5.000 tons – 5% market share - $9-10 million.

Reason why: a labour intensive category with Turkey holding 60% market share, strong market growth and demand.

3.3.9.2 Raisin

Table 87 shows raisin EU25 imports in value and volume.

Egypt export potential/target: 30.000 tons – 10% market share - $35 million. Reason why: a labour intensive category with Turkey holding 55% market share.

Raisin is an interesting product category potentially suitable for Egypt: is labour intensive, requires dry climate and has little competition practically limited to Turkey (almost 60% market share in volume).

Other competitive like Chile and USA are not particularly “cost effective” and Iran – the third biggest exporter to EU25 – is currently suffering from an embargo imposed by the European Commission. But also raisin is a product showing healthy growth in EU25 with consumption in 2005 +5.6% higher than in 2004. Raisin has in fact healthy connotations among the Europeans consumers and is widely used as “healthy” ingredient in cereal, cereal bars and snack industry.

Table 87. Raisin: EU25 Imports – Value and Volumes -. Import Euro

million

Import Euro

million

Import Euro

million

Import tons

Import tons

Import tons RAISIN IMPORT

EU25 2002 2003 2004 2002 2003 2004

Australia 5,699 7,136 5,651 4,141 5,974 4,112 Chile 10,257 11,491 13,512 7,423 10,554 10,761 Iran 21,256 20,580 31,087 30,442 28,098 40,594 South Africa 16,129 20,103 18,404 14,776 18,552 14,840 Turkey 149,790 144,088 171,802 174,908 163,511 179,501 United States 60,501 58,796 64,554 45,340 48,009 50,144 Import Extra EU25 268,178 266,461 311,260 281,635 279,567 306,924


3.3.9.3 Syrup Fruit

Table 88 shows Syrup Fruit peaches EU25 Import in Value and Volumes, while Table 89 shows Syrup Fruit from apricots EU25 Import in Value and Volumes.

Egypt export a potential/target: 15.000 tons – 10% market share - $15 million. Reason why: progressive lost of competitiveness of South Africa (strong Rand).

Syrup fruit is a category with little growth but relatively low competition with only two countries – South Africa and Greece – with a relevant export to EU25. The category could represent an opportunity for Egypt where a considerable amount of fresh fruit is wasted due to poor post harvesting practices.


Table 88. Syrup Fruit Peaches: EU25 Import – Value and Volumes -. Import

Euro million

Import Euro

million

Import Euro

million

Import tons

Import tons

Import tons SYRUP PEACHES

IMPORT EU25 2002 2003 2004 2002 2003 2004

South Africa 15,254 19,394 20,008 21,609 25,213 21,359 Import Extra EU25 19,888 50,574 41,688 26,831 67,878 50,943 Germany 18,407 21,736 27,573 17,577 19,112 20,519 Greece 120,825 78,801 73,362 182,139 103,172 97,071 Italy 19,156 21,386 19,486 35,729 39,284 31,601 Spain 32,552 59,478 48,737 44,539 70,294 56,693


Table 89. Syrup Fruit Apricots: EU25 Import – Value and Volumes -.

Import Euro

million

Import Euro

million

Import Euro

million Import

tons Import

tons Import

tons SYRUP APRICOTS IMPORT EU25

2002 2003 2004 2002 2003 2004

South Africa 16,946 17,275 17,999 20,394 18,412 17,896 Turkey 3,524 3,348 2,587 4,143 3,130 2,618 Import Extra EU25 38,906 41,408 41,489 44,494 43,613 43,774 Belgium 3,493 2,729 2,185 2,945 2,255 1,604 Import Intra EU25 79,167 88,861 91,008 88,289 90,332 88,035


Pickles vegetables in vinegar Table 90 shows pickles in Vinegar EU25 Imports in Value and Volumes. Turkey competitiveness

stems from cheap vinegar84 (-12% vs. China, -5% vs. Egypt) and packaging - parity with China - while raw material is classified as “parity +” (+ 4-5% vs. China and parity vs. Egypt).

It is a very competitive market with China and Turkey traditionally holding a strong position and with considerable production also in most of the EU25 countries. Nevertheless the market is opened to product innovation and differentiation and Egypt could successfully position itself as a niche supplier with specific/unique products.

Egypt export potential/target: 8.000 tons – 1.5% market share - $10 million. Reason why: launch of differentiated products based on domestic diversity

Table 90. Pickles in Vinegar: EU25 Imports – Value and Volumes -.

Import Euro

Million

Import Euro

Million

Import Euro

Million Import

tons Import

tons Import

tons PICKLES IMPORT EU25 2002 2003 2004 2002 2003 2004 China 14,486 15,592 14,318 10,855 15,312 15,961 Morocco 9,548 7,532 6,306 8,745 6,250 6,444 Thailand 8,336 7,679 6,950 8,552 7,824 6,830 Turkey 86,771 80,035 88,814 114,344 116,187 137,529 Import Extra EU 160,100 154,196 169,484 190,043 208,050 256,182 Belgium 24,482 27,612 26,300 19,949 24,602 24,995 Germany 52,628 62,760 71,186 51,805 61,917 74,550

84 Aldi, Wal Mart, Lidl benchmark category analysis.


Greece 14,553 14,892 23,427 7,511 8,595 14,821 Hungary 25,922 22,095 26,216 35,903 29,245 33,450 Italy 10,722 10,464 10,288 5,286 4,842 5,029 Netherlands 98,843 92,778 81,805 89,426 88,034 81,288 Poland 8,438 8,279 9,471 10,242 12,332 13,756 Spain 17,796 18,116 17,982 10,460 11,729 14,637 UK 9,891 10,135 9,708 5,199 4,685 4,517 Import Intra EU25 290,726 293,643 299,958 264,936 275,642 292,383 Import I+E EU25 450,826 447,839 469,441 454,979 483,692 548,565


Frozen Raspberries

In table 91 frozen Raspberries EU25 Imports in Value and Volumes are reported.

Egypt export potential/target: 10.000 tons – 10% market share - $15 million

Reason why: Serbia controlling 72% of the market, labour intensive crop harvesting.

But can Egypt grow raspberries and blackberries?

Frozen raspberries is in the reality a question mark since it requires climatic conditions that perhaps are not realistic in Egypt. Assuming suitable climatic conditions, raspberries are undoubtedly an opportunity since are in great demand in EU25 especially in the bakery sector and taking into account Serbia is, at the moment, the only supplier along with Chile.

Table 91. Frozen Raspberries: EU25 Imports – Value and Volumes -.

Import Euro

million

Import Euro

million

Import Euro

million Import

tons Import

tons Import

tons FROZEN

RASPBERRIES BLACKBERRIES

IMPORT EU25 2002 2003 2004 2002 2003 2004

Bosnia 1,607 2,157 1,562 1,207 1,459 1,120 Chile 27,920 28,762 36,893 20,268 21,235 24,318

Serbia 94,823 95,390 84,388 75,271 72,928 65,520 Import Extra EU25 131,849 136,025 131,144 103,762 103,339 98,305


3.3.9.4 Dates

Dates are undoubtedly an opportunity for Egypt85: the import in EU25 is not negligible - Euro107 million in 2004, and a volume of 62,000 tons - and there are few exporting Countries: Tunisia – the leader with 49.7% of market share – Israel with 21.9% and Algeria (table 92).

The UAE and India also import a considerable amount of dates - respectively 220.000 and 280,000 tons – but at a very low price ($0.15/kg), the USA is in itself a producer and historically never imported more than 5,000 tons/year. A probable ban of EU25 of Methyl bromide currently used in the processing of dates could pave the way for Egypt as a new competitor with no “conversion” cost in the switch to a new technology.

85 Seminar dates Dubai Jan, 2005 with four American Leading Importers plus five EU25 traders. Potential based on purchasing intention: “probably I would buy”.


Table 92. Dates: EU25 Imports – Value, Volumes and Shares -.

Import Euro millions Import tons Value Share

% EU25 DATES IMPORTS

2004 2004 2004 Algeria 12,447 8,921 11.7% Egypt 360 490 0.3% Iran, Islamic Republic of 8,229 12,014 Iraq 25 27 0.02% Israel 23,286 6,031 21.9% Jordan 580 244 0.54% Pakistan 702 1,372 0.7% Saudi Arabia 927 798 0.9% South Africa 1,277 223 Tunisia 52,921 30,023 49.7% Turkey 649 475 0.6% United Arab Emirates 37 87 0.03% United States 4,024 979 3.8% Total EU25 106,564 62,223


Potential for Egypt: 10,000 tons – 10% market share in EU25 - $22 million

Reason why: Tunisia controlling 72% of the market, labour intensive crop harvesting. Ban on existing technology, conversion cost for current players.

3.3.9.5 Dried apricots and dried figs

Tables 93 and 94 show EU25 imports in value, volumes and shares for dried figs and dried apricots.

Table 93. Dried Figs: EU25 Imports – Value, Volumes and Shares -. Import Euro

million Import tons Value Share DRIED FIGS: EU25

IMPORTS 2004 2004 2004

Brazil 4,422 1,228 6.1% Iran 999 701 1.4%

Israel 901 222 1.2% Peru 367 60 0.5%

Turkey 64,681 43,945 89.5% Total Import 72,297 46,663 100.0%

Dried apricots and figs have in common the dominant position of Turkey in export to the EU25.

Worldwide Turkey export $100 million dried figs and $200 million of dried apricots. In the case of dried figs EU25 is the only big importer market, while for the dried apricots also the

US, Russian, the Gulf States and Central Asian markets are quite important in terms of consumption and imports.

Worldwide Turkey export of dried apricots totalled $197 million in 2004 with USA ($38 million), Russia ($15 million), Australia ($13 million), and Canada ($6 million) also big buyers.


Table 94. Dried Apricots: EU25 Imports – Value, Volumes and Shares -.

Import Euro Million

Import Euro Million

Import Qty tons

Import Qty tons DRIED APRICOTS:

EU25 IMPORTS 2003 2004 2003 2004

Iran 1,008 773 751 651 Pakistan 363 223 134 85 Turkey 65,539 82,817 28,925 35,574

Total Import EU25 69,555 86,529 30,972 37,610 COUNTRY Value share Value share

Iran 1.4% 0.9% Pakistan 0.5% 0.3% Turkey 94.2% 95.7%

Egypt export potential/target: 30,000 tons – 12-15% market share - $60 million

Reason why: Monopoly of Turkey, buyers in search of alternative suppliers.

3.3.9.6 The Marginal

Finally there are few product categories where Egypt has some exports but where no competitive advantage was identified86 (table 95):

• Jams

• Molasses

Table 95. Jams and Jellies: EU25 Imports – Value and Volumes -. Import

Euro million

Import Euro

million

Import Euro

million

Import 000 tons

Import 000 tons

Import 000 tons Jams Import EU

Market 2002 2003 2004 2002 2003 2004 Turkey 6,105 6,734 10,281 3,498 4,107 4,912 Import Extra EU 19,830 22,497 24,500 15,982 17,810 18,098 Belgium 59,906 62,178 63,402 43,282 45,531 49,290 Denmark 38,038 38,324 39,037 23,507 23,927 22,844 France 81,824 80,004 89,473 40,386 44,750 48,148 Germany 68,759 84,903 85,356 51,524 62,727 59,891 Italy 38,579 29,917 34,596 30,823 19,294 24,342 Netherlands 56,012 51,373 48,922 60,962 58,548 56,773 Spain 22,587 23,865 21,602 20,661 20,996 17,718 United Kingdom 15,460 14,867 13,421 7,557 6,940 6,039 Import Intra EU25 412,376 421,353 434,296 297,973 304,439 309,901 Import Extra EU25 19,830 22,497 24,500 15,982 17,810 18,098 Import I+E EU25 432,205 443,850 458,796 313,955 322,249 327,999 Share Intra EU25 95.4% 94.9% 94.7% 94.9% 94.5% 94.5%


86 Buyers are scarcely interested in increasing range, there is no rejection to Egyptian products but no purchase intent. Answers to would you list a new product in category such as molasses or jams was “definitely not”.


In general terms no country, outside EU25, seems a competitive exporter of jams to Europe; intra EU25 import – export accounts for almost 95% of the market.

In the USA the amount of imported jams is also limited with only Mexico e France with a significant market shares (table 96).

Nevertheless there is a potential for Egypt, although not so well defined, to become perhaps a supplier of pulp (especially of strawberries) or a possible provider of own label for leading retailers in U.K, France, Italy and Switzerland.

The market for jams is not growing in Europe anyway, in 2005 consumption was 2.3% lower than it was in 1998 and there is growing evidence new generation of young consumers prefer cereal, biscuits and snack for breakfast.

Tables 97 and 98 show molasses EU25 Imports and import shares.

Table 96. Jams: USA Imports – Value -.

USA Jams Import Value $ 000

Country 2003 2003 2004 2005 CANADA 8,589 11,171 12,962 17,986

EGYPT 918 581 915 712

FRANCE(*) 8,166 9,870 10,543 11,815

GERMANY(*) 1,740 3,541 1,824 1,727

GREECE 1,087 1,524 952 1,191

ITALY(*) 1,464 1,923 2,168 2,691

MEXICO 3,669 4,529 5,444 5,647

SWITZERLAND(*) 3,179 4,654 3,921 6,237

UK 2,293 2,676 2,654 2,797

TOTAL 56,339 70,574 72,636 90,268


Table 97. Molasses: EU25 Imports – Value and Volumes -.

Import Euro

million

Import Euro

million

Import Euro

million

Import tons

Import tons

Import tons EU Import

Molasses Market 2002 2003 2004 2002 2003 2004

Cuba 6,693 3,922 205 70,625 53,804 3,000 Egypt 13,602 7,849 6,314 142,681 110,619 89,554 India 15,219 5,474 99 190,312 88,500 2,029 Mexico 3,914 913 5,999 43,054 10,287 85,202 Pakistan 95,977 73,091 69,746 1,210,539 1,158,390 1,071,402 South Africa 8,176 741 1,584 100,870 13,018 27,352 Sudan 9,333 9,476 10,670 111,522 136,977 167,675 Thailand 2,623 7,089 6,947 28,342 119,411 123,337 United States 28,585 18,554 18,981 341,983 298,634 298,676 Import Extra EU25 194,306 149,954 152,070 2,360,904 2,304,740 2,288,215



Table 98. Molasses: EU25 Import – shares and Price/Kg -. Import Value Share

Import Value Share

Import Value Share

Price/Kg Price/Kg Price/Kg EU Import Molasses Market

2002 2003 2004 2002 2003 2004 Cuba 3.4% 2.6% 0.1% 0.09 0.07 0.07 Egypt 7.0% 5.2% 4.2% 0.10 0.07 0.07 India 7.8% 3.7% 0.1% 0.08 0.06 0.05 Mexico 2.0% 0.6% 3.9% 0.09 0.09 0.07 Pakistan 49.4% 48.7% 45.9% 0.08 0.06 0.07 South Africa 4.2% 0.5% 1.0% 0.08 0.06 0.06 Sudan 4.8% 6.3% 7.0% 0.08 0.07 0.06 Thailand 1.3% 4.7% 4.6% 0.09 0.06 0.06 United States 14.7% 12.4% 12.5% 0.08 0.06 0.06


3.3.10 Protected Designation of Origin (PDO)

In 1992, the EU (then united 15 nations with open borders and common currency), has recognized that each member country has maintained some social, individual customs, religion, local tradition and indigenous products, such products, if unique to each country, can be protected.

Therefore the EU has passed regulation 1208/1992 that explicitly clarified the conditions under which an indigenous product may be determined as PDO (Protected Designation of Origin) either for its name or geographic origin.

This regulation was established in order to defend the position of a product within its particular markets, the importance of having a product labelled as PDO is that it serves as a guarantee of quality and tradition, and protects it from being used by others outside the geographical area designated.

3.3.10.1 Egyptian Processed Food Products of Indigenous Nature

There are some indigenous products that Egypt is regionally famous for:

Egyptian indigenous products Domiati And Barameely(Barrel) White Soft Cheese (From Cows and Buffalo Milk) Green Molokhiya Okra Egyptian Mangos and Guava Halawa,Tehina (Sesamee Seed Extracts ) Assal Aswad From El Saeed (Black Sugar Cane Molasses Of Upper Egypt)

Interviews with key operators in the market, indicate that there are potential benefits in applying to

the EU Trade Commission to register such products as PDO to be exclusively used by Egyptian exporters regardless of brand name.

The success of Greek exporters in registering FETA CHEESE after 12 years battle till OCT. 2003 to be exclusively Greek has prompted them to apply for other Greek indigenous products such as KALAMATA OLIVES, to be added to the 41 indigenous products list that the EU Trade Commission already have on their PDO list.

In the case of Egypt, priority, we feel, should be given to cheese trying to register the Domiati brand and working, along a multinational a plan for a possible expansion. Lactalis will probably have some study – and opinions – on the subject.


4.3.10.2 A Quick Summary

Country DRIVERS TO GROWTH

GROWING COUNTRIES (GCC-Russia- Ex Soviet Republics)

G.C.C 6 GCC Demographic growth, from 36 million in 2005 to 75 million (conservatively) in 2005.

Russia and Ex Soviet Republics Per capita income increase and increase in fresh and fruit vegetables consumption.

GCC Scarcity of land available for crops. Almost good quality land is already cultivated. Almost $2 billion of Fresh Vegetables $ Fruit are currently imported

GCC Brand oriented young consumers, sensitive to marketing.

Key sectors ■ Fresh Fruit & Vegetables ■ Processed Cheese ■ Confectionery ■ Frozen Vegetables ■ Dried Fruits ■ Herbs & Spices ■ Olives


Russia Ex Soviet Republics

■ Fresh Fruit & Vegetables ■ Dried Vegetables ■ Vegetables ■ Herbs & Spices ■ Olives ■ Jams


PROXIMITY MARKETS (Iraq, Libya, Sudan, Ethiopia)

Iraq, Libya, Sudan, Ethiopia

Lack of processed food industry, lack of competitiveness (Iraq $3 Billion in 2005).

Competitive advantage in Logistics Existing Market Linkages

Key sectors ■ Processed Cheese ■ Confectionery ■ Frozen Potatoes ■ Dried Fruits ■ Jams ■ Pulp & Juices


MATURE MARKETS (EU25-USA)

EU25 Opening of protected Industries Tomatoes: current subsidy to EU farmer’s €35/ton.

Olive oil: tariff of €1/liter for imports from outside EU25 countries.

EU25 Labor intensive crops relocation Artichokes (frozen and canned), Asparagus, Olives, Peeled tomatoes, Tomato paste, Frozen Strawberries, Raisin, Dried Apricots, Dried Figs, Syrup fruit, Raspberries.

