Egypt is one of the most populous countries in Africa and the Middle East with a population of around 100 million; the country’s population grows by about 2.5% annually. This also makes Egypt one of the world’s fastest growing markets for food and agricultural products. However, in the last decade, Egypt has been struggling with economic challenges, government austerity measures, soaring youth unemployment, and double-digit inflation. The Egyptian food industries sector has been growing in recent years, accounting for about 4.7% of the total GDP in 2016.
Egypt’s GDP in 2017 has an estimated value of about $193bn and is forecasted to reach around $251bn in 2018. The country has seen real GDP grow of 4.2% in 2017, yet millions of low and middle income Egyptian consumers have seen their living standards deteriorate due to soaring inflation—which has just started to decrease—as well as stagnant incomes and high unemployment.
Consequently, the increase witnessed in retail prices of nearly all goods and services took its toll on consumer behaviour. This is limiting disposable income, which was already low. Food prices soared 40% in June 2017 compared to the same period of 2016, while food inflation reportedly reached 44% in April 2017.
On the other hand, the currency floatation that took place in November 2016. which was the main driver behind inflationary pressures, is also pressuring importers to raise the prices charged for imported products. However, as the saying goes, one man’s loss is another man’s gain; these events provided the optimum opportunity for Egypt’s food industry sector to prosper, according to the annual report published by the United States Department of Agriculture (USDA).
Egypt’s processed food industry
The growth of Egypt’s food processing and manufacturing sector is associated with the market being
price sensitive. The main driver behind the sector growth has been the shift to increased production for domestic consumption and exports. The average Egyptian consumer’s consumption of processed and manufactured foods has grown to reach $45bn in 2017, up from $32bn in 2008, reflecting around a 40% increase in less than a decade.
The USDA report indicates that Egypt’s central location in the Middle East North Africa (MENA) region acted as an edge for Egyptian food processors and manufacturers, allowing them to increase exports to nearby regional markets.
In almost every Arab and African country, Egyptian processed and manufactured food products are import duty exempt. Consequently, the sector’s exports reached around $2.6bn through November 2017, of which about $1.1bn were to regional markets such as Saudi Arabia ($289m), Libya ($144m), and Jordan ($123m). Top exports were edible oils ($397m), processed cheese ($152m), and sugar and confectioneries ($143m), the report mentions.
Egypt is estimated to have 5,200 food companies, which reportedly generated a turnover of $22.5bn in the calendar year (CY) 2017 (January-August), increasing by 55% compared to the same period of 2016. This makes the sector’s share of Egypt’s GDP stand at approximately 4.7%. The report indicates that the new registration requirements for food products in 2018 may generate greater clarity, supposedly facilitating a more accurate account of the number of players and actual turnover.
Furthermore, the USDA’s foreign agriculture service (FAS), believes that there are opportunities for US manufactures to supply Egypt’s food processing and manufacturing sectors, which grew with a compound annual growth rate of almost 15% from 2011-2016. Product groups offering the highest potential in 2017 were baked goods, rice, pasta and noodles, dairy, as well as processed meats, seafood, edible oils, sauces, dressings, and condiments. US food and agricultural product exports to Egypt in CY 2016 accounted for $775m, making Egypt the 32nd largest export market for these products.
Egypt has numerous trade agreements with different parties, such as the European Union (EU); Egypt signed an Association Agreement with the EU which entered into force on June 1, 2004. The agreement allows immediate duty-free access for Egyptian products into EU markets, while duty-free access for EU products was phased in over a twelve-year period. In 2010, Egypt and the EU completed an agricultural annex to their Free Trade Agreement (FTA), liberalising trade for over 90% of agricultural goods.
Moreover, Egypt’s trade agreements and operating conventions for facilitating trade include The General Agreement on Tariffs and Trade (GATT), The General Agreement on Trade in Services (GATS), Egyptian-European Mediterranean Partnership Agreement, The Common Market for Eastern and Southern Africa (COMESA), Pan-Arab Free Trade Area (PAFTA), Turkey-Egypt Free Trade Agreement, Egypt-Mercosur Free Trade Agreement (effective June 22, 2017), and several bilateral agreements with Arab countries such as Jordan, Libya, Morocco, and Syria.