EU25 Fresh Vegetables and Fruit EU25 imports €9.2 billion/year of fresh vegetables.

EU25 imports €17.1 billion/year of fresh fruit.

Key sectors ■ Fresh Fruit & Vegetables ■ Processed Cheese & Dairy ■ Dates ■ Mozzarella ■ Frozen Strawberries and Artichokes ■ Dried Fruits ■ Herbs & Spices ■ Olives ■ Olive Oil ■ Tomato Derivatives ■ Canned Artichokes ■ Dried Tomatoes ■ Dried Vegetables


USA Relocation, out of California of the Dried vegetable industry estimated in 270,000 tons.

USA Table olives an import of $317 million/year.

Canned Artichokes – 50,000 tons and $105 million of imports.

Jams an import of $90 million.

Key sectors ■ Mozzarella ■ Frozen Artichokes ■ Dried Fruits ■ Herbs & Spices ■ Olives ■ Canned Artichokes ■ Dried Tomatoes ■ Dried Vegetables ■ Jams



3.4 Egypt FDI Benchmark

3.4.1 FDI Analysis in the Region

According to the Economist intelligence service Egypt87 has attracted in the last five years the highest FDI in the MENA region for processed food, overcoming Turkey - actually an under performer in spite of its strength in the food processed industry - and the GCC Countries clearly lagging behind.

Egypt in fact received in the years 2002-2005 a share of FDI in processed food of 23% vs. 19% of UAE, 13% of Saudi Arabia and only 11% of Turkey.

In a recent survey conducted by the EU Chambers88 of commerce with a sample of 125 European leading processed food companies Egypt occupied the second position as most attractive country in the region for factory investments preceded only by the UAE (table 99).

Table 99. Criteria leading FDI among International Investors.

Weighted Av. Countries

Factors FDI evaluation General Proc. Food Egypt UAE Iran Turkey Syria Iraq Saudi

Arabia

Macroeconomic Environment 20% 35% 9 6 4 6 5 2 5

Political Environment 26% 13% 6 7 4 8 4 2 6

Labour 17% 10% 6 7 6 7 5 5 6 Energy 8% 8% 7 9 9 6 7 4 9

Taxes/Incentives 17% 20% 5 10 2 6 4 2 8

Transportation and Telecommunication 12% 14% 5 9 6 8 5 2 7

Country score 100% 100% 6.79 7.69 4.48 6.64 4.83 2.46 6.43

Source: EU Chambers of Commerce Investment intention Survey, 2005

Actually all the businessmen interviewed in the survey mentioned and prized Egypt’s big and growing domestic market as the main reason for preference (table 100).

87 FDI in processed food seems to move “in cycles” where a regional area is attacked only when investment is saturated in previous targeted region. Usually even big multinationals don’t enter two developing areas simultaneously. In the Middle East first target was Turkey, subsequently Saudi Arabia and UAE and nowadays Egypt is the priority. 88 EU25 chambers of commerce routinely assess with survey investment intention of leading European companies all over the world.


Table 100. Criteria leading FDI among International Investors.

Weighted Av.

General Proc. Food89

Macroeconomic Environment 19% 35%

GDP per Capita 14% 30%

Domestic Market size and Growth 19% 45%

Stability and Macroeconomic condition 34% 10%

Strength of financial institutions 15% 5%

Public deficit/surplus 8% 5%

Credit flow from financial Institutions 10% 5%

General accepted investment criteria in the processed food sector give, in fact, much more weight to the “domestic market size and growth” item which alone accounts for 45% of the weighted average of the leading criteria “macroeconomic environment”.

Source: EU Chambers of Commerce Investment intention Survey, 2005

General accepted investment criteria in the processed food sector give, in fact, much more weight to the “domestic market size and growth” item which alone accounts for 45% of the weighted average of the leading criteria “macroeconomic environment”.

3.4.2 Investors Drivers

As analysed no Country in the region has for investors, especially Europeans90, the same attractiveness of Egypt in the processed food sector.

Investors from EU and USA - businessmen investment climate statement - seem relatively critical in the assessment of Egypt’s competitors for investment in the region.

3.4.2.1 Turkey

Turkey has one of the most liberal legal regimes for FDI in the OECD. However, all companies – regardless of nationality of ownership – face a number of obstacles: excessive bureaucracy, weaknesses in the judicial system, high and inconsistently collected taxes, weaknesses in corporate governance, sometimes unpredictable decisions taken at the municipal level, and frequent, sometimes unclear changes in the legal and regulatory environment.

Historically, investment has also been discouraged91 by high inflation and political and macroeconomic uncertainties, though Turkey has become much more stable in the years following the 2001 economic and financial crisis.

As a result, FDI inflows, at well below one percent of GDP over the last decade, have been far below FDI received by more investor-friendly emerging markets and also below Turkey’s potential.

The law also abolished specific minimum capital requirement for foreign investments. Turkey provides investment incentives to both domestic and foreign investors. These include a corporate tax exemption of 40 percent of specified investment expenses

deductible from future taxable profits for investments greater than 5,000 new TL (approximately USD 3.700).

89 Criteria in processed food are the same as for general investment but with different weighted average. 90 The EU25 chambers of commerce study and the The Economist intelligence Unit clearly show a higher propensity of European company to invest in Egypt – and Middle East in general – compared to USA multinational (with the exception of beverage). 91 Domestic investment in processed food – family owned integrated with banks – is on the contrary traditional strong.


In general, labour, health and safety laws and policies do not distort or impede investment, although legal restrictions on discharging employees may provide a disincentive to labour-intensive activity in the formal economy. Certain tax policies distort investment decisions. High taxation of cola drinks discourages investment in this sector.

Bureaucratic "red tape" has been a significant barrier to companies, both foreign and domestic. The Turkish private sector is dominated by a number of large holding companies, whose upper

management is family-controlled.

Perceived weaknesses: high inflation, bureaucracy, and inconsistent taxation. A saturated market with low profitability and slow “pay back”92.

3.4.2.2 UAE - United Arab Emirates

The UAE government is opening up its trade sectors in line with its WTO obligations. There is no income tax in the UAE. Foreign banks pay 20 percent tax on their profits. There are no consumption taxes, and the GCC states formally implemented a single import tariff of

5 percent on most goods January 1, 2003. The exceptions to the 5 percent tariff in the UAE are a fifty percent tariff for alcohol, a one hundred percent tariff for tobacco, and duty exemptions for 53 food and agricultural items.

Up until recently, only Emirates and other GCC nationals were permitted to own land in the UAE, while foreigners, who comprise 80-85% of the population, had been restricted to renting. In May 2002, the Emirate of Dubai announced that it would permit so-called “free hold” real estate ownership for non-GCC nationals by giving permission to three companies to develop and sell freehold properties on government-designated pieces of land.

However, because specific laws regarding freehold ownership remain to be codified and procedures for title documentation and conveyance remain to be established, potential buyers are unsure whether they will have an absolute freehold title that means the same as it does in Europe of the U.S.

Perceived weaknesses: property rights, small domestic demand.

3.4.2.3 Saudi Arabia

The Saudi government encourages FDI and is undertaking steps to improve the investment climate through the revision to the tax code reducing taxes on foreign-owned capital.

There are also disincentive to investment, specifically, the absence of accurate economic data, a government requirement that companies hire Saudi nationals, an increasingly restrictive visa policy for all workers, and a very conservative cultural environment.

Foreign investors are no longer required to take local partners and may own real estate property for company activities.

They are also eligible for low-cost funding from the Saudi Industrial Fund – SIDF- for up 50 percent of a project.

The Saudi Industrial Development Fund is an important source of financing for investors. SIDF actively supports the development of the private industrial sector by extending medium to

long-term loans for the establishment of new factories and the expansion, upgrading and modernization of existing ones.

Foreign investors are eligible to receive low cost financing for up to 50 percent of project costs. Loans are provided for a maximum term of 15 years with repayment schedules designed to match

projected cash flows for the project in question. 92 Most of the processed food companies investment has shown pay back between 9-11 years if ever, in comparison to an objective of 5-6 in the original business plans.


In July 2003, the government lowered corporate tax rate on foreign investors to a flat 20%, the new rate replaces a tiered system that went as high as 45%.

Under the Labour and Workman Regulation, 75 percent of a firm’s work force must be Saudi.

Perceived weaknesses: unfriendly and difficult social environment, labour work regulation imposing quota of local employees. An environment more attractive in “packaging related sectors” as beverages.

3.4.2.4 Morocco

The Moroccan government actively encourages foreign investment and is taking measurable steps to improve the investment climate for FDI.

Moroccan officials hope that the implementation of US- Morocco Free Trade Agreement (FTA)93 will encourage investors to take advantage of duty-free access to both the US and European markets.

Foreign investment is permitted in the agricultural sector, although foreigners are prohibited from owning agricultural land.

Incentives for foreign investors have been created under the Free Trade Zone laws, as well as under the Investment Code for large-scale investment.

Incentives can include reduce land acquisition cost and tax breaks. Also if the value of the foreign investment is more than 200 million dirham, investors can sign a special investment contract with Morocco that brings additional negotiated incentives.

Many international and domestic investors believe that the dirham is overvalued. Corruption is still strong and companies have at times identified it as an obstacle to doing business

in Morocco. The US and Morocco signed a comprehensive Free Trade Agreement (FTA) to provide duty Free

access to over 95% of goods and services. The current new minimum wage is 240 USD.

Perceived weaknesses: overvalued currency, relatively high minimum wage.

3.4.2.5 Tunisia

Foreign investment in manufacturing industries producing for export has long been the major generator of jobs in Tunisia and has attracted the bulk of FDI.

Until recently the government discouraged foreign investment in service sectors such as restaurants, real estate, and retail distribution but there are tentative signs of relaxation of this policy, particularly in retail distribution.

Foreign investment in Tunisia is regulated by the Investment Code Law No. 93-120 dating from December 1993.

The legislation contains two major hurdles for potential FDI: First, foreign investors are denied national treatment in the agriculture sector as foreign

ownership of agricultural land is prohibited. Second, for onshore companies outside the tourism sector, government authorization is

required where foreign capital share exceeds 49 percent. An additional barrier regarding investments by non-European Union (EU) investors is contained in

Tunisia's Association Agreement with the EU. The EU provides massive funding to Tunisia, especially for infrastructure development, but such

funding often contains conditions prohibiting non-EU member investors from participation.

93 Although unofficial Moroccan evaluation of FTA agreement is actually classified as disappointing as reported in WTO forums.


In order to boost bilateral trade and to address U.S94, Investment issues in Tunisia, the U.S. government has begun a dialogue on free trade with the government of Tunisia. The first, formal step was launched in 2002 with the signing of a Trade and Investment Framework Agreement (TIFA).

The Tunisian dinar is not a fully convertible currency and it is illegal to take dinars in or out of Tunisia.

Foreign companies resident in Tunisia face a number of restrictions related to the employment and compensation of expatriate employees. Tunisian law limits the number expatriate employees allowed per company to four.

Perceived weaknesses: excessive regulations and for USA companies a perceived Tunisian policy skewed on EU25.

3.4.2.6 Jordan

Jordan acceded to the World Trade Organization (WTO) in April 2000. In addition, a U.S.-Jordan Free Trade Agreement (FTA) entered into force on December 17, 2001. In May 2001, the government converted the Aqaba port and surrounding area into a special economic zone (SEZ) offering special incentives to investors (see below). The government is revamping the investment promotion system in Jordan. It is re-examining investment incentives, and is considering the consolidation of all investment promotion activities under a new “Jordanian Agency for Economic Development (JAED)”.

Investment incentives take the form of income tax and custom-duties exemptions, which are granted to both Jordanian and foreign investors.

The Country is divided into three development areas: Zones A, B, and C. Investments in Zone C, the least developed areas of Jordan, receive the highest level of exemptions.

However, all agricultural, maritime transport, and railway investments are classified as Zone C, irrespective of location. Hotel and tourism-related projects set up along the Dead Sea coastal area, leisure and recreational compounds, and convention and exhibition centres receive Zone A designations. Qualifying industrial zones (QIZS) are Zoned according to their geographical location, unless they apply for an exemption. The three-zone classification scheme does not apply to nature reserves and environmental protection areas, which are granted special consideration.

Specifically, the Investment Promotion Law allows: -- Exemptions from income and social services taxes of up to ten years for projects approved by

the Investment Promotion Committee (which includes senior officials from the Ministry of Industry and Trade, Income Tax Department, Customs Department, the private sector, and the Director General of the Jordan Investment Board), in accordance with the designated zone scheme:

- 25 percent tax exemption for Zone A - 50 percent tax exemptions for Zone B - 75 percent tax exemptions for Zone C An additional year of these tax exemptions is granted to projects each time they undergo

expansion, modernization, or development resulting in a 25 percent increase in their production capacity for a maximum of four years.

-- Capital goods are exempt from duties and taxes if delivered within three years from the date of the investment promotion committee’s approval. The committee may extend the three-year period if necessary.

- Imported spare parts related to a specific project are exempt from duties and taxes, provided that their value does not exceed 15 percent of the value of fixed assets requiring spare parts. They should be imported within ten years from the production date.

- Capital goods used for expansion and modernization of a project are exempt from duties and taxes, provided they result in at least a 25 percent increase in production capacity.

94 USA have explicitly target Morocco as preferential partner in the area – unofficial commentary US Department of state.


- Hotel and hospital projects receive exemptions from duties and taxes on furniture and supply purchases, which are required for modernization and renewal once every seven years.

- Increases in the value of imported capital goods are exempt from duties and taxes if the increases result from higher freight charges or changes in the exchange rate

To promote exports, all exporters are granted the following incentives: - Net profits generated from most export revenues are fully exempt from income tax. Exceptions

include fertilizer, phosphate, and potash exports, in addition to exports governed by specific trade protocols and foreign debt repayment schemes. Under the WTO, the exemption is extended until the end of 2005 and is expected to be extended again, on annual bases, until the end of 2007.

- Foreign inputs used in the production of exports are exempt from custom duties and all additional import fees on a reimbursable or drawback basis.

In addition, Qualifying Industrial Zone investments may be eligible for further incentives and exemptions. For example, at the end of 2004 the government was considering lowering banks' guarantees and guest workers' work fees in all QIZ factories. Studies had commenced to examine means to ease and speed up the transport of QIZ production input and output materials.

Perceived weaknesses: none, but incentives seem more devised for textile sector rather than the food processing investment95.

3.4.2.7 Kuwait

Foreign-owned firms and the foreign-owned portions of joint ventures are the only businesses subject to corporate income tax, which applies to domestic and offshore income.

Corporate tax rates can be as high as 55 percent of net profits, but the government has put forward legislation to reduce the maximum rate to 25 percent.

New foreign investors can be exempted from all taxes for up to 10 years under the new Direct Foreign Capital Investment Law.

As of January 2004, the new draft taxation law lowering the corporate tax rate to 25% on all sectors was still held up in Parliament.

After 27 years of linking the Kuwaiti dinar (KD) exchange rate to a basket of currencies, Kuwait decided to peg the dinar to the US dollar under a flexible peg from the beginning of 2003. The move is in preparation for the adoption of a single GCC currency in 2010.

At the same time, however, the government has reduced the minimum salary required for expatriates (in some business categories) to be eligible to bring their families to Kuwait, lowering it from 400 KD a month to 250 KD a month.

Perceived weaknesses: none but more suitable for energy investment.

3.4.2.8 Oman

Continued development and population pressures have also contributed to a growing water problem. Aquifers are being seriously depleted. There are increasing levels of salinity in groundwater in coastal agricultural areas. A Middle East Desalination Research Centre officially opened in 1997, with its headquarters in Muscat; initial funding for this centre came from Oman, the United States, Japan, Israel, and Korea.

Oman is developing more light manufacturing industries. In order to provide facilities for these efforts, the Public Establishment for Industrial Estates manages.

95 Jordan has very arable land available and lack of additional water resources according to Icarda to play a significant role in agriculture.


A dramatic downturn in the Muscat Securities Market (MSM), which lost nearly 70 percent of its value from 1998 to 2001, hurt many small and first-time investors deeply and undermined confidence in the economy. The MSM dropped from an all-time high of 509 points in February 1998 to 152 at the end of December 2001. Observers attributed the sell-off to overzealous speculation, combined with abnormally high equity valuations, uninformed investors, and a lack of transparency. However, in 2002 and 2003, the market began to recoup some of its losses, ending 2003 at 272.7 – a 42% gain over 2002. This momentum continued in 2004. In April, the market crossed the psychological barrier of 300 points, ending the month at 306. The MSM re-indexed in May 2004, going from a triple-digit base to a four-digit one and reached 3,500 by early January 2005.

With Oman’s accession to the World Trade Organization in October 2000, automatic approval of majority foreign ownership (up to 70 percent) is available. Registration of these joint ventures is treated in the same manner as that common to all registrants. The foreign firm must supply documentary evidence of its registration in its home Country, its headquarters’ location, its capital holdings, and its principal activities. If a subsidiary, it must demonstrate its authority to enter the joint venture.

In early 1999, the government amended its corporate tax policy and lifted the requirement that foreign-owned joint ventures include a publicly traded joint stock company listed on the MSM in order to enjoy national tax treatment. In 2003, Oman extended national tax treatment to all registered companies regardless of percentage of foreign ownership, i.e. a maximum rate of 12% tax on net profit. Omani branches of foreign companies are treated as foreign companies and therefore taxed at a maximum of 30%. Since Omani labour and tax laws are complex, investors should consider engaging local counsel.

Oman relies heavily on expatriate labour, primarily from India, Bangladesh, Pakistan and Sri Lanka, to perform menial and physically taxing work as well as to fill managerial positions. Omani labour law stipulates basic practices to safeguard workers; employers set wages for Omanis within guidelines delineated by the Ministry of Manpower. The minimum wage for Omanis working in the private sector, including salary and benefits, is 120 R.O. (about $312) per month.

Perceived weaknesses: lack of water resources.

3.4.3 Comments

All in all, it is fair to say there is a widespread tendency in the analysed Countries to use the same policies and tools96 to attract investments: less regulations, lower corporate tax, free zone areas, fiscal incentives, some credit incentives.

These measures alone seem incapable of generating a clear preference97 among investors for one Country rather than another.

What companies need more nowadays are high volume markets with high potential growth to offset a stagnant demand in EU2598 and USA.

Countries with big domestic market99 and significant purchasing power will clearly have an advantage provided they undertake the right steps to create a business friendly environment, to promote an efficient liberalization and modernization of the economy along with economic and social stability.

In its origin the benchmark analysis was restricted to the area costs measuring companies’ cost competitiveness within the same industry.

Nowadays benchmark has become a byword for a comprehensive often strategic comparison, a point of reference against which progress may be monitored.

Specifically in our study the benchmark analysis aimed at shedding light on: 96 It has been a unanimous conclusion of interviewed people in The World Bank, Goldman Sachs, EU chambers of commerce, The Economist Intelligence Unit, and Ceo’s of multinational responsible for investments. 97 There is an overall perception with the interviewed operators incentives offered are equivalent if not similar. 98 Statement of three of the top food companies in Europe, annual report, 2005. 99 Statement also present in top five food companies annual report, 2005 signed by Ceo’s.


• Which country Egypt is competing with, by product, and by market.

• The drivers underlying competitiveness in different markets.

• The dynamics of competitiveness, how can be achieved, pursued and maintain along the time. In few words how can be turn into a competitive advantage.

The benchmark analysis we propose builds on “buyers”100 perception in the market, and is therefore a “demand driven” benchmark. In our analysis, as in any “competition-oriented study” market shares is the key indicator to measure country’s’ strength and competitiveness.

The final objective of the exercise is to highlight a roadmap for Egypt’s export opportunities. Spain, Turkey, Morocco, and Italy - as Egypt’s leading competitors in the Mediterranean - will

deserve a particular attention although many other countries such as Brazil, Israel, Syria, Macedonia, France, Mexico, Jordan, Iran, will eventually be analysed.

In regard to the sectors, we favour a wide spectrum analysis aimed at identifying new potential sectors and market in addition to those where Egypt is already present.

The FPI101 is on dynamic move all over the world: in EU25 the industry suffers from structural sluggish demand and low demographic increase, a process of consolidation is under way and four food groups - Unilever, Kraft, Nestle, and DANONE – have emerged with a dominant position after years of mergers and acquisitions.

Factories are being closed all around Europe and constantly relocated in more competitive countries with lower labour costs.

After a rush to Asia, and particularly China, food companies, especially from Europe, started looking at the MENA region as real growth opportunity establishing regional headquarters and production facilities in Dubai, Egypt, Saudi Arabia.

The benchmark analysis we propose for FDI in the region aims exactly at understanding:

• How competitive is Egypt at a present stage in attracting FDI in the food processing industry (FPI).

• Which countries are currently competing with Egypt in attracting FDI, what do they offer to investors, how they positioned themselves.

• Which industry could be migrating to Egypt in the relentless process of factory-relocation towards low cost producer countries.

• Which companies are more likely to make of Egypt their regional MENA headquarter and which reason.

• What’s the current perception of Egypt among the investors.

Once again we favoured a “demand approach benchmark” based on investors’102 perception, trying to understand the underlying forces behind the investment drivers and how Egypt is positioned in this process.

100 “Demand driven” benchmark analysis was built on interviews and questionnaires with Buyers of the following Food companies: Danone Groupe, LU, Unilever, Kraft Suchards, Nestle, Numico, Ferrero, Barilla, Star Italia, Gallina Blanca, Heinz, Campbell, General biscuits UK, Lactalis, Hershey’s, Dole, Chiquita, Del Monte, La Violetera, Sacla, Ponti, Galbani,, Al-Safi, Al-Marani, Perfetti- Van Mellen, Arcor, Hero, Grupo SOS, Carapelli, Monini, Italconserve, Catz International, McCormick, Fuchs, Daregal, Ajinomoto, Linguanotto, La Pulpe, Gerber Foods, Calvo, Pepsico, Coca cola company, Granini, Ducros, Kellogs, Fonterra. And of the following Retailers: Carrefour, Kaiser-Tangelmann, Esselunga, Aldi, Lidl, Tesco, Sainsbury’s, Wal Mart, ADSA, Coop, Gigante, Casino, Migros, Pao de acucar, Sonae, Continent, Extra, Aholds, GS. 101 FPI= Food Processing Industry. 102 Benchmark has been based on seminar and interviews, questionnaires with: Financial Institutions – Goldman Sachs, JP Morgan, SAMBA Bank, IMF, Islamic Development Bank. The EU Chambers of Commerce in particular Turkey, Dubai, Italy, France, Germany, Russia, U.K., PROCHILE, USDA Foreign Agricultural Service, WTO Officials in Geneve, Officials USA Department of state, The World Bank, The Economist Intelligence Unit, and investment decision makers – board of directors - in Food multinationals Nestle – Danone – Unilever – Pepsico Inc – Coca cola company – Ferrero International –


4 Strategic Positioning Assessment

4.1 An overall Assessment of the main Competitors Positioning To have a clear well defined positioning103 is becoming more and more important in the global

world to expand or protect exports. Occasionally, Countries with no clear positioning also may manage to export, but they will probably find harder and harder to stay competitive104.

Country export strategy are driven nowadays by the same criteria used in the business world, Export Promotion Agencies are run by professionals well aware of the importance of having a strategy. Positioning is no longer viewed as a theoretical exercise but as a powerful tool in order to make and keep Countries’ exports significant and competitive.

As it happens in business, it will be difficult to find two Countries with the same positioning, if it occurs the weakest will probably succumb, it is only a question of time. Usually successful positioning105 has a high degree of uniqueness and it must be rooted in real competitive advantages either in costs, product uniqueness or differentiation.

To analyze Egypt’s main competitors and their positioning will therefore be extremely useful to understand what makes their exports competitive and which are their strengths and weaknesses. Anyway, as general rule, Egypt should clearly avoid positioning itself as Country in a secondary position or in other words to challenge successful positioning already adopted by other Countries.

The essence of positioning is a clear strategic thinking aimed at exploiting determinate competitive advantages avoiding frontal attacks or positions already held by competitors. Frontal attacks to established positions usually require a great deal of resources, market share gains turn expensive, often with uncertain results.

4.1.1 Spain

Of all the Countries analysed Spain is widely regarded as the strongest and most advanced competitor in the Mediterranean region106; not only is clearly positioned but also is highly competitive in production costs, product differentiation, logistic. Spain occupies also a dominant position in many markets – where its exports are often invariably ranked either no1 or no2 – has achieved high levels of productivity in agriculture107 and as a food processor - it has powerful sectoral associations and councils effectively promoting its exports all over the world.

Egypt - but not only - should therefore try to build its own positioning avoiding, as far as possible, a direct frontal attack to Spain, a Country – for its remarkable achievements - not to underestimate.

4.1.1.1 Positioning

The leading EU25 supplier of fresh fruits and vegetables (table 101). The world leader producer and exporters of olive oil and table olives.

Heinz International – Arcor International – Lactalis France – Ducros International – Kraft Suchards International – Altria Strategic committee – Findim International. 103 An inspiring seminar on Positioning was attended in Montevideo, Dec, 2005 lecturing A. Ries – J.Trout talking on “country positioning”. 104 EU25 Chambers of commerce conclusions on export positioning, seminar Madrid Oct, 2004. 105 J.Trout studied 237 companies’ case histories – there is evidence in case of similar positioning – only one player survives medium term. J.Trout refers to it as “the law of unique positioning” in his book the 22 invariable laws of marketing. 106 Mc Kinsey conclusion on confidential competitiveness study delivered to Jordan, 2004. 107 The highest productivity in EU25 according to a report of The World Bank dated, 2005.


A significant player in wines (N03), sugar confectionery, prepared and preserved fish, biscuits, and tomato derivatives (N02).

Monopoly position in saffron - $ 42 million export in 2004 - with almost 95% market share and canned artichokes with an export of $ 100 million – 61.000 tons - with a share 65% in EU and 61% in USA.

Egypt108 potential competitor in: olives, frozen strawberries, canned and frozen artichokes, tomato derivatives, and spices.

4.1.1.2 Spain Positioning: Strengths

Table 101. Spain: Fresh Fruit and Vegetables Export to EU25, 2004.

Product Euro Million Export to EU Share

Rank: Exporter in

EU25

Total Fruit 3,710 21.7% 1 Total Vegetables 3,000 32.6% 1 Mandarins 928 53.0% 1 Tomatoes 851 72.2% 1 Oranges 765 49.0% 1 Capsicum 508 45.4% 1 Peaches 435 42.9% 1 Melons 381 45.6% 1 Berries 348 5.4% 1 Cucumber 287 15.7% 1 Lemons 260 30.7% 1 Cabbage 224 14.2% 1 Grapefruit 206 36.3% Onions 169 37.2% 2 Courgettes 162 40.4% 1 Asparagus 79 22.1% 1 Plums 78 42.9% 1 Peas and Beans 64 40.1% 3 Eggplant 57 14.5% 1 Avocados 52 12.2% 2 Apricots 50 63.0% 1 Carrots 44 36.0% 3 Cherries 38 47.7% 2 Artichokes 23 61.3% 1 Truffles 8 10.0% 1 Spinach 7 23.8% 2 Fennel 4 45.4% 2


• Spain is the clear leading supplier of fresh fruit and vegetables for the rich109 EU25 market: out of the 27 analysed categories Spain commands a leader position in 19, holds a n0 2 position in 5 and is a marginal player only in grapefruit, carrots and peas and beans.

108 Interviewed operators – buyers, importers – usually make a clear distinction between EU25 countries and “others” as they were different segments and as they were not directly competing. In their view Egypt should look at Morocco as a benchmark more than Spain or Italy, countries protected by EU quota, tariffs etc. 109 Fresh Fruit & Vegetable CIB Review, 2004.


• Spain leadership is further strengthened by high productivity, advance and widespread mechanized harvesting system, state of the art manufacturing and processing technology, transportation costs, cheap labour force when needed (from North Africa, Morocco mainly).

• Also Spain has become a leader “out of the season” fruit and vegetables supplier with an extended and sophisticated110 greenhouse system mainly in the Almeria region.

• What was originally a “geographical advantage”, due to its privileged climate in southern Europe has been transformed in a sustainable, difficult to attack, advantage for the combination of all the above-mentioned factors.

• Spain is the unquestionable strong leader producer and exporter of olive oil, a category both profitable and whose consumption is growing in USA, EU but also in new markets111 such as China, Australia, Japan and India.

• The Country enjoys the highest productivity in the world112 and a state of the art technology with the introduction of the expensive “two phase” pressing machines. Spain currently controls over 30% of the worldwide olive oil production - with almost 1 million tons - and exports an average of 640.00 tons/year (2000-2005), almost double its nearest competitor (Italy 350.000-400.000 tons).

• Spain is also particularly strong in olives where it developed a competitive product differentiation113 - up-market, processed Olives - it holds a strong market share in juices, biscuits, prepared or preserved fish and sugar confectionery with unique innovative products114.

• Spain has a modern, efficient, mechanized agriculture harvesting system making it less sensitive in labour costs, along with, anyway, a skilled cheap labour force available from Morocco115.

• Spain in fact, a net recipient of the EU until 2003 has made wise use of the EU generous funds to modernize its agriculture and upgrade its infrastructure. The Country, once mainly competitive thanks to a cheaper labour force is now leader in harvesting mechanization and productivity.

• The Country successfully established strong sectoral agencies116 - as in the Olive oil - active and efficient in promoting exports, upgrading technology and lobbying (protection) within the EU Commission. Olive oil is for instance a highly protected category with tariff of 1 Euro/kg on all imports from outside EU25.

• The Country shows no complacency constantly renewing itself and modernizing its technology with high investments even now in absence of EU funds.

Table 102. Spain: Exports US $ 000.

Spain Exports US $ 000 2002 2004 ∆ 04 vs. 02

Index 04 vs.

02 Export Countries

1509 Olive oil 1,307,568 2,002,967 695,399 153 Italy France 2005 Prepared or Preserved Veg. 548,448 774,621 226,173 141 USA France 1704 Sugar Confectionery 338,004 387,008 49,004 114 Germany UK

110 Interviewed agronomists from EU and USA classify it as top 2 in the world – with Holland . 111 COI forecast a stable growing demand for olive oil at around +5% worldwide with possible higher growth depending on China and India. 112 COI, 2005 state of the art productivity in olive oil: surprisingly n02 is Australia with Italy only n0 5. 113 Buyers in EU retail clearly categorize Spain olives as highly differentiated and added value, a position dominated by Spain with state of the art processing machines. 114 The area of Murcia is a real confectionery cluster, innovative cited by Monitor Group Europe competitive Industry, 2003. 115 Unofficial sources in Spain – Junta de Andalucia – estimate 30% of the agricultural labor force in Southern Spain hired from Northern Africa with no regular contracts with average salary net of 3.80 Euro/hour. 116 A factor mentioned by M. Porter is its Europe competitiveness seminar Madrid, 2004.


1604 Prepared or preserved Fish 329,789 397,929 68,140 121 Italy France 2009 Fruit Juices 321,987 458,809 136,822 142 France Germany 1905 Biscuits 273,623 400,347 126,724 146 Portugal France 2008 Preserved Fruits nes 238,172 317,140 78,968 133 France Germany 2202 Beverages (non alcoholic) 203,229 198,594 -4,635 98 Portugal France 710 Frozen Vegetables 176,363 224,061 47,698 127 Germany France 406 Cheese and Curd 147,129 221,750 74,621 151 France Portugal 2002 Prepared or preserved Tomatoes 138,451 191,155 52,704 138 Germany France 2106 Food Preparation nes 123,952 215,949 91,997 174 Portugal Italy 2103 Sauces 107,637 168,202 60,565 156 France Italy 1806 Chocolates 101,297 172,926 71,629 171 France Portugal 403 Butter Milk and Yoghurt 100,111 158,628 58,517 158 Portugal France 2101 Coffee and tea extracts 98,447 149,369 50,922 152 France Germany 402 Milk and cream 94,493 105,176 10,683 111 France Portugal 2104 Soups 92,510 111,843 19,333 121 France Senegal 1507 Soya bean oil 91,267 148,335 57,068 163 Tunes Italy 1601 Sausages 90,567 138,366 47,799 153 France Portugal 904-910 Herbs and spices 86,632 106,758 20,126 123 1602 Prepared or preserved meat 81,390 119,419 38,029 147 Portugal Italy 2105 Ice Cream 77,429 113,004 35,575 146 France Portugal 1605 Prepared or preserved seafood 67,892 88,135 20,243 130 France USA 1904 Breakfast cereals 59,234 96,866 37,632 164 Portugal Italy 2001 Pickles 44,651 57,791 13,140 129 USA France 405 Butter 43,375 97,048 53,673 224 France Algeria 1512 Sunflower and safflower oil 39,238 47,464 8,226 121 Portugal Nether. 1902 Pastas and couscous 35,704 51,155 15,451 143 France Portugal 2007 Jams 31,938 42,657 10,719 134 France Portugal 712 Dried Vegetables 29,041 33,825 4,784 116 Germany UK 811 Frozen Fruits and nuts 28,221 49,543 21,322 176 France Nether. 813 Dried Fruits 17,661 20,871 3,210 118 France Italy 2006 Sugar Preserved Fruits and nuts 3,412 6,534 3,122 192 UK Portugal Total Food Process 5,568,862 7,874,245 2,305,383 141 Fresh Fruit 3,995,296 5,214,158 1,218,862 131 Germany Italy

Fresh Vegetables 2,830,673 3,862,689 1,032,016 136 Russia Germany Total Food Processed + Fresh 12,394,831 16,951,092 Total Fresh 55% 54% Total Processed 45% 46% Total 100% 100%

2204 Wines 1,291,825 1,916,517

4.1.1.3 Spain Positioning: Weaknesses

• Spain, with perhaps the only exception of olive oil, has not been as successful as Italy in creating a “Spain Country – origin” branding117 even in categories where it has is a near undisputed leadership.

• Spain, as most, if not all the EU15 original members is suffering from raising labour costs118, in spite of wide use of Moroccan workforce especially in the Andalusia region. Spain is therefore

117 EU25 chamber of commerce Typical Food study show clearly poor Spanish performance in country – origin as a marketing advantage.


becoming partially vulnerable in crops where mechanization is not viable such as table olives, strawberries, artichokes, and asparagus.

4.1.2 Morocco

Morocco is a Country to be benchmarked but only when the fresh fruit and vegetables markets are considered119 since its processed food industry lacks sophistication and aggressiveness being mainly constituted of branches of multinationals.

4.1.2.1 Positioning

Almost exclusively -but not leading - supplier of fresh vegetables and fruit for the EU25 (table 103) but also an important fresh fruit exporter to Russia federation ($ 80 millions in 2004).

A strong N02 exporter of prepared and preserved fish ($ 355 millions). A Country increasingly integrated with Spain120 on the supply chain side - with some crops labour

intensive actually subcontracted by Spain, as artichokes for example - and with France on the demand side121.

Table 103. Morocco: Fresh Fruit and Vegetables – Olives – Olive oil export position to EU25.

Product Euro

Million Export

Share Rank:

Exporter in EU25

Fruit 241 14% 18 Vegetables 280 2% 7 Grapes 3 Oranges 84 6% 4 Clementine 82 6% 2 Peaches 3 Melons 34 4% 6 Berries 34 5% 7 Tomatoes 123 5% 5 Capsicum 21 2% 7 Lettuce 1 Cucumber 5 1% 2 Peas and Beans 77 17% 3 Courgettes 36 14% 2 Asparagus 1 Sweet Maize 5 9% Canned fish 170 32% 2 Pickles 7 4% 6 Frozen Strawberries 39 24% 2 Olive oil 40 7% 4 Olives USA 17 7% 2

118 Spain with Italy but also Poland all lost positions in competitiveness in the “Competitive report 2003” due to labor costs. 119 Morocco government hired services from M. Porter competitiveness – cluster consultancy to improve Processed Food performance. Results remain poor nevertheless. 120 Spanish FDI in agricultural investments has increased fivefold between 1990-2005. 121 Morocco is a strong supplier of Private labels in all the big French Retailers including Carrefour, Continent, Le clerq, Auchan.


Olives EU 58 21% 3

4.1.2.2 Morocco Positioning: Strengths

• Morocco strengths almost invariably stem from either its natural resources122 - rich fish reserves - an abundant fertile land and water (table 104). But its real competitive advantage is its geographical location close to Spain123 and Europe with a clear logistic and transportation costs advantage vs. all the other Northern African Countries (Egypt included).

• A strong integration and market linkages with France by far his most important export destination and market.

• A cheap abundant relatively skilled and disciplined labour force.

Table 104. Morocco: Exports US $ 000.