However, despite low entry barriers, US food ingredients face a distance and tariff disadvantage for countries that have trade arrangements with Egypt. Yet, US food ingredients are widely recognised as being innovative, high quality, and readily available.
In terms of general import inspection procedures and regulations, Egypt requires that every component of a product be inspected, regardless of the compliance history of the product, country of origin, exporter, or the importer. No imported product can be sold in Egypt without first proving that it conforms to Egyptian standards. In the case that there are no Egyptian standards in place for the imported product, an international standard can be applied such as the Codex Alimentarius (Codex).
According to the USDA report, the Egyptian market structure is fairly straightforward. Importers can be food processors, manufacturers, or agents and distributors. Large companies prefer to source their food ingredients or products directly from abroad. They do this in order to obtain reasonable pricing, guaranteed continuous product flow, and for quality assurance purposes.
In the Egyptian market, agents and distributors play a critical role, since Egypt’s food processing and manufacturing sectors are highly fragmented with many small and medium enterprises depending exclusively on these agents for their imported ingredients, due to different reasons. First, they only purchase small quantities. Second, they seek to refrain from the risks associated with importing products directly. Third is the fact that they pay for their purchases in local currency, and finally, because they do not maintain large inventories.
Egypt’s food processing and manufacturing sector in 2012-16 grew with a compound annual growth rate of about 12%, slightly above the longer 2011-16 interval’s growth of almost 15%. The main driver behind this was the 2016 currency floatation. Sources indicate that total sales reached EGP 104bn (or about $11.7bn based on the pre-November 3, 2016 exchange rate).
According to the report, product groups that have experienced the greatest growth during the 2011-16 period include milk, savoury snacks, and yoghurt and sour milk. Processed fruits and vegetables, meats, seafood, rice, and pasta and noodles experienced growth of between 13-14% during this period.
The report forecasts that the sector will grow during the 2017-21 period in Egyptian pounds terms, albeit at a slower 5%. Some estimates, prior to the 2016 currency floatation, were forecasting total sales to reach about EGP 140bn by 2021.
The witnessed sector growth can be attributed to Egypt’s time-starved middle class consumers adopting a more westernised lifestyle. Adopting a faster and more hectic pace of life is leading a growing number of consumers to turn increasingly to ready-to-eat frozen meals and instant noodles. Egyptians are also becoming more aware of the availability and convenience of packaged food products, the report indicates.
Moreover, another factor driving the sector’s growth has been the pound’s depreciation against the dollar. Which has impacted all segments of Egyptian society, leading them to turn to less costly local brands that feature greater amounts of local content and are sold largely through hyper- and supermarkets. It is very noticeable that such brands are increasingly being picked up by middle class consumers who are pinching piastres. On the other hand, low income consumers continue to purchase mainly at traditional grocery stores; this explains why traditional grocery stores remain the strongest distribution channel despite hyper- and supermarket expansions.
Egypt has a large middle class consumer segment, which accounted for roughly 40% of the population prior to the pound’s November 2016 floatation, or about 38 million people. However, currently, according to the data released by importers of consumer-oriented foodstuffs deriving indications based on their own sales, the middle class is actually shrinking due to high unemployment, double-digit inflation, and the halving of income and purchasing power.
The average Egyptian middle class household has four people and, reportedly, food and groceries purchases use up to 50% of household incomes. The middle class pre-floatation reportedly accounted for 45% of total consumption in the Egyptian economy. Some estimates currently place the Egyptian middle class today at less than 20% of the population (or roughly 19.4 million consumers), according to the report.
The report forecasts that Egyptian processed and manufactured foods export sales will increase in the
2017-21 period, by around 4%. Exports previously grew with a compound annual growth rate of around 2% in the period from 2012 to 2016, registering $1.6bn in 2016. Egypt’s top export destinations in 2016 were its Arab neighbours, Russia, and the Arab Gulf states. Saudi Arabia was the largest destination ($614m), then Russia ($229m), Kuwait ($212m), and Libya ($205m). The country’s main exports were processed vegetables ($520m), dairy products ($317m), and snack foods ($185m).