Morocco Exports US $ 000 2002 2004 ∆ 04 vs. 02

Index 04 vs. 02

Export Countries

1064 Prepared or Preserved Fish 254,222 355,000 100,778 140 France Italy 2005 Prepared or Preserved Veg. 80,851 108,000 27,149 134 France USA

406 Cheese and Curd 32,057 48,600 16,543 152 Saudi Arabia Lebanon

811 Frozen Fruit and nuts 16,904 25,000 8,096 148 France Spain 2101 Coffee Tea and Extracts 14,903 15,900 997 107 Tunes Finland 2008 Preserved Fruits nes 14,614 18,900 4,286 129 France Germany 2001 Pickles 11,278 12,700 1,422 113 France USA 2106 Food Preparation nes 9,677 9,000 -677 93 Germany France 0712 Dried Vegetables 7,206 1,300 -5,906 18 USA Spain 2009 Fruit Juices 6,803 1,100 -5,703 16 France Tunes 909 Herbs and Spices 6,668 5,900 -768 88 2202 Beverages (non alcoholic) 6,543 12,200 5,657 186 France UK 710 Frozen Vegetables 5,413 5,800 387 107 France UK 2002 Prepared or Pres.Tomatoes 4,030 8,600 4,570 213 France UK 2104 Soups etc. 2,666 1,800 -866 68 France Belgium 1511 Palm oil 1,790 2,400 610 134 Senegal Mauritania 1507 Soya bean oil 1,770 800 -970 45 Guinea Mauritania 1902 Pasta and Couscous 1,691 3,600 1,909 213 France Spain 1704 Sugar Confectionery 1,403 4,400 2,997 314 Algeria Germany 1509 Olive Oil 1,102 49,400 48,298 4483 Italy Spain 1905 Biscuits 959 1,500 541 156 France Tunes

Total Food Process 482,550 691,900 209,350 143 Fresh Fruit 242,677 320,115 77,438 132 France Russia Fresh Vegetables 209,517 281,634 72,117 134 France Spain Total Food Processes +Fresh 934,744 1,293,649 Total Fresh 48% 47% Total Processed 52% 53% Total 100% 100%

122 A Monitor Group conclusion on Morocco competitiveness, 2003. 123 A concept shared by Mc Kinsey strategic study on Europe and Northern Africa integration in the Food, Processed Food Industry.


4.1.2.3 Morocco Positioning: Weaknesses

• A poor processed food industry124 actually limited to canned fish but little else.

• A relatively small domestic market.

• A relatively overvalued currency discouraging FDI.

4.1.3 Tunisia

Tunisia is a small Country with limited resources but an interesting example of well focused strategy125 and clear positioning, definitely a success story in the Mediterranean with leading position in dates and strong position in olive oil.

4.1.3.1 Positioning

Tunisia chose a narrow positioning based on competitiveness on dates and olive oil export to EU25.

Tunisia, sponsored by France126, is a skilful and successful negotiator with the EU commission able to obtain the most favourable conditions (free quota) of all the Mediterranean Countries.

4.1.3.2 Tunisia Positioning: Strengths

• Tunisia is the leading EU25 dates supplier, a business worth $ 60 millions (30.000 tons) with a dominant market share of 49.7%. In olive oil Tunisia, despite his reduced available arable land, produces an average of 200.000 tons with exports to EU25 of 180.000 tons or $ 568 millions, indeed a remarkable achievement. Tunisia holds an impressive 76.4% share in value of the olive oil imports of EU25 outside Europe127.

• Tunisia has very favourable trade conditions within the EU25; undoubtedly one of his main strength has been the capacity to negotiate generous quotas and tariffs with the EU commission: in olive oil has a free quota of 56.000 tons much higher than any other Country.

Table 105. Tunisia: Exports US $ 000.

Tunisia Exports US $ 000 2002 2004 ∆ 04

vs. 02 Index 04 vs.

02 Export Countries

1905 Biscuits etc. 10,340 15,157 4,817 147 Libya Algeria 813 Dried Fruits 3,461 6,353 2,892 184 1704 Sugar Confectionery 4,279 8,584 4,305 201 Algeria

2002 Prepared or Pres.Tomatoes 26,541 14,054 -12,487 53 Libya

1806 Chocolates 3,389 5,622 2,233 166 Libya 1509 Olive oil 39,322 568,773 529,451 1446 Italy Spain 712 Dried Vegetables 1,433 3,223 1,790 225 406 Cheese and Curd 3,602 4,860 1,258 135 Libya 80410 Dates 68,715 84,404 15,689 123 France

Total Food Process 161,082 711,030 549,948 441

124 According to Morocco government study on performance of processed food no improvement was achieved in 2000-2005. 125 African Development Bank study, 2003 on Northern Africa competitiveness in food and processed food rates Tunisia as the most successful case history. 126 Tunisia has in France a strong ally in EU commission, based on EU commission analysis, 2002. 127 Tunisia is the favorite supplier of Italian buyers in olive oil, for its quality and quantity consistency.


Fresh Fruit 10,614 17,690 7,076 167 Fresh Vegetables 3,138 7,350 4,212 234 Total Food Process+Fresh 174,834 736,070Total Fresh 8% 3% Total Processed 92% 97% Total 100% 100%

4.1.3.3 Tunisia Positioning: Weaknesses

While the positioned in dates looks relatively safe, in olive oil Tunisia competitive advantage in olive oil stems mainly from a very high free import quota with the EU25 and not from competitive costs128. The 1 Euro tariffs in force now on olive oil imports from Countries outside EU will end in 2012129 posing undoubtedly a threat to Tunisia current position. In synthesis actual Tunisian exports seems too much dependant on olive and too little diversified.

4.1.4 Israel

Israel also, in spite of his relatively low volumes it is interesting for his unique130 positioning and a veritable “repositioning” successfully carried out in the last decade.

4.1.4.1 Positioning

Israel is an efficient high productivity supplier131 of “more added value up-market” fruit and vegetables - grapefruit, avocados, capsicum, strawberries, berries, melons, kiwi and mandarins - but also of “fresh cut flower” where Israel is a top exporter with more than $102 million in the year 2004.

Israel has successfully succeeded in shifting from low values crop - potatoes, oranges - to higher value crops pushed the necessity to find better returns for his limited land available.

Israel has established strong links with the EU25 and in particular with UK. Israel also enjoys an interesting position in expensive high quality fresh fruit and vegetables juices and dates (second only to Tunisia).

4.1.4.2 Israel Positioning: Strengths

• Israel strengths mainly stem from land and water scarcity. Added value vegetables and fruits have been Israel’s answer to its scarcity of land. High technology132, efficient and modern irrigation coupled with state of the art seed genetic improvement made Israel productivity and product uniqueness a veritable competitive advantage in the market. Israel produces nowadays unique products, top quality, at a very competitive price thanks to his state of the art technology.

• Israel unique export of kosher133 products at a very high price to a selected consumer target.

• Israel has established unique market linkages all over the world thanks also to the capillary presence of Jews active in business and trade in the food and processed food commerce.

• Innovation: Israel constantly produces improved and unique134 strains able to find their niche in the market, links with leading research institutes and universities guarantee the sustainability of the process turning it into a powerful competitive advantage.

128 COI analysis on olive oil competitiveness, 2005. 129 EU Commission, WTO. 130 M. Porter qualify Israel food export business as “a brilliant case of repositioning” in seminar on ME competitiveness Amman, 2004. 131 CBI competitive analysis fruit & vegetable, 2003. 132 Israel ranks top of the list, Icarda Institute in Agricultural genetics and seed improvements in ME. 133 Kosher certification agency.


4.1.4.3 Israel Positioning: Weaknesses

Israel lacks the population size and the market linkages with most of the Arab neighbouring Countries to develop a veritable mass market processed food industry in everything but the basic/staple high penetration product categories. Its niche innovative approach so successful adopted in agriculture has not been replicated in the processed food. Table 106. Israel: Exports US $ 000.

Israel Exports US $ 000 2004 Export Countries

2009 Juices 59,937 France Belgium 2106 Food Preparation nes 181,017 Japan Nether. Russia 019 Prep. Cereals, Starch, Flour 45,863 Germany Italy 22 Alcoholic Beverages 14,785 France UK 2 Meat and Edible Offals 13,554 France 1602 Other Prep. Or Pres. Meat 30,612 France 8 Fresh Fruit 220,228 UK 80440 Avocados 43,331 France UK 80410 Dates 30,631 UK Spain 80510 Oranges 14,825 UK 80520 Mandarins 14,648 Russia UK 80540 Grapefruit 37,613 Japan France 807 Melons 11,054 UK Nether. 809 Stones Fruits 5,057 UK France 810 Other Fruit 32,211 Nether. UK 81010 Strawberries 10,610 UK Nether. 7 Fresh Vegetables 322,967 UK Nether. 701 Potatoes 90,476 Nether. Spain 702 Tomatoes 47,443 UK Nether. 709 Other Vegetables 167,843 Nether. UK 712 Dried Vegetables 23,645 USA Germany

Total Food Process 345,768 Fresh Fruit 220,228 Fresh Vegetables 322,967 Total Food Process+Fresh 888,963 Total Fresh 61% Total Processed 39% Total 100%

4.1.5 Jordan

Jordan, a Country of only 5, 7 million inhabitants offers another clear example of the benefits of a “focused” positioning. Jordan positioning135 is mainly geographical with a targeted policy of supplying the GCC Countries and Iraq especially with fresh vegetables.

134 M. Porter Amman seminar on competitiveness, 2004. 135 Mc Kinsey competitive analysis report, 2003.


4.1.5.1 Positioning

Jordan is a leading supplier of fresh vegetables to the neighbour GCC Countries and to Iraq, both areas with strong market linkages due to presence of an active and business oriented Jordan community.

4.1.5.2 Jordan positioning: Strengths

• Jordan specialized in a limited number of crops, notably tomatoes and cucumbers in high demand in the GCC Countries. Jordan obtained high level of productivity136 and pursued product development in line with market demand, prioritising strains and variety adapted to the targeted consumers (not always coinciding with domestic preference).

• Jordan developed state of the art logistics137 thanks also to an educated and hard working business oriented population.

• Jordan has been for years the only transit point to Iraq, establishing therefore an effective market linkage and relatively high exports with this Country.

• Jordan successfully exploited the IQZ opportunity138 notably in textile. Table 107. Jordan: Exports US $ 000.

Jordan Exports US $ 000 2004 Export Countries 1704 Sugar Confectionery 2,563 Syria Iraq 2009 Fruit Juices 1,352 Iraq 406 Cheese and Curd 5,785 Iraq Oman 2002 Prepared or preserved Tomatoes 1,157 Lebanon 200570 Olives 1,446 Saudi Ar Kuwait Total Food Processed 12,303

08 Fresh Fruit 20,689 Syria 3,9 Kuwait 3,6 Saudi Ar 3,3

UAE 3,2

07 Fresh Vegetables 176,834 Syria 56,9 UAE 42,8 Kuwait 18,6

Iraq 13,2 Qatar 10,8 Bahrain 10,9

Total Food Processed + Fresh 209,826 Total Fresh 94% Total Processed 6% Total

4.1.5.3 Jordan positioning: Weaknesses

• Jordan is currently suffering from an overvalued139 currency making his export less and less competitive in the GCC where competition is fierce.

• Jordan has increasing problem with water supply and salinity crippling the vegetables production and productivity.

4.1.6 Iran

Iran is frequently forgotten in a benchmark analysis due to its poor relations with the western Countries actually worsened in the course of the last year140. Nevertheless in a normalized political

136 Icarda Institute crop productivity analysis, 2003. 137 M. Porter Amman seminar, 2004. 138 IQZ advantages in food and processed food are questioned by Jordan Chamber of commerce. 139 IMF and The Economist Intelligence Unit, 2006.


situation there are good reasons to assume Iran could be a formidable competitor141 in vegetables, dry fruit and also basic processed food such as tomato paste, biscuits and confectionery, all industry where he commands a state of the art technology142.

4.1.6.1 Positioning and Strengths

Iran is the world leader exporter of pistachios with an impressive export of $ 680.000 millions in 2004 and the N0 3 exporter of raisins, after Turkey and the USA with almost $ 90 millions (table 109).

Iran has a virtual monopoly of, liquorice, pistachios export in the world - more than 90% of market share - and a strong 10% share in raisin export to the EU25 and also near monopoly position in Caviar with a total export of $ 34 millions – plus the illegally traded volumes - in 2004 and a export share to EU25 of 75% (Azerbaijan being with 7% the second biggest exporter).

In tomato paste, and in general, in all the tomatoes derivatives Iran is a very competitive143 Country in productivity (the highest in the world with Italy) but also in quality and costs (second only to China).

In spices, and more specifically in seeds spices Iran managed also to target successfully the Russian market but is almost non-existent in the more demanding (and profitable) American and European markets Table 108. Iran: Exports US $ 000.

Iran Exports US $ 000 2004 Export Countries 1704 Sugar Confectionery 22,070 Iraq 5,5 Tajikis. 5,2 Turk. 3.8 2009 Fruit Juices 16,100 Germany Afghanistan 1905 Biscuits 22,586 Iraq 11,3 Afghan. 3,9 Turk. 2,9 1604 Caviar 34,231 Germany France 406 Cheese and Curd 973 Lebanon 2002 Prepared or preserved Tomatoes 51,952 Iraq 24,5 Russia 8,9 80620 Raisin 88,720 UAE 19,7 Russia 11,9 909 Herbs and spices 24,595 UAE 13,6 Saudi Ar Total Food Processed 261,227 08 Fresh Fruit 881,645 Jordan. 8,6 Saudi 8,7 Kuwait 3,4 UAE 2,4 07 Fresh Vegetables 92,394 UAE 14,4 Iraq 14,3 Azer. 9,5

Kuwait 2,4 Qatar 1,8 Total Food Processed +Fresh 1,235,266 Total Fresh 79% Total Processed 21% Total 100% Pistachios 679,939

4.1.6.2 Iran positioning: Weaknesses

Despite a competitive industry in juices, confectionery, biscuits and preserved tomatoes and vegetables Iran remains an “inward looking” Country144 with no real export positioning or effective/operating export promotion agencies. Iran processed food export - mainly tomato paste - is concentrated in Iraq and Central Asia – both areas with an unsophisticated demand and very price sensitive. 140 Iran was recently downgraded by all the Investment agency and risk evaluating agencies “Standard & Poor’s”. 141 Monitor Group evaluation on ME competitiveness and buyers in tomato, spices, and dry fruits. 142 Icarda Institute, 2002. 143 Tomato news ranks Iran the second most competitive country in tomato paste after China, 2004. 144 M. Porter ME competitive analysis seminar Amman, 2004.


4.1.7 Syria


Syria is a relatively small market, probably still too poor to develop a real export oriented industry in processed food: he has only 18.4 million inhabitants and a GDP per capita at PPP of only $ 3,282 second only to Iraq in the region.

Nevertheless it has an interesting production of olive oil145 totalling (in the good years) almost 170.000 tons but incapable of maintaining the volumes at this level consistently.

His export of olive oil is also important (20.000 tons) but not remarkable (when compared with Tunisia for example) and the quality only acceptable146 and concentrated in Lampante rather than virgin oil. It lacks also the presence of a strong mono-variety, mixes prevails.

Apart from olive oil Syria only excels in Spices with a strong consistent export of approximately $50.000 million (table 109).

Table 109. Syria: Exports US $ 000.

Syria Exports US $ 000 2004 Export Countries Olive oil = value 48,800 Italy CH Olive Oil = tons 22,100 Prepared or Preserved Vegetables. 5,835 Saudi Ar UAE Sugar Confectionery 10,068 Jordan Saudi Ar. Fruit Juices 2,204 Jordan Biscuits 7,417 Saudi Ar Jordan Cheese and Curd 11,159 Lebanon Prepared or preserved Tomatoes 2,792 Lebanon Food Preparation nes 3,246 Jordan Herbs and spices 50,097 USA Saudi Ar UAE Jams 10,017 Egypt Saudi Ar Dried Vegetables 2,083 Saudi Ar Total Food Process 153,718 Fresh Fruit 36,446 Jor. 8,6 Saudi 8,7 Kuwait 3,4 UAE 2,4 Fresh Vegetables 99,587 Saudi 25,9 Leb. 15,2 Jor. 10,7 Kuwait 5,3 Total Food Processes +Fresh 289,751 Total Fresh 47% Total Processed 53% Total 100%

4.1.7.2 Positioning: Weaknesses

By and far Syria failed to become a strong fresh fruit and vegetable exporter to the GCC as it could have done.

His reserves of water147 look vulnerable and its land partially exposed to erosion.

145 COI consider Syria more competitive than Turkey in olive oil, but less than Tunisia. 146 Buyer’s statement in Italy, unanimous. 147 Icarda Institute evaluation.


In confectionery (sugar more than chocolate) also Syria developed in the 70s a promising industry that didn’t live to the expectations with a current modest $ 10 millions export mainly directed to neighbouring Jordan.

4.1.8 Turkey

Turkey148 is undoubtedly unique in its positioning being with Spain the most complete exporter both in product-wise ( with an extremely diversified offer) and geographically with a strong presence not only in the EU25 but also in Russia, ex Soviet Union Republics, Central Asia and Iraq.

4.1.8.1 Positioning

Turkey is a modern efficient competitor149 particularly strong in processed food namely in preserved fruit and vegetables, pickles, dried fruits but also in juices, sugar confectionery snacks and biscuits and jams.

But also has an important, although not leading, share in fresh fruit and vegetables exports with a strong presence in EU25 (being Germany its preferential partner) in Russia and Central Asia.

Turkey has a dominant position in hazelnuts - almost 94% export share in the world - with an impressive export worth $ 737 millions in 2004, and in raisin - export $ 231 millions in 2004 - with an export share in EU25 of 55, 2% and a dominant position in dried apricots and figs – indeed almost a monopoly.

4.1.8.2 Positioning: Strengths

• Turkey has a modern “state of the art” processing industry coupled with a first class packaging industry150 (especially in glass). Turkey processed food industry is highly capitalized with heavy investment in machinery creating an effective entry barrier. Not only Turkey has modern updated processing machinery but also a competitive domestic technology in processed food machines and production lines especially in preserved fruit and vegetables but also in sugar confectionery and biscuits.

• Turkey has a geographical well balanced export with presence in the EU25 but also is a relevant player in the more dynamic (and perhaps less competitive) markets of Russia, Middle East and Central Asia which together account for more than 32% of its export (table 110).

• Turkey established successful and unique alliances and market linkages in Countries such as Azerbaijan, Afghanistan, Georgia, Ukraine, Iraq partially neglected by the big exporters.

• Also Turkey has, traditionally a very strong relationship with Germany in EU25 where more than one million Turks actually live and control a big share of the fruit and vegetable market.

• Turkey, in spite of its successful export record not a big recipient of FDI151 in processed food is characterized by the presence of strong integrated industrial groups (family owned) with relevant financial resources and investment oriented constantly upgrading the production facilities adopting state of the art technology.

• Turkey has very professional and efficient export promotional agency152 acting within the chambers of commerce with a capillary presence in all the relevant export markets providing valuable market linkages and information.

148 EDA – Economic Development Agency – mentioned Turkey, after Spain as the most successful exporter in the EU25. 149 Mc Kinsey considers Turkey at the same level of Italy in Food processing machinery, competitive study, 2004. 150 EDA Middle East sectoral competitive analysis. 151 FMI and US Department of State Investment analysis. 152 Mc Kinsey competitive analysis, factors in the ME, 2004.


Table 110. Turkey: Exports Euro million to EU25 of Fresh Fruit and Vegetables.

Product Euro

Million Export

Share Rank: Exporter in EU25

Total Fruit 242 4.5% 17 Total Vegetables 97 1.0% 11 Grapes 28 1.7% 7 Mandarins 32 3.0% 5 Peaches 7 0.7% Melons 9 1.0% 9 Pears 7 1.0% 9 Lemons 18 3.1% 7 Grapefruit 31 8.0% 6 Plums 3 1.3% 10 Cherries 71 26.7% 1 Apricots 8 5.6% 4 Figs 11 34.0% 1 Tomatoes 30 3.5% 6 Capsicum 34 2.7% 6 Lettuce 1 Onion 8 1.0% Cucumber 9 1.3% Mushrooms 3 0.4% Cabbage 2 0.3% Peas and Beans 2 0.4% Carrots 1 0.3% Courgettes 4 1.4% Eggplants 4 3.3% 4


It would be unfair to exaggerate Turkey weaknesses since, Turkey is, above all a shining success story, a Country emerging almost from nowhere in the early 70s and reaching, in less than twenty years, a pre-eminent position as exporter possibly second only to Spain in the Mediterranean region. Nevertheless, as usual Turkey shows some degree of vulnerability mainly due to its government more than business community – private sector: excessive bureaucracy153, weaknesses in the judicial system, high and inconsistently collected taxes, weaknesses in corporate governance, sometimes unpredictable decisions taken at the municipal level, and frequent, sometimes unclear changes in the legal and regulatory environment.

Historically, investment has also been discouraged by high inflation and political and macroeconomic uncertainties, though Turkey has become much more stable in the years following the 2001 economic and financial crisis.

As a result, FDI inflows, at well below one percent of GDP over the last decade, have been far below FDI received by more investor-friendly emerging markets and also below Turkey’s potential (table 111).

But again, never overestimate Turkey’s weaknesses since they really pale in comparison to its remarkable achievements.

153 Businessmen “Doing business analysis, 2005”US Department of State.


Table 111. Turkey: Exports US $ 000.

Turkey Exports US $ 000 2002 2004 ∆ 04

vs. 02 Index 04 vs.

02 Export Countries

2008 Preserved Fruits nes 202,724 410,270 207,546 202 Germany 1905 Biscuits etc. 124,399 215,549 91,150 173 Iraq 813 Dried Fruits 123,960 205,270 81,310 166 USA 1704 Sugar Confectionery 98,777 157,156 58,379 159 Germany Iraq Azerbaijan

2002 Prepared or Pres. Tomatoes 89,603 157,592 67,989 176 Japan Saudi Russia

2001 Pickles 85,942 137,517 51,575 160 Netherlands Germany 1806 Chocolates 79,104 161,281 82,177 204 Iraq Algeria Russia 904-910 Herbs and Spices 61,250 56,023 -5,227 91 Germany USA

2005 Prepared or Preserved Veg. 53,905 97,375 43,470 181 Germany Romania

1509 Olive oil 46,145 133,034 86,889 288 Italy USA Canada 2007 Jams 39,236 107,997 68,761 275 Germany 2009 Fruit and Juices 36,251 64,224 27,973 177 Germany 710 Frozen Vegetables 27,807 56,420 28,613 203 Germany 712 Dried Vegetables 24,156 32,344 8,188 134 USA 811 Frozen Fruit and nuts 23,689 25,907 2,218 109 UK

406 Cheese and Curd 19,744 27,771 8,027 141 Saudi Arabia Kuwait UAE

2106 Food Preparation nes 16,969 46,939 29,970 277 Iraq 1902 Pasta and Couscous 16,826 50,262 33,436 299 UAE Iraq Azerbaijan

1904 Breakfast Cereals 15,601 28,312 12,711 181 Germany Saudi Arabia

1605 Prepared or Pres. Seafood 13,474 19,219 5,745 143 France

1512 Sunflower, safflower oil 11,989 18,106 6,117 151 Iraq Israel

2201 Mineral Water 7,820 28,664 20,844 367 Iraq Germany 2105 Ice Cream 7,100 4,858 -2,242 68 Serbia Iraq

2104 Soups 6,886 14,513 7,627 211 Saudi Arabia Germany

2202 Beverages (non alcoholic) 5,883 33,505 27,622 570 Iraq Cyprus

1604 Prepared or Preserved Fish 5,180 13,925 8,745 269 Belgium

2006 Sugar Pres. fruits and Nuts 490 2,555 2,065 521 Iraq

1507 Soya bean oil 3,246 3,153 -93 97 Ethiopia 2103 Sauces 5,174 18,572 13,398 359 France 713 Pulses 116,267 167,338 51,071 144 Egypt Iraq

Total Food Process 1,369,597 2,495,651 1,126,054 182 Fresh Fruit 1,021,400 1,668,221 646,821 163 Germany Italy Russia Fresh Vegetables 139,842 220,792 80,950 158 Russia 68,2 Germany Iraq 31,4 Total Food Proc.+Fresh 2,530,839 4,384,664 Total Fresh 46% 43% Total Processed 54% 57% Total 100% 100% Hazelnuts 737,639

Turkey is definitely both a competitor to be admired and respected, it potentially competes with

Egypt in many sectors and potential opportunities such as Iraq, export of fresh fruit and vegetables to


the GCC, sugar confectionery, preserved vegetables and fruit, tomato paste, pickles and also, to a certain extent in olive oil where Turkey commands a respectable position although not pre-eminent.

4.1.9 Italy

It would be unfair to discard Italy as a main export player Country, were only for its impressive numbers especially in processed food. Nevertheless Italy can be no longer considered a “never ending” success story154 having showed, in the last decade, signs of decadence, especially when compared with Spain so successful in continuously modernizing itself and achieving high level of productivity and cost competitiveness in spite of high labour costs.

Italy is still undoubtedly a powerful exporter supported by a strong positive image but crippled by high labour costs and slow gain in productivity155.

Nevertheless for Egypt Italy probably represents more an opportunity than a threat156.

4.1.9.1 Positioning

Italy is the quintessence of the Mediterranean diet and cuisine: it clearly leads the export world market in tomato derivatives, wines, pasta and it holds a strong position also in olive oil (NO 2) after Spain and in bakery, biscuits, sausages, juices, cheeses, preserved vegetables, food preparations and, obviously, fresh fruit and vegetables (although by no way as strong as leading Spain).

4.1.9.2 Positioning: Strengths

• Italy typical Mediterranean food export is successfully supported by well thought marketing157 effort effectively creating an image of “made in Italy” similar to a veritable brand process. Italian food is good quality, widely available but also fashionable in important export markets such as USA, UK, Germany, France, Japan and Northern Europe.

• Italy has a sophisticated differentiated Processed food industry strongly rooted in regional peculiarities its offer is diversified, rich, highly segmented. Its product ranges are sophisticated, innovative and broad plenty of items and varieties, its offer of cheese, tomato products, wines, hams, sauces, pasta, bakery and confectionery almost unlimited, successfully covering any taste and preference.

• In spite of rising production costs, Italy successfully covers all the segments in the market with an effective price segmentation “good value for money” along with expensive up-market products.

• In market such as pasta, wines, but also olive oil, cheese, sauces, preserved vegetables, confectionery, tomato derivatives, ice creams Italy158 commands an image of legitimately being “the real things” creating an effective image barrier to cheap imitations always active in the market.

• Italy has an extended capillary network of market linkages in all the main export market, with particular strength in USA, Germany, UK, Japan, France and Northern Europe. It has a strong image in all the major retailers in the world and a powerful network of distributors.

154 Italian ICE Institute of External Commerce seminar Rome, 2005. 155 Institute for Strategy and Competitiveness HBS, Rome, 2005. 156 ICE officials and President of Italian Chambers of commerce statement, 2006. 157 Based on study Typical Italian food in the world, Italian Chambers of commerce, 2004. 158 Nielsen world food, 2003.


Table 112. Italy: Exports US $ 000.

Italy Exports US $ 000 ∆ 04 vs. 02

Index 04 vs.

02 Export Countries

1509 Olive oil 1,205,304 8.7% USA Germany 2005 Prepared or Preserved Veg. 271,024 2.0% UK Germany 1704 Sugar Confectionery 109,620 0.8% Germany USA 1604 Prepared or preserved Fish 135,561 1.0% Greece France 2009 Fruit Juices 401,023 2.9% Germany France 1905 Biscuits 1,219,327 8.8% France Germany 2008 Preserved Fruits nes 299,013 2.2% Germany France 2202 Beverages (non alcoholic) 204,603 1.5% USA CH 710 Frozen Vegetables 38,330 0.3% France Spain 406 Cheese and Curd 1,429,754 10.4% Germany USA

2002 Prepared or preserved Tomatoes 1,107,983 8.0% Germany

UK-Fr-USA Japan

2106 Food Preparation nes 437,435 3.2% Germany Spain 2103 Sauces 305,432 2.2% Germany UK 1806 Chocolates 558,061 4.0% France UK 2101 Coffee and tea extracts 27,118 0.2% Germany France 2104 Soups 49,554 0.4% UK Germany 1601 Sausages 244,181 1.8% Germany CH 1602 Prepared or preserved meat 129,438 0.9% France Germany UK 2105 Ice Cream 199,027 1.4% France Spain Germany 1605 Prepared or preserved seafood 18,239 0.1% Germany France 1904 Breakfast cereals 34,649 0.3% Germany France 2001 Pickles 27,501 0.2% CH Germany 2204 Wines 3,560,976 25.8% USA Germany UK 1902 Pastas and couscous 1,568,448 11.4% Germany France UK 2007 Jams 76,017 0.6% Germany France 2006 Sugar Preserved fruits and nuts 30,247 0,2% France UK 712 Dried Vegetables 41,168 0.3% 811 Frozen Fruits and nuts 34,853 0.3% 813 Dried Fruits 33,581 0.2%

Total Food Process 13,797,467 100.0% 08 Fresh Fruit 2,415,563 14.1% Germany France 07 Fresh Vegetables 905,596 5.3% Germany France

Total Food Process+Fresh 17,118,626 100.0% Total Fresh 19% Total Processed 81% Total 100%


• Italy is increasingly suffering from raising costs159 especially in labour intensive crops such as olive oil and tomato derivatives also because, unlikely Spain is still a very poorly mechanized Country at least in harvesting. To maintain competitiveness Italy relied more and more on cheap raw material imported from China (tomato paste) and Syria, Tunisia, Turkey but also Greece and Spain and subsequently processed and re-sold as truly Italian.

159 Italy study of competitiveness ISTAT, 2005.


• In the strategic wine market new competitors, namely Chile and Australia have emerged with products more adapted to young or new consumers (Chile is currently market leader in China and Brazil with its ubiquitous Cabernet Sauvignon).

• All in all Italian export is getting expensive160, Italy has in fact strict labour laws, high social contributes, high taxes, inefficiencies in some basic structure such as logistic and transportation when compared with Spain for example.

• But also Italy has been imitated by other Countries offering cheaper Italian161 sounding products and unable to innovate fast enough to keep cheap competition at bay.

4.1.10 Chile

Strictly speaking Chile has very little overlap with the Mediterranean Countries apart from wine since in fruits and vegetables is mainly position as a “out of season” exporter making the most of its unique position in the south hemisphere.

Nevertheless Chile is well worth an analysis for its unique achievements due to a formidable marketing effort and powerful export promotion agency: PROCHILE.


Chile is a global strong leading supplier162 of fresh fruit, juices mainly to the northern hemisphere. In spite of its remote geographical position Chile is an efficient, modern, low cost, high productivity supplier163. Chile is also a strong supplier of raisin and preserved and prepared fish (particularly in salmon where Chile fish farms are famous all over the world) and a formidable player in wine - NO 5 in the world - after France, Italy, Spain and Australia but preceding the USA (table 113).

Perhaps the best lesson to learn from Chile is the role an export promotion agency can play in successfully building a strong competitive export. PROCHILE, the Chilean export promotion agency is something unique in its organization and profile164.

First of all PROCHILE is an agency deeply customer oriented with strong presence in all the export markets with professional and dedicated staff165. In the reality PROCHILE probably attracts some of the best managers of the Country also for its recognized prestige equalling those of renowned multinationals.

PROCHILE fully operates as an efficient private company providing first class services to exporters ranging from market research to data, and heavily investing in the Country promotion (advertising campaign, trade exhibitions).

But what also makes Chile so successful is the Chilean attitude and approach to export, always professional, marketing oriented, highly recognized by all the leading buyers in the market constantly praising Chilean professionalism, seriousness compliance to terms and reliability, all factors which played an important role in Chile achievements.

160 Distributors association in USA, UK, Japan, Germany. 161 Typical Italian food SWOT analysis, 2004. 162 PROCHILE competitiveness seminar – Santiago, 2004. 163 Monitor Group worldwide competitiveness study, 2005. 164 M. Porter competitiveness seminar in South America, Buenos Aires, 2003. 165 Buyers and Retailers statement.


Table 113. Chile: Exports US $ 000.

Chile Exports US $ 000 2004 Share Export Countries 1509 Olive oil 349 0.02% USA Argentina 2005 Prepared or Preserved Veg. 17,685 0.91% USA Australia 1704 Sugar Confectionery 13,186 0.68% USA Bolivia 1604 Prepared or preserved Fish 120,913 6.23% USA Japan 2009 Fruit Juices 113,849 5.87% USA Japan 1905 Biscuits 10,610 0.55% Mexico 2008 Preserved Fruits nes 78,593 4.05% Mexico 2202 Beverages (non alcoholic) 3,368 0.17% Argentina 710 Frozen Vegetables 24,990 1.29% USA Japan 406 Cheese and Curd 29,985 1.54% Mexico 2002 Prepared or preserved Tomatoes 52,943 2.73% Venezuela Japan 2106 Food Preparation nes 97,701 5.03% Ecuador Mexico 2204 Wines 843,413 43.45% UK USA 409 Honey 13,107 0.68% Germany 1806 Chocolates 31,568 1.63% Mexico Venezuela 2101 Coffee and tea extracts 29,564 1.52% USA Latvia 2104 Soups 4,325 0.22% Ecuador 904-910 Herbs and spices 23,815 1.23% USA Mexico 1602 Prepared or preserved meat 23,690 1.22% Germany 2105 Ice Cream 5,669 0.29% Venezuela Mexico 1605 Prepared or preserved seafood 131,619 6.78% Spain China 1904 Breakfast cereals 8,860 0.46% Colombia 1902 Pastas and couscous 8,401 0.43% USA 2007 Jams 51,094 2.63% Russia Mexico 712 Dried Vegetables 11,437 0.59% 811 Frozen Fruits and nuts 112,270 5.78% 813 Dried Fruits 77,989 4.02% 80620 Raisin 56,945 2.93% Mexico USA

Total Food Process 1,940,993 100% Fresh Fruit 1,593,873 44.6% USA UK Fresh Vegetables 39,135 1.1% USA Nether. Total processed food + fresh 3,574,001 100% Total Fresh 46% Total Processed 54% Total 100%


4.2 Egypt: Presently Adopted Strategy, Positioning, Consistency Assessment.

4.2.1 A new competitive environment Egypt has only recently emerged as leading regional exporter, in years where global competition is

unquestionably much tougher and global166 than it used be when strong exporter Countries started positioning themselves - Italy in the 60s, Spain in the 70- 80s, Morocco and Turkey in the 90s.

Big changes have come about over the last decade, some are worth analysing since they play an important role in defining what could be in the near future a competitive positioning for Egypt and cast lights, at the same time, on Egypt’s actual export permitting a more fair assessment on its performance:

• EU, traditionally with USA the biggest net importers of processed food in the world has come to a halt showing negligible growth in most of its consumer markets. No Country, over the last decade, has achieved considerable market share gains in EU15167. Big supermarkets chains are currently reducing product ranges168 and eliminating products from the shelves where only heavily supported brands maintain their shares. Frozen vegetables (excluding artichokes and asparagus), juices, canned vegetables, dried vegetables (excluding dried tomatoes), jams, molasses, spices (seed and herbs), tomato derivatives (paste, ketchup), wine, soft drink, confectionery are all market with no growth or even showing moderate decreases169.

• Another trend is that the relationship between ingredients suppliers170 (dried vegetables, fruit pulp) and industrial users has changed: the industrial user buys not only additives and ingredients from the supplier, but also his expertise and experience, furthermore the industrial customers obliges the supplier to make heavy investments in order to provide cheap quality inputs. Another change is that ingredients stocks held by manufacturers are increasingly minimized171 and, as a consequence, just-in time delivery has become an important aspect in the European food market giving a tremendous competitive advantage to Countries like Poland, Belgium, Spain and Morocco with a privileged location closer to the final users.

• The “low price” positioning has been totally pre-empted172 by China; it is nowadays unviable for any other country to position itself as a low cost producers in the categories where China is relevant exporter. The threat China poses to Egypt shouldn’t anyway be overestimated since, by and far the two countries hardly overlap in any relevant market or product. China competitive advantage in costs is likely to persist until its currency173 will remain over- undervalued (for most of the economist at least by 60 %).

• Middle East and Russia have become important consumer markets, growing and importing significant quantities of fresh fruit and vegetables and packaged goods. They are new markets, competitive, but perhaps with more opportunities for “new” exporter like Egypt than in Europe and perhaps USA174.

• New entries, notably Poland and Hungary, made the supply of fruit and vegetables increased in Europe in a substantial manner at a very competitive price.

166 M. Porter global competition - Boston seminar, 2006. 167 Nielsen retail Index and wholesalers associations. 168 Carrefour, Wal Mart, and all the leading Retailers interviewed representing 65% of the current retail in EU25. 169 Nielsen Retail – 2000-2005. 170 Nestle, Unilever buyers. 171 Mc Kinsey rretail competitive analysis, 2004. 172 Buyers interviewed. 173 The Economist Intelligence Unit, 2005. 174 EDA seminar New York, world export opportunities, 2005.


• Brazil, after years of low export due to currency overvaluation, bounced back regaining its position as competitive exporter in juices (concentrate) and it is now developing a strong fresh fruit export industry, fast becoming a fearsome competitor.

Competition has unquestionably stiffened over the last decade, customers have become more demanding (especially the industrial users), logistic even more vital,175 new aggressive competitors have emerged or re-emerged flexing their exporting muscles (China, Brazil). It is keeping in mind this new competitive global environment that Egypt’s performance should be evaluated.

4.2.2 Egypt’s positioning

Strictly speaking Egypt has not a clearly defined positioning; its export are significant in some categories, expressive in few Countries but lack a real focus, a dominant position either in a Country or in a product category.

Egypt’s exports are in fact fragmented, no category or destination Country has emerged as an absolute “blockbuster”.

An unfocused positioning doesn’t absolutely mean Egypt has not strengths, it only reflects the Country’s absolute necessity to maximize exports short term rather than building sustainable strengths in selected categories or customers.

4.2.3 Egypt’s: Strengths Egypt is nowadays by far the most attractive country location for FDI176 in processed food for its

considerable domestic market and its not negligible GDP per capita (table 114). Curiously enough the evaluation of Egypt as possible location of FDI is much more positive among

private companies – especially in the processed food sector – than in institutions like the World Bank, the I.M.F or in the Global Competitiveness Report, where, anyway, all the countries in the Middle East are scored poorly.

Also, and quite consistently in our interview, Egypt image is more positive among European investors rather than Americans.

Nevertheless, many European investors have little data and details on the potential of the Egyptian market and rely on reports The World Bank and other leading financial institutions.

Table 114. Middle East Indicators.

INDICATORS 2004 Iraq Iran UAE Turkey Syria Jordan Saudi Arabia. Egypt

Pop MM 26 68 2.5 69.6 18.4 5.7 26.4 77.5 GDP PPP (US$ Bil) 54.4 516.7 63.7 508.7 60.4 25.5 310.2 316.3 GDP Cap PPP $2,100 $7,700 $12,000 $7,400 $3,400 $4,473 $11,750 $4,200

Source: CIA, World Fact book, 2005-2005.

But not only for that, also for its strong image of being increasingly a safe country to invest with a

positive business friendly environment. As discussed in the section FDI, Egypt is now among investors an attractive location for

investments, Ducroire (a leading Belgian export credit insurer agency) considers Egypt the safest country in MENA to invest along with Morocco.

175 EU25 Buyers association, 2005. 176 The Economist intelligence Unit – Buyers – Ceo’s leading food company in EU.


Nowadays a large share of the Processed Food export is generated by multinationals from factories strategically located in regional hubs177. Egypt has undoubtedly all the characteristics to become a production hub for multinationals178 willing to operate in the Middle East or in the MENA.

The real challenge for Egypt is to generate a set of policies and the right frame work for multinational to thrive, to devise incentives stimulating their “regional” export, to make their inputs (if imported) cheap and lightly taxed, to incentivate their investments especially in new diversified production lines.

Egypt has already established itself among international buyers as a reliable179, competent competitive supplier. In global export with global buyers a positive “Country perception” is vital to build a sustainable positioning.

Egypt has tremendously improved in the market its image of reliable quality supplier achieving a top of mind position, among the buyers, in some product categories where it has been awarded with the A++ top evaluation) (table 115).

Egypt has important market linkages with the GCC and most of Arab Countries such as Libya and is perfectly positioned to anticipate retailers and consumers trends in all the Middle East.

Egypt already holds a pre-eminent export role in Libya, not a big market but a Country in great need of most of the processed food categories.

Table 115. Egypt: buyers – importers – distributors competitive assessment of Egypt’s as a supplier.

Product Categories EU15 USA GCC Frozen Vegetables generic Frozen Strawberries A-- Frozen Artichokes A A-- Spices A-- Basil A-- Marjoram A+ Fennel A A Coriander A Caraway Cheese and Curd A++ Frozen Potatoes A++ Jams and fruit pulp A A Table olives A A Olive oil B B Tomato derivatives B Fresh early potatoes A+ Mango Juice A Dried Onions A++ A

Source : interviews with Processed food buyers and Survey in Grande distribuzione Magazine, May 2005 – Questionnaires with buyers, importers and distributors associations.

4.2.4 Egypt’s Weaknesses

To find a weakness is always easier than identifying strengths, but as it will be analysed in this section, most of Egypt’s weaknesses are not structural but typical of most of the “recent emerged exporter” Countries180.

177 M. Porter on export competitiveness – Amman, 2004. 178 Danone groupe president in annual report, 2005. 179 EU Big 5 Food companies buyers evaluation, 2005.


Egypt lacks a “blockbuster” (table 116) what some analysts would call a category killer (as pistachios is for Iran, wine for Italy)

Table 116. Leading Exporters: Blockbusters Products.

Country Products US $ 000

export 2004

Iran Pistachios 679,939Syria Herbs and spices 50,097Chile Fresh Fruit 1,593,873Italy Wines 3,560,976Italy Pastas and couscous 1,568,448Tunisia Dates 84,404Tunisia Olive oil 568,773Spain Olive oil 2,002,967Turkey Hazelnuts 737,639

Morocco Prepared or Preserved Fish 355,000

Israel Fresh Cut Flower 102,778

A strong almost dominant position in a determinate market is not only important to build volumes

but also indicates “focus” a sectoral policy181, perhaps an effective clustering in force, a real competitive advantage in a sector, industry or a market.

Egypt’s exports are still too much concentrated in product categories with little or no growth182 at all (table 117) with the exception of cheese, frozen potatoes and confectionery in GCC, frozen strawberries and artichokes in EU15.

Table 117. Egypt’s exports for product categories.

Product Categories GR=GROWTH

EU15 3%<GR

>0%

EU15 0%<GR

>3%

EU15 3%<GR>6

%

EU15 GR>6%

USA 0%<GR>3

%

USA 3%<GR>6

%

GCC GR>6

%

Russia 3%<GR>6

%

Frozen Vegetables x

x x

Frozen Strawberries

x

Frozen Artichokes

x x

Spices x

Basil x

x

Marjoram x

x Fennel x

x

Coriander x

x Caraway x

x

180 M. Porter competitive analysis Amman, 2004. 181 M. Porter competitive advantages of nation, 2002 book new edition and seminar London. 182 EU leading Buyers statement.


Cheese and Curd

x

Frozen Potatoes x

x Jams an fruit pulp x

x

Table olives x

x Olive oil x

x x x

Tomato derivatives x

x

Dried Onions x

x x Dried vegetables x

x x

Confectionery x x x x

Egypt lacks perhaps a geographical priority, the way Turkey defined consolidating its presence in

the ex- Soviet Republics. Traditionally Egypt tried to position itself as EU and USA “preferential” supplier, but export trends clearly show a faster rate of growth in the GCC. Egypt should clearly define some priorities and concentrate its effort in the areas of highest potential growth (GCC and some Arab countries).

Egypt has negotiated with the EU25 less favourable conditions (in terms of quota, tariff reductions, table 118) Mediterranean183 countries, notably Tunisia, a more aggressive policy is undoubtedly required.

Table 118. Tariffs Reduction: Number of Products negotiated with EU25.

Tariffs reduction ad valorem, number of products Turkey Tunisia Morocco Israel Egypt

24 102 115 50 24

EU15 Tariffs reduction

In most of the sectors the export is more the result of the effort made by “isolated” companies,

rather than a veritable industry. No real “clustering” exists184 among enterprises, policies conducive to clustering/networking of enterprises are clearly needed to increase competitiveness and establish a real long-term competitive advantage.

4.2.5 Egypt’s Informal sector

Another subject of difficult interpretation is represented by informal sector: to estimate its size is, by definition, very difficult to perform. However, it is well known between the majority of small entrepreneurs and segments of the formal sector that in Egypt this field represents a big percent amount of GDP. This is true not only for Egypt but many emerging countries show a strong presence of informal economy in several sectors. This extra-law sector leads to several uncertainties due to low productivity, minimum utilisation of resources potentiality, and unwarranted conditions of employers. Moreover it seems that informal sector slows economic growth and better income distribution.

But to shift to the formal sector entrepreneurs must have the possibility to sustain production costs, because in many cases to remain in informal sector is their only possibility to survive. In order to induce them in this direction it is therefore necessary to adopt sufficient reforms to tilt the balance of the net benefits in favour of formalisation. Moreover entrepreneurs in the informal sector have to face

183 Monitor Group analysis on Mediterranean export assessment study, 2005. 184 M. Porter analysis – Amman, 2004.


many problems with local authorities, and have limited access to finance, infrastructure, technology and markets. To find a solution to this impasse could give interesting opportunities to grow the export amount allowed by laws and Government.

Formalization could generate significant benefits to the economy and most economic agents if reforms were adopted. This is because these reforms would lead to better protection of property rights, which would enable entrepreneurs to secure inputs at lower costs, increase access to infrastructure services and credit, take advantage of expanded markets, and avoid coping with unofficial payments to stay informal. It would equip and motivate entrepreneurs to expand their businesses, reorganize internally, and benefit from specialization and division of labour. These changes would increase economic growth and poverty reduction.

Traditionally the informal food sector is not export oriented, quite the contrary it usually provides cheaper imitation of established brands. Informal sectors and quality are not necessarily negatively correlated, the informal sector, in fact, based its competitiveness on tax evasion and minor labour contributions rather than poor quality. In many countries local brands born from the informal sector achieved relevant market share and compete successfully in the low-income segments putting some pressure on margins on big brands and thus stimulating productivity.

4.2.6 Egypt’s: Risks

Egypt is at a “turning point”: significant results so far obtained shouldn’t delete a more sectoral focused approach with efforts and investment concentrated in few strategic sectors or market. Current “dispersion” is unlikely to guarantee the expected (and needed) growth rates, a more selected approach is urgently required

To underestimate the importance of a more focus approach looks undoubtedly the main risk along the way of positioning Egypt as a competitive exporter, a true positioning requires sacrifice, short term, sometimes, even the loss of some “out of the core” exports.

Equally real industries (or clusters) must be created, the effort of few isolated “champion” companies will probably be insufficient to generate a new leap forward in the exports and neither significant gain in competitiveness.

4.2.7 Egypt: Opportunities – Roadmap to growth

In table 119 identified opportunities are listed and quantified in terms of potential additional contribution to the exports.

Although opportunities carry different risks – all of them have been selected taking into account competitive and market factors, notwithstanding “buyers” perceptions.

In few words they should represent the “most viable roadmap” for Egypt’s export growth, realistic opportunities where the markets factors, competitive factors and buyers’ perceptions all look favourable and promising for Egypt.

Table 119. Identified opportunities for Egypt Immediate potential Export

OLIVE OIL

Reason Why – Drivers Key Critical Factors Potential

Volumes or Share

Incremental export $

million ■ Market positive growth (3-4%) with strong potential new demand in USA, but also in China, India and Japan. ■ Uneven supply from most of the Mediterranean Countries (Turkey, Syria, Tunisia). Possible supply “disruption” in Spain because of climatic changes.

■ Availability of 150.000 ha ■ Adoption of mono varieties ■ Adoption of new “state of the art” production, extraction, storage technologies.

200.000 t Virgin 100.000 t Lampante $ 700

$ 300


■ A “technological revolution” on the production allowing “late comers Countries” to outpace traditional suppliers. ■ Market current and probable future profitability.

■ High investment

Action Plan: ■ Current assessment (especially varieties and irrigation). ■ Potential investors attraction and capture. ■ Prospect of possible “supply contracts” with Italian (Monini) and Spaniards (Grupo SOS) manufacturers.

TOMATO DERIVATIVES ■ Italy loss of competitiveness in a highly labour intensive industry: peeled diced tomatoes ■ Italy strong export of peeled tomatoes: 874.000 tons in 2005.

■ Achieve high yields (>60tons/ha, possibly 80tons/ha).

Italy exports 874.000 t. Egypt target: 17% or 150.000 t

$ 35-40

■ Europe (especially Italy, Greece, and Portugal) loss of competitiveness in paste concentrates 2 or 3.

■ Achieve extraordinary yields (>80t/ha, possibly 100tons/ha). ■ Loss of competitiveness of China for Revaluation of the currency (at least 25%).

EU25 currently imports 500.000t. Egypt target: 15% or 75.000t $ 30

Action Plan: ■ Establish supply linkages with Italians importers-exporters of Peeled Tomatoes and Tomato Paste. ■ Market test for targeted productivity ranging from 60 to 100tons/ha). ■ Specific detailed benchmark cost and value analysis with China, Iran, Greece, Italy, Portugal, Spain and Turkey.

FROZEN STRAWBERRIES ■ High labour intensive crop where Egypt has competitive labour cost and competitive product but still low share in EU25 (only 1.9%). ■ Poland (an exporter of 62.000 t) rising labour cost. ■ Strong market growth (+7% µ 2001-2005).

■ Competitiveness vs Morocco and China.

EU25 currently imports 230.000 t. Egypt target: 10% or 25.000 t

$ 20

Action Plan: ■ A stronger promotional plan to increase product awareness among European buyers. ■ Negotiations for a separate quota with EU and much higher (currently 3.000 t). ■ Development of logistic alternatives to make the product more competitive in transportation cost vs. Morocco.

FROZEN ARTICHOKES ■ High labour intensive crop where Egypt has productivity, competitiveness, quality (current market share in EU25 is 28%). ■ High market growth (+8% µ 2003-2005). ■ Growing labour cost in Spain (42% share) with shifting production to Morocco.

■ Market growth, currently Frozen Artichokes is still a niche market in EU25.

EU25 currently imports 10.000 t. but soon 15.000 t Egypt target: 50% or 7.500 t. An additional export of 5.000 t

$ 9-10

Action Plan: ■ Negotiations for a separate quota with EU and much higher (currently 3.000 t). ■ Stronger marketing efforts and commercial activities export oriented in EU25.

DRIED VEGETABLES AND ONION ■ Market is stable, or declining in EU25 but high oil is hampering EU25 dried vegetable industry. ■ There is a promising potential 80.000 t market in Russia and ex Soviet Union Republics. ■ USA is also suffering from rising costs (energy lead) with confirmation of possible industry relocation outside California. USA market for dried vegetables imported 70.000 t ($ 124 million) and domestic production is almost 200.000 t

■ Diversification: current export too much concentrated on onion and in the EU25.

■ EU25 currently imports 60.000 t of onion and 150.000 t of mix. Egypt currently exports 13-15.000 t of onion and 1500-2000 t of “others”. Egypt target: 4.000 additional t in onion, 7.000

$ 15 EU $ 26 USA $ 9 Russia

and ex Soviet Union.

Total: $ 50


additional t in “others”. ■ To gain 10% in USA via industry relocation, or an additional 20.000 t (Egypt target). ■ To gain an additional 7.000 t in Russia and ex Soviet Union.

Action Plan: ■ Market study for Russia and ex Soviet Union Republics, possibly a full time trade facilitator to explore untapped opportunities. ■ Set-up of a task force with a chief American Project Leader (within the industry) to draw up proposals for industry relocation or raw material supply. ■ Renegotiate onion quota (16.000 t) in EU25.

DRIED TOMATOES ■ A very labour intensive product category. ■ A market of 60.000 t in EU25, or $ 110. ■ A market with no owner.

■ Market linkages with importers – especially in Italy, but also Holland, Germany, U.K, Switzerland.

EU25 currently imports 60.000 but consumes almost 100.000 t. Egypt target: 5% or 5000 t

$ 9

Action Plan: ■ Feasibility study in terms of costs and product specifications as requested by EU25 importers. CANNED ARTICHOKES

■ A very labour intensive industry. ■ Only one strong competitor, Spain with 60% export share to EU25 and 70% to USA.

■ Product specification and competitiveness.

EU25 currently imports 30.000 t. USA 50.000 t. Egypt target: 30% share in EU25 or 10.000 t, 20% in USA or 10.000 t

$ 40

Action Plan: ■ Agricultural plan. With the varieties requested by USA importers. ■ Cost analysis. CHEESE and CURD PROCESSED CHEESE

■ Egypt has established itself as a regional hub of the processed cheese industry with Lactalis, Bel, and Bongrain. All companies exporting from Egypt to other Arab Countries. These companies will not open other factories in the region for the foreseeable future, making Egypt the only regional exporter. ■ Consumption of processed cheese is set to increase fast in the MENA region due to a growing young population and affordability. ■ Strong brand preference of young consumers in the GCC, creating a sound demand for Lactalis, Bel, Bongrain strong brand portfolio. ■ High cost of GCC locally produced milk. ■ Iraq could re-emerge as a strong importer.

■ To establish Egypt as hub and “cluster” of the cheese industry for the Middle East. ■ Brands rather than commodity. ■ More aggressive commercial plan in the Middle East.

Egypt, reportedly own 22% of the cheese and curds market in GCC. Egypt target: to outpace market growth generating a minimum of $ 7-10/year additional million dollars in the next three years.

GCC$ 30

Iraq $ 10

Action Plan: ■ To incentivate multinational Egypt based export with fiscal incentives, tax rebates. ■ To improve export logistic infrastructure especially to the GCC to lower current disadvantage vs Europe. ■ To maintain input raw material. cheap via import tax rebates. ■ To maintain inflation and labour costs under control. ■ To actively target Iraq as an export market. ■ To pursue branding of the typical (and no typical) cheese Egyptian export (Domiati). ■ To register Domiati brand and to develop plans of “brand globalization” jointly to cheese multinational operating in Egypt. ■ More aggressive promotional plan of Egyptian cheese and curd in all the main retail chains of the Middle East (i.e the week of Egyptian products and/or cheese and curds).

TABLE OLIVES ■ Labour intensive crop with no mechanized ■ To pursue product ■ USA currently $16


harvest possible. ■ Morocco (60% share in export to UE25) rising labour costs (minimum wage now $ 240) and overvalued currency. ■ Egypt current marginal market share (2.9% in EU25, 1.2% in USA) in spite of product price competitiveness.

adaptation to market specification. ■ Cost competitiveness vs. Morocco.

imports 126.000 t for $ 315 millions. Market growth is strong (+6%). Egypt target: additional 10.000 t (current 2-3.000). ■ EU25 currently imports almost 300.000 t. Egypt target: an additional 10.000 t (currently 2.500 t).

$12

Action Plan: ■ Negotiations within the IQZ frame in the USA. ■ Negotiations of a free quota in EU25. CONFECTIONERY and SUGAR CONFECTIONERY

■ There is a strong import demand in all the MENA and GCC Countries for Confectionery led by huge teenager’s population but also by a limited domestic supply, not sufficiently diversified. ■ Brazil, Argentina, and the EU (Spain and Italy mainly) both export almost $ 75 million year (25-30.000 t each) with no particular marketing effort. ■ Egypt is already the regional hub of Cadbury, one of the most successful confectionery companies in the world. Black Honey from refined sugar cane molasses has a demand for syrups industry in EU

■ To attract more FDI. ■ Product differentiation and segmentation offering the widest range in the Middle East.

EU25 exports to GCC are currently $72 millions or 30.000 t. Mercosur exports to GCC are also close to $ 72 millions (27.000 t). Egypt target: additional export of $ 30 in three years.

$30

Action Plan: ■ To develop a confectionery cluster mainly focused on cheap candies and sweets for children (example cluster in Murcia region in Spain). ■ Investment and fiscal incentives directed to the Confectionery industry.

RAISIN ■ Strong demand in EU25 pushed by consumer preference for healthy snacks and cereals mix. ■ A labour intensive industry. ■ Only two real competitors for the EU25 market: Turkey with an impressive 55% share and Iran 10%.

■ Competitive availability of Seedless Thompson or Sultana grapes.

EU25 currently imports 306.000 t for a value of $ 280 millions. Egypt target : 10% market share or 30.000 t.

$35

Action Plan: ■ Feasibility study in terms of product specification and costs. ■ Strong product promotional plan among distributors and retail chains in EU25.

CANNED FRUIT ■ Canned Syrup fruit is not a growing market but interesting for Egypt because of its large quantities of fruit lost along the post harvest phases. ■ South Africa, the strongest competitor, faces high logistic costs and a rising currency.

■ Product availability (quantity) and competitiveness.

EU25 currently imports almost 60.000 t of peaches and 90.000 of peaches. Egypt target: 105 of market share or 15.000 t in three years.

$15


Action Plans: ■ Feasibility study. DATES

■ EU25 is a strong importer of added value dates, a market dominated by Tunisia with almost 50% of share, followed by Israel (21.9%) and Algeria (11.9%). ■ Probable ban on methyl bromide by EU25 will change the processing date industry considerably.

■ Market linkages. ■ Product competitiveness.

EU25 currently imports $ 127 millions or 62.000 t in 2004. Egypt target: 15% or 10.000 t.

$22

Action Plan: ■ Development of alternatives to methyl bromide processing. ■ Competitiveness study. ■ Development of an “organic” positioning.

HERBS and SPICES ■ USA and American based Mc McCormick are the biggest “source of business”. Slow growth means market share has to be taken from competitors. Egypt benchmark should be Syria with a bigger share than Egypt in USA. ■ In EU25 a move to more added value herbs (organic for instance) is required, growth is slow and competition from Eastern Europe growing.

■ Customers diversification. ■ Product line extension into new spices due to low growth of current spices markets where Egypt is already present.

$5

$5

Action Plan: ■ Development of a more complete range of Organic spices-herbs. ■ New more aggressive commercial policy in the USA, and k-customers with tailor made promotional plans.

FROZEN POTATOES ■ Demand of frozen potatoes is booming in GCC pushed by young generation preference for chips and expansion of the fast food industry. ■ Iraq could soon become a strong importer.

■ Focus on GCC. ■ Development of alternative added value products.

Egypt has supposedly a share of 25% in the GCC, a market of $101 millions. Egypt potential: an additional $ 5 millions year or a cumulative $ 15 by 2009. Possibly an export of $5 millions to Iraq.

$15-20

Action Plan: ■ Improve refrigerated logistic to GCC. ■ Explore potential of private labels in the gulf states. ■ Development of a “Pringle “potatoes plan.

PICKLES ■ Pickles is a big but competitive market in EU25 with Turkey leading with 25% of the market. ■ There is room for differentiated added value products.

■ Product differentiation, low volumes high margins.

EU25 currently imports 550.000 t or $470 millions. Egypt could be a niche player with a specific differentiated offer. Egypt target: 1.5% share, or 8.000 t.

$10

Action Plan: ■ Feasibility study for differentiated “niches”. ■ Market test in Eu25 selected distributors and retail chains.

MOZZARELLA BUFFALO CHEESE ■ Mozzarella “di buffalo” is a traditional up- ■ Market linkages in Italy, A market of $41


market cheese in Italy with strong domestic demand and high exports to USA, UK, Northern Europe, and Japan. ■ Buffalo breeding, essential in the supply chain, requires skills in short supply in Italy (labour force is currently “imported” from India and Bangladesh).

Germany, UK or USA. 45.000 t, or $ 410 millions. Egypt target: 10% share or 5.000 t.

Action Plan: ■ Project feasibility study, possibly with Lactalis. DRIED APRICOTS AND FIGS

■ Dried apricots is a market of almost 100.000 t – figs of 70.000 both dominated by Turkey with more than 90% market share.

■ Product availability, cost competitiveness vs Turkey.

Egypt target: 13% of volumes exported by Turkey. 15.000 t apricots, 5.000 t of figs.

$30 $10

Action Plan: ■ Feasibility study (costs, competitiveness). ■ Market test in EU25 and USA (apricots) in selected distributors and retail chains.

4.2.8 Conclusions – Recommended Positioning

After a needed currency devaluation and opening and modernizing its economy leading to a significant export increase, Egypt is now at a veritable turning point: a more strategic and not only “sales oriented” approach should be considered.

Egypt should focus on some sectors and market to gain sustainable competitiveness. a “blockbuster” product category is also needed in order to achieve aggressive export goals

medium term: olive oil should be considered as a strong candidate. A more geographical focus also is needed to take advantage of the areas with high growth and

better opportunities: GCC, some Arab Country (Libya) and Russia and ex Soviet republics.

EGYPT STRATEGIC POSITIONING

1. A strong exporter with geographical focus in the GCC. A leading supplier in the GCC and MENA of branded product in confectionery (chocolate and non chocolate), cheese & curds, frozen vegetables exported from the factories in Egypt, a regional hub of marketing oriented multinationals in processed food. Egypt – although not the focus of this study – could also become a stronger player in fresh fruits & vegetables to the GCC.

2. The leading supplier of EU25 of labour intensive product categories: frozen strawberries, olives, artichokes (frozen and canned), dried vegetables, raisin, syrup fruit and dried apricots (also to USA) and figs. Possibly a supplier of niche organic products (Strawberries, herbs & spices, artichokes, dried fruits, dates).

3. The strongest (with Tunisia) olive oil supplier of Spain and Italy.

4. The place where the USA industry of dried vegetables will relocate or “source”. A competitive exporter to USA of few selected products: olives, canned artichokes, spices.

5. A leading supplier to Italy of raw material for peeled tomatoes, Mozzarella di buffalo and a medium size competitive producer of tomato paste exported to Italy and EU25.

6. A strong Iraq supplier of cheese, confectionery, frozen potatoes.

7. An alternative to Tunisia as a date supplier to EU25.


With such appropriate focus and investment, Egypt could realistically gain - in our opinion - a

leading position in fast growing countries like GCC and Russia-Ex Soviet Republics, consolidate its share in mature markets such as EU, and USA , further expand itself in MENA and set profitable positions in Russia, Oceania, Asia.

It would add $2000 millions to its current export in 5 years, and successfully targeting mature markets through strategic alliances and olive oil adding another $2000 within 7-8 years.


5 Export strategy Egypt has embarked in a process of modernization and reforms, buyers and investors openly refer

to it as “a new Egypt”, a Country no more lethargic but on the move. Egypt new course needs a long-term vision but also short-term results, to gather political consensus and momentum for the bold reforms ahead. The opportunities we identified carry a different degree of risk, require a different level of investment, and imply different lapses of time to bear results; our assessment, would not therefore be complete, without a final analysis taking these risk factors into consideration (table 120).

Table 120. EFPI Risk Evaluation Matrix (immediate export potential)

Sector index

Product group Incremental gain $ mil.

(years)

Target Market share

TargetVolume

tons

Risk Investment

Timing Target Market

Olive oil $700 (7) $300 (10)

Extra virgin oil Lampante oil

200 000

100 000

Medium High-very high

7-10 years

Italy Spain

Tomato derivatives

peeled diced paste 2and3

$35-40 (5) $30 (5)

17% italian exports15% EU imports

150 000

75 000

High medium 3-4 years

Italy (peeled tomatoes) EU25 (Tomato paste)

Frozen strawberries

$20 (5) 10% EU imports 25 000 Low low immediate

EU25

Frozen artichokes

$9-10 (5) 50% EU imports 7 500 Low low immediate

EU25

Dried vegetables and onions

$15 (3)-EU25 $26 (4)-USA $9 (3)-Russia

35% EU imports. 10% in USA

19 000

20 0007 000

Low low immediate

EU25 USA Russia

Dried tomatoes $9 (5) 5% EU imports 5 000 Low low immediate

EU25

Canned artichokes

$25 (7)-USA $15-EU25

30% EU25import 20% USAimport

10 00010 000

Low medium 1-2 years

USA-EU25

Cheese and Processed Cheese

$30 (4)-GCC $10-IRAQ

>30%GCCiport share

10 000

4 000

Low medium immediate

GCC IRAQ EU25(Domiati)

Table olives $16 (5)-USA $12 (5)-EU25

8% Usa imp. 3% EU imp.

10 00010 000

Medium low 1-2 years

USA-EU25

Confectionary $30 – (3) years 20% GCC imp. 12 000 Low medium

high 2-3 years

GCC

Raisin $35 (7)-EU25 10% EU imp 30 000 Low low 2 years EU25 Canned fruits $15 (7)-EU25 10% EU imp 15 000 Low low 2 years EU25 Dates $22 (10)-EU25 10% EU imp 10 000 Medium medium 2-3

years EU25

Frozen potatoes

$15-20 – (4) >40% GCC imp 12 000 Low low immediate

GCC-Iraq

Pickles $10 (2 )EU25 1,5% EU imp. 8 000 medium high

medium 2-3 years

EU25

Mozarella buffalo cheese

$41 (5-7)-Italy EU25-USA

10% share EUimport

4 500 Medium high 2-3 years

Italy-EU25-USA

Dried apricots $ 30 (3)-EU25 13% shareEU imp 15 000 Low low 1 year EU25 Dried figs $ 10 (3)-EU25 13% share EU imp 5 000 Low low 1 year EU25

high medium-high medium low

Source : study team PS 137


Depending on the acceptance of risk and according to the level of investment adopted we envisage

three different scenarios for Egypt: Scenario 1: conservative low risk-low investment It is basically an extrapolation of the current trends in other words “a more of the same” scenario:

generalized relatively small gains in all the sectors driven by widespread reforms, opening of the economy, currency devaluation.

It is a scenario that we think unsustainable at medium term. Forces underlying actual positive trends will loose power and lead to low economic returns.

Our analysis – but also case histories in other countries – clearly show no country has ever achieved spectacular export growth without targeting “high growth market” and/or without having some high volumes champion- blockbuster product category.

But also, in terms of medium long term, no country manages to reach - and above all – maintain competitiveness all over the world. Focus is required at the moment to defend export market share, to make the investment more impacting and to overcome the fact that human resources in export promotion agencies are limited. Egypt will have to decide therefore where its priorities lie striking a balance between differentiation and the necessity to concentrate its promotional effort.

Moreover no country has ever achieved significant results without heavy investment and often this is the real competitive advantage instrument.

Scenario 2: Geographic diversification of the export (more focus on Russia and GCC) –

along with product diversification with priority to less risky low investment category In this scenario a more aggressive approach would be immediately pursued in GCC and Russia –

Ex Soviet Union Republics, but it would represent essentially a more aggressive commercial approach rather than a new heavy investment.

For EU25 market, a more aggressive strategy in terms of quota would be pursued along with some commercial effort in order to increase Egypt’s existing share but little effort would be dedicated to the promotion of totally new product lines.

In terms of products, priority would be given to low investment-low risk category: dried fruit, dried vegetables (Russia and USA relocation), canned artichokes, frozen strawberries, dates also fresh and fruit and vegetables to the GCC and Russia. In synthesis it would be strategic to find new markets – or to increase market share – with the existing products with little additional land and little additional investments.

Hard choice and risky product categories – like olive oil and tomatoes – would be avoided. Also no big promotional effort to create brands like “Domiati” cheese would be taken and FDI will be only lightly promoted, avoiding expensive incentive systems.

In this scenario positive results would certainly be achieved in short times with a minimum risk, but consequences would not be spectacular. In the present-day value we would quantify the potential of this scenario in $ 1.2 billion approximately.

Scenario 3: Geographic diversification, product diversification, strategic focus on the

development of some potential “blockbusters” and also aggressive product promotion and aggressive efforts to attract FDI.

In this scenario the following bold steps and investments would have to be taken in addition to scenario 2:

• Olive oil sector development in a large,. modern, capital intensive way. It is undoubtedly a costly investment requiring land and capital investment. It is not only a heavy investment but also medium long-term investment due to the cycles of olive oil because plants need 5-6 years before allowing the first harvest.


• Development of the Tomato Derivatives sector – peeled tomatoes, paste – in direct competition with China, among others. It is also a strategic move strong and heavy capital oriented. It is bold since competition in tomato derivatives is fierce with China on the frontline and other countries like Iran already with high productivity and low costs. Also investments in tomato derivatives make a sense only in case of big amounts of product, because absolute value/kg is relatively low. Therefore it would require a huge amount of land.

• Development of a “brand approach” in the cheese sectors aggressively promoting Domiati cheese (as Greeks successfully did with Feta cheese) and Buffalo Mozzarella sector, to supply or to compete with Italy. Again a high investment would be required along with marketing expertise in terms of market analysis, product positioning and consumer habits. Also promoters specialized in trading names and patents should be hired.

• Aggressive – and costly – incentives policy to attract and expand FDI in strategic sectors. The attraction of new FDI – and especially that of marketing oriented multinational – is also a support to generate export, since consumers (especially in the GCC and Russia) are brand oriented. Efforts to attract FDI and multinational are never cheap; leading multinational have many investment options and became unashamed in the process to ask for incentives. But it has to be done since the process is “self recreating” and the establishment of some multinationals brings others creating a virtuous circle. Multinationals are also important since set a standard of good practices and productivity in a country making it more competitive. The arrival and consolidation of multinationals in a specific sector also brings new domestic company into the market competing – many times – with lower prices and lower marketing budgets, many times bringing innovation and segmenting the market. At the end of the process real clusters with big multinational but also smaller local companies are in place and usually innovation, segmentation and competitiveness bolster exports and not only the domestic demand.

• Aggressive investment in agency promotion to attack the GCC and Russian markets, in order to be significant players. The opening of new markets should never be taken lightly: is an expensive process, difficult and without immediate results. It requires also trained and skilled human resources with outstanding market oriented approach. PROCHILE success story shows that it is vital to establish a physical presence – with specific personnel – in all the targeted countries where exports have to be created. Export depends on investment but also on knowledge: it is vital to know the markets, the consumers’ habits, the trade structure, the key distributors, and the competition on place.

With an ambitious export target of $ 2.0 billion (in present–day dollar), we feel this would be the

only suitable scenario. New Egypt calls for new strategies, which in our view could be summarized in few critical actions

(table 121).

Table 121. New strategies for Egypt.

1. Cost competitiveness – labour costs

Egypt should maintain a competitive advantage in labour costs. Medium term productivity gains will help to make wages policy more flexible. In short terms, the adoption of the appropriate fiscal and monetary policies is a must.

2. Currency stability Egyptian Pound found, after the devaluation its equilibrium. To keep it at the current value should be a priority of the monetary authorities, further devaluation will translate into inflation, and excessive revaluation will affect Egypt’s competitiveness.

3.“Business-friendly” environment

Opening of the economy, deregulation, privatisation, less bureaucracy relentlessly pursued, they are key-factors to improve Egypt image among investors and to attract FDI.

4. Export geographic refocus

Export Promotion Agency should be rethought taking into consideration the potential of GCC and Russia + Ex Soviet Republics potential, rather


than EU25 and USA alone. In line with the PROCHILE success history, a more significant presence of Management/human resources could be considered in GCC and Russia + Ex Soviet Republics.

5. Trade agreements Comprehensive rethinking of trade agreements with GCC and Russia + Ex Soviet Union Republics. Set-up of a specific commission for proposals/improvements.

6. FDI Incentives Package Set-up of a commission to devise a new, more aggressive package of incentives to attract Food multinationals in Egypt. Fiscal incentives such as:

1. Total tax exemption on imports new production lines, production line upgrades.

2. Incentives on technology transfers. 3. Tax incentives (such as corporate tax rebates) on exports.

7. Incentives on inputs for processing to re-export

A comprehensive incentives package should devise to maintain inputs for re-export cheap and competitive.

8. Creation of sectoral associations or working groups (at the infant stage of the industry)

Some strategic sectors and new potential sectors require stronger sectoral associations or specific working groups (at the stage of feasibility study). We recommend the set-up of specific independent task forces on:

1. Olive oil 2. Dried vegetables and fruits 3. Tomato derivatives 4. Canned fruit and vegetables. 5. Confectionery 6. Dates 7. Frozen fruit and vegetables 8. Cheese and Mozzarella cheese

In parallel models of new Sector Associations will have to be studied and promoted with empowerment. Strong sectoral associations are vital in Italy and Spain. They convey new technologies, open new markets, increase competitiveness, promote technology transfers, lobby with trade organizations and “trade blocks”.

9. Land availability Set up of a general study finalized to find the best modalities to solve the problem of agricultural and industrial land price. For agricultural land, set-up of a feasibility study for the allocation by GOE of one million feddans in lots of 500 feddans of reclaimed lands for leasing, to be farmed exclusively for export for a period of 50 to 99 years

10. Market researches/strategic intelligence

More funds and human resources for market researches or intelligence on new markets and industry ( opportunities).

11. Informal sector Set-up of a feasibility study for shifting informal to formal sector in some promising export sub-sectors

12. Logistic Improvement in customs reforms and custom clearance. Improve port competitiveness. New alternatives to transportation to GCC and EU25

More competitive logistic solution for export to GCC but also EU25 and Russia should be pursued in order to gain competitiveness vs. European competitors. At the moment logistic translates as a disadvantage for Egyptian exporters. Streamline of custom procedures leading to higher efficiency, minor transaction costs and flexibility, agility. Drastic reduction of container handling in the Egyptian ports. A special task force should recommend measures to boost competitiveness and to increase efficiency.

13. Clusters promotion Implementation of policies conducive to clusterization/networking of enterprises the in outlined strategic sectors through the creation of knowledge –intensive environments and new technology centres. A deeper, specific analysis of factors influencing the formation and development of clusters of enterprises, drawing from examples from both developed and less developed Countries is required.

14. Food law and Food To enforce a new unified food law.


authority To establish a new unified Food Authority. 15. Support of related and supporting industries

Upgrade of Laboratory of Certification. Support to Research and Development leading to products compliance to Export required standards: Steam Lab, Gamma radiation, CO2 Sterilization.

Key issues:

• Improve competitiveness: cheap labour cost – stable not overvalued currency – reduce current logistic costs to GCC and EU25.

• Attack market of high growth GCC and Russia- Ex Soviet Union Republics: reformulate organization and priority of the Agency Promotion.

• Attract brand marketing oriented multinationals making Egypt a regional Hub: devise strong incentives (tax rebates) – create a more business friend environment – promote technology transfer (incentives, tax exemption).

• Develop a “blockbuster” sector. • Promote an economy export “specific industry-oriented”: via clusterization and

development of sectors’ associations.

• Improve product quality standard and compliance to safety standard: upgrade laboratory of certification and pursue adoption of state of the art technology in product compliance to importer stringiest specifications.

• Support a shifting from informal to formal sector: the quality control in food sector is a must worldwide. Products coming from the informal sector are not subject to this control and this represents not only an evident risk for consumers but also a possibility of image reduction in case of sanitary problem appearance, also for the formal sector.

Specifically a good export strategy for Egypt should be built upon some pillars with a balanced strike among: geographic focus (which countries), mature or recently established industries, commodity or branded products (promotional efforts), short or medium long-term expected results, investment commitments.

5.1 Egypt: Export Strategy Geographic Focus

5.1.1 A Strategy for GCC and Iraq and MENA

As highlighted the GCC countries should be high priority for Egypt: in the GCC countries population is booming, income per capita is growing, and young population is sensitive to imported brands especially if American or European “sounding”. Competition is fierce but, apparently Egypt has no logistic disadvantages (probably the contrary) and has already established important market links in the region. Also, as it is widely recognized, it is much easier, and less expensive, to build export shares in growing markets than in sluggish economies (such as EU25).

• Cheese & Curds. The creation of a Domiati brand is highly promising and potentially well suited to differentiate Egypt proposal from other regional “white cheese.” A calendar of promotion targeted as “the month of the Egyptian” cheeses could be incentivate to boost Egypt image as a high quality/differentiated cheese supplier. Talks should be started also with leading Domiati producer and Lactalis to evaluate impact and potential of a coordinated promotional plan with the private sector.

• Fresh Fruit & Vegetables. The GCC import almost $2 billion of fresh fruit & vegetables per year from countries as different as China, Syria, Iran, Pakistan, Chile, India, Thailand, Bangladesh, Jordan, Lebanon just to mention a few, Egypt also is a supplier but with a limited market share. A detailed study on fresh & vegetables import in GCC should be started and links


with importers activated along with better logistic alternatives (avoiding Suez canal) to reach the GCC with a more competitive transportation cost (now +5% vs. Europe).

• Frozen vegetables and in particular frozen potatoes deserve attention. The possibility of launching “own labels” with the main retail chains should be actively pursued.

• Dried Fruit. GCC is a big importer of dried fruit: raisin, almonds, apricots, mulberries, walnuts, figs, and pistachios. The potential for a possible Egyptian export should be included in the proposed study of fruit & vegetables.

• Chocolate and sugar confectionery is a promising prospect in GCC. Egypt should urgently start a plan aimed at creating a cluster for the industry and to strengthen the FDI attraction in this sector. The special confectionery targeting children should also be analysed perhaps benchmarking the successful Spanish clusters of Cataluna (Chupa-Chups), Murcia and Comunidad Valenciana. The market for natural honey also needs an analysis since GCC imports $80 million/year from countries like Argentina, Australia, Mexico (hardly with any logistic competitive advantage).

• Iraq: Stronger partnership should be established with Iraqi importers specialized in processed food, eventually with incentives schemes aimed at financing the working capital. Iraq represents a huge opportunity for Egyptian processed cheese, frozen vegetable, and confectionery. Distributors should be approached, in Iraq, as partners rather than simple clients.

5.1.2 Russia and Ex Soviet Republics

Fresh Fruit & Vegetables. As commented for GCC the potential of fresh fruit and vegetables should be urgently investigated with a specific study and, probably, a presence with Egyptian promotional professionals will be required in the area to foster Egypt’s export share. The area has not “clear owner”, Iran, Morocco, Israel, Turkey all export fruit and vegetable to the area but with no dominant position.

5.1.3 USA Market

• The dried vegetables opportunity - a market of 270,000 tons – must be immediately addressed, high-energy cost pushed leading Californian producers to look for alternatives being Mexico one of the alternatives. An American consultant with deep insight in the industry must be recruited for a specific study and to stage meetings with the leading companies. Egypt has a clear competitive advantage due to low energy costs and possibly to higher productivity (multiple crops) vs. Mexico.

• Canned Artichokes, a market of 50,000 tons of import, needs also a feasibility study in terms of cost and product specification benchmarking Spain.

• Spices & Herbs. A more aggressive “strategic partnership” must be implemented with McCormick taking into account its share of the world spices & herbs market and the fact European markets are flat. Mars (Linguanotto) should also be attacked more aggressively through a tailor made marketing plan aimed at increasing Egyptian possible strategic alliance, also considering the problematic trade relations between USA and Syria and Iran (especially the former a strong US supplier).

• Jams. Negotiations with medium size retail chains for own labels supply.

• Table Olives. Benchmark analysis (vs Morocco) and promotional plan to increase export share with feasibility study to operate export under IQZ regime.

5.1.4 EU25 Market

• An immediate specific benchmark (focused on costs) is required for labour intensive crop and in particular for: Peeled Tomato (benchmark Southern Italy producers) – Tomato Paste


(benchmark China, Spain, Italy, Portugal, Iran, Turkey and Greece) – Artichokes canned (benchmark Spain) – Frozen artichokes (benchmark Spain and Morocco) – Frozen Strawberries (benchmark Morocco and Spain) – Olives (benchmark Morocco and Spain) – Syrup fruit (benchmark South Africa).

• To start a feasibility study for olive oil in terms of cost competitiveness, product specifications, land availability (ideally a minimum of 20,000 ha) and investors. Activate market linkages with Italian producer Monini and Spanish Grupo SOS.

• To start a feasibility study specific on tomato derivatives with the objective to supply Italian manufactures with peeled tomatoes and possibly tomato paste. Feasibility should include productivity/yields (ideally 100 tons/year/ha), cost competitiveness and land availability. Also intensify negotiations with the European commission and WTO on write off of subsidies (currently standing in EU25 €35/ton).

• Specific market study on dried fruit: raisin, dried figs, dried apricots. Benchmark analysis vs Turkey and collection of required product specifications. Possibility to exploit the “organic” concept.

• Market study on dates benchmarking Tunisia, possibility to exploit the “organic” concept avoiding Methyl Bromide processing.

• Market study (potential and cost competitiveness) in Italy but also Germany, UK for Mozzarella of buffalo made in Egypt competing (or sourcing) the Italian suppliers.

• Negotiations of more favourable quota with the European Commission on: Frozen strawberries (currently 3,000 tons) – Frozen Artichokes (currently 3,000 tons) – Dried onion (currently 16,000 tons) – Table olives (negotiations of a free quota).

• Market study to evaluate potential and competitiveness of dried tomatoes export to Italy and EU25 (a market of 60,000 tons).

5.2 Egypt: Commodities or Branded Promoted Products Categories The construction of brands is an expensive and slow process especially in mature markets like

Europe and USA. Both Europe and USA have similar characteristics that make branding construction extremely costly:

• Both are “saturated” markets with high sophisticated product differentiation and segmentation, in these markets it is extremely difficult to find a positioning based on a unique “consumer proposition”. Even big and marketing oriented multinationals185 have drastically reduced the number of brands in their portfolio being unable to support all of them.

• The Promotional efforts required to establish and maintain a brand escalated during the last twenty years because of rising costs in media, consumer promotion and trade marketing. According to Nestle sources a minimum of $40 million is required to launch a brand globally in order to have a reasonable chance of success.186

• The distribution of new brands is something difficult to develop since global retailers (Carrefour, Wal Mart) are increasingly selective and demanding in the process of new brands introduction. Actually, all the major global retailers in USA and Europe are currently reducing the number of food brands in their outlets.

185 Nestle, Kraft Suchard and Unilever, the three major Food Companies in the world have cut by 20% their “brands portfolio” over the last decade, more than 1,200 brands have been discontinued. 186 Even in successful marketing oriented multinationals the rate of success in the launches of new brands is approximately 45%.


Therefore the effort of creating a brand to export is a strategic decision not to be taken lightly and requiring the adequate investment.

Looking at Egypt’s export opportunities it seems clear some products needs a strong promotional “brand oriented” approach while for others a more aggressive commercial strategy is required and finally other categories fall into commodities requiring, above all, competitive prices.

5.2.1 Promotion and Brands

Cheese & Curds could benefit from a brand-oriented approach especially in White cheese (technically very similar) where a well-promoted brand could effectively differentiate a product and generate loyalty among the consumers.

A brand and “trademark patent’ should urgently be started for Domiati, as it has been done with Feta by the Greeks (currently exporting 150,000 tons/year to EU25). The Domiati brand could be a strong point of difference in the GCC where white cheese consumption is remarkable and rising and where no brand as so far appeared with a strong position in the market. The presence of many Egyptian expatriates in the GCC could boost furthermore the potential but consumers for Domiati could also come from Sudanese (where Gybna Beyda white cheese is a similar proposition) and from South and South East Asians minorities. The “trademark” process to promote Domiati POD (Protected Designation of Origin) could be started with one of the many specialized Intellectual Property Solicitors Bureau (Feta case was handled by Lawdit Solicitors in London) The chances of obtaining a brand trademark Domiati look promising taking into account the successful precedent (similar) of Feta.

In Europe, due to exorbitant cost of promoting brands, a trade marketing approach - with in stores promotion in the main hypermarkets – look more appropriate perhaps in a scheme jointly with manufactures (Lactalis) based in Egypt and with deep know-how of the European market.

In USA the potential of a Domiati brand should be previously tested with consumers and trade and quantified.

The Mozzarella of buffalo opportunity also probably requires a brand-promotional approach. Mozzarella of buffalo is a premium segment where quality and brand play an important role, the development of a trademark and logo would therefore be imperative in the product mix proposition. Again the process could be started with an industrial partner (cheese manufacturer in Egypt).

The dried fruit opportunity (apricots, figs, dates, and raisin) also would require a promotional brand approach to establish the credibility of Egypt as a quality producer country. A brand “dried fruit of Egypt” with identity and appropriate logo would be even more important if an “organic” positioning is adopted. Organic consumers are in fact curious and demanding about the origin and “value” of the products and less sensitive to price. The promotion of a new range of dried fruit from Egypt in EU25 look a realistic objective since dried fruit are Christmas season in EU25 and retailers quite opened to the listing – in their stores - of new seasonal products. In store promotions with product sampling could be sufficient to generate sufficient awareness for the brand.

Confectionery is also market extremely “brand driven” with loyal brand oriented consumers. As already commented the key to success for Egypt is to attract FDI of leading confectionery multinationals (as Cadbury). But also clusters of “branded but cheap, children oriented” confectionery could be incentivated following the Spanish model (Murcia, Valencia). It is a very profitable market, neglected by big multinationals.

In the case of olive oil a brand and a promotional effort would be important, but it doesn’t look viable for Egypt as a strategy: Egypt has a poor image in EU25 as olive oil producer - as it is the case of most of the Mediterranean countries but Greece and Spain. To “reverse” this consumer perception through a promotional effort would probably be too costly and risky, therefore a better strategy is to position Egypt as supplier of the “branded countries” such as Italy and Spain displacing Turkey, Syria, Tunisia and taking advantage of the growing olive oil consumption creating opportunities for “new comers”.


5.2.2 Commercial Promotion

For most of the opportunities highlighted in the study a more aggressive “commercial” promotion is highly desirable (the kind of Chilean approach with PROCHILE). In many industries products are “semi-commodities” scarcely differentiated with similar pricing and customer services, therefore what really makes the difference is often a “strong commercial promotional effort.” A commercial “export oriented” effort requires human resources in all the targeted countries: Chile invests heavily in trained personnel constantly monitoring the market and establishing linkages with key distributors and importers. In all the relevant and potential markets for the Chilean exports there are PROCHILE dedicated employees promoting the Chilean products among the trade.

Egypt’s should probably adopt a similar strategy in: dried vegetables (Russia, USA), Herbs and Spices (USA), frozen strawberries and artichokes (EU25), Olives (EU25), frozen vegetables (GCC), canned artichokes (USA, EU25), dried tomatoes (EU25). These are all categories where Egypt has good chances of being competitive in price but where significant export gains depend heavily on heavy “commercial promotion effort”, an activity for which Egypt promotional agency should devise a new well thought strategy and allocate considerable resources (money and personnel).

5.2.3 Commodity Approach

Commodity is often a “dangerous” positioning since it implies little differentiation and a competition mainly based on costs. Brazil and the US are probably the world leader in agricultural commodities thanks to the “size” of their export, the economy of scale achieved and a great efficiency. Broadly speaking any country with limited quality land available - as it is the case of most of the Middle East countries including Egypt – should seriously analyse the implications of competing in commodities markets. In our study two identified (opportunities) categories would fall into the commodity definition: frozen strawberries and tomatoes derivatives. In both these industry final success heavily depends on cost efficiency and competitiveness rather than marketing efforts. Egypt with its multiple crops/year could well have a relevant competitive advantage in the tomatoes industry and become a strong supplier of raw material for the Italian which have image and premium price in the market. In strawberries the cost competitiveness depend mainly from logistic costs; to develop an efficient logistic is vital to compete with Morocco (logistically better positioned).

5.3 Egypt: Market Maturity In any export strategy the maturity of the markets has important implications, both from the supply

and demand standpoint. Demand-wise a country, as outlined by the Boston Consulting Group Matrix, should always strike a balance between new markets (with high growth but requiring high investments) and mature markets (low growth, big volumes, low investments).

From a supply standpoint the implications are also important since infant industries (meaning new industries where a country decided to compete) needs many times “special attention/incentives” in order to attract capital and private investors.

As highlighted in the study, Egypt seems too dependent on mature markets at the moment, markets with little growth as it the case for Herbs & spices – Dried vegetables – Jams – Frozen potatoes in EU25. New fastest growing markets must be developed possibly in areas (such as GCC and Russia) with higher growth rate than EU25 and USA. Confectionery, Cheese & Curds, Dried tomatoes, dried fruits, Olive Oil, Frozen strawberries are all identified opportunity showing relatively higher growth rate and therefore strategic for Egypt.

On the supply side, in spite of frequent critics to any subsidy program, it has to be accepted the principle infant industry needs some sort of incentives to develop. Incentives are costly and difficult to deal unless strategic and selective, in our view olive oil and tomatoes are two of the area where Egypt should elaborate an incentive plans able to attract investors and make the industry grow fast reaching economies of scales.


In the case of FDI, in our opinion efforts should be concentrated in the Confectionery industry with the objective of creating clusters and innovative export oriented companies.

5.4 Egypt: Export Timetable Any successful program requires short-term results, economically and politically. As it often

happens in developing countries reforms only survive with short-term results, and Egypt should be no exception. A well thought export promotional program should therefore balance short-term opportunities with long-term strategic movements and also adopt a mix of low risk opportunities with few “higher risks” options inevitably indispensable to achieve significant results.

The opportunities highlighted in the study (table 122) seem well balanced with only olive oil with long term planning and tomato derivatives medium term, but with all the others viable in less than 2-3 years.

Table 122. New strategies for Egypt.

Immediate Opportunities 1 Years ■ Frozen strawberries ■ Dried tomatoes ■ Frozen Artichokes ■ Dates ■ Dried figs ■ Dried apricots ■ Processed cheese (GCC). ■ Table olives ■ Syrup fruit ■ Canned artichokes ■ Dried vegetables (Russia) ■ Fresh vegetables and fruit (GCC and Russia).

Medium- term Opportunities 2-3 Years ■ Domiati ■ Mozzarella ■ Tomato Derivatives ■ Confectionery ■ Raisin ■ Dried apricots ■ Processed cheese (GCC). ■ Dried vegetables (US relocation) ■ tomato derivatives.

Long-term Opportunities 6-8 Years ■ Olive oil


LIST OF REFERENCES A. Ries – J.Trout “country positioning” seminar in Montevideo, Dec, 2005. Businessmen “Doing business analysis, 2005” US Department of State. Buyers Statements and Parma Chamber of Commerce, 2005. COI – the future of Olive oil in EU25 - Dec, 2005. COI EU25 Industry evaluation: Nov, 2005. EDA seminar New York, world export opportunities, 2005 EU25 Survey on Typical European food, 2003 Fresh Fruit & Vegetable CIB Review, 2004. Icarda Institute crop productivity analysis, 2003 Italian Typical Food: Italian Chambers of Commerce Study, 2004. M. Porter competitive advantages of nation, 2002 book new edition and seminar London M. Porter competitive analysis Amman, 2004. M. Porter ME competitive analysis seminar Amman, 2004 Advertising age UK “global trends”, 2005. Marketing Study Italian Typical Food Italian Chambers of Commerce, 2004. Mc Kinsey Competitive analysis report, 2003. Nielsen Olives in EU25 Differentiation and Segmentation. Tomato news: Dec, 2005. UNIDO – NORTH AFRICA Sub-regional development report 2005 USA Trade Import Statistics, 2005

SOURCES In addition to interviews with leading FPI & Service providers, the following sources were used in the study. CHAMBER OF FOOD INDUSTRIES (CFI) FOOD EXPORT COUNCIL (FEC) AGRICULTURAL EXPORT COUNCIL (AEC) HEIA ALEB(USAID) MINISTRY OF AGRICULTURAL & LAND RECLAMATION (MALAR) ECORYS PROCESSED FOOD STUDY 04-05 IMC Publications ALEXANDRIA BUSINESS ASSOCIATION EXPOLINK MIDDLE EAST FOOD MAGAZINE EGYPTIAN ORG. FOR STANDARDS (EOS) CAPMAS IMC VARIOUS PUBLICATIONS (DAILY, WEEKLY, MONTHLY). DOES AGRICULTURAL POLICY REFORM WORK – Enderand Holtzman – The impact on Egypt’s agriculture 1996-2002 WTO reports and press releases EU – WTO negotiation reports ONILAIT –ATLA- DAIRY PRODUCTS MARKET TRENDS 2010 World Bank Development data web-site

food export strategy may, 2006

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