Sand to soil: Encouraging the transition to sustainable production

Agriculture is one of the most important sectors of the Egyptian economy, directly accounting for approaching one third of employment and providing income for over half of the population. The sector benefits from plentiful water from the Nile (though elsewhere water is scarce), along the banks of which most agricultural activity takes place, as well as year-round sun in much of the country and a location close to major export markets, such as Europe and the Gulf. Exports have risen rapidly in recent years and there is large potential for growth, though this will require better harnessing the potential of the small-scale farmers who dominate the sector, but suffer from problems like fragmentation of land use and a lack of access to market intelligence.

MAJOR INDICATORS: Ministry of Planning data put the proportion of GDP accounted for by agriculture, forestry and fishing at 13.4% in 2011/12, more or less unchanged from 13.3% in 2010/11. Agricultural GDP expanded by 2.9% in real terms in 2011/12, up from 2.7% the previous year. The sector is one of the most important employers in the country, accounting for 29.2% of total employment in 2011/12. The total planted area stood at 8.61m feddans in 2011, a figure that has expanded greatly over recent decades, having stood at around 5.8m feddans 30 years ago.

Arable land accounts for around 2.9% of total land and 100% of arable land is equipped for irrigation, according to the Food and Agriculture Organisation (FAO). The great majority of irrigation is provided for by water from the Nile, the flow of which can be controlled with great precision thanks to the system of dams constructed along the river. The fact that very few farms are reliant on rain for irrigation combined with the country’s climate allows many crops to be grown year-round, in particular in Upper Egypt, where temperatures are higher than in the north.

MAJOR PRODUCTS: Field crops represent the largest category of agricultural produce by value, according to figures from the Central Agency for Public Mobilisation and Statistics (CAPMAS), accounting for 38.4% of total farming output by value in 2010/11. Beef and other meats (not including poultry) accounted for 13%, vegetables for 11.7% and fruits for 9.2%.

While field crops dominate overall, tomatoes are the country’s largest individual crop, according to FAO figures, with the value of production standing at $3bn in 2011, double the value of paddy rice output in second place, on $1.51bn. This ranked Egypt the fifth-largest producer of tomatoes in the world. Despite the volume of output, little in the way of tomato production is exported (tomatoes do not figure in the top 20 agricultural commodities exported by the country, according to FAO data). This is in part because most tomato production is consumed domestically or processed to make tomato paste; however, much of the crop also suffers from sizable post-harvest crop losses. “Around 40% of the crop never actually makes it to the consumer,” said Douglas Anderson, regional director of the USbased ACDI/VOCA, an international development organisation, citing factors such as poor post-harvest handling and volatile markets resulting from traditional planting practices and supply gluts.

Rice was the second-largest crop by value of production in 2011, at $151m. The US Department of Agriculture (USDA) put production by quantity at 4.25m tonnes in 2011/12 and gave a preliminary figure of 4.68m tonnes for 2012/13. Egypt has traditionally been an important cotton producer, though production has been falling over the long-term – from 528,703 tonnes of cotton lint in 1980 to 137,000 in 2011 according to FAO data – due to factors, including difficulty marketing the crop abroad and farmers’ preference for other crops. The USDA estimates 2012/13 cotton production at around 490,000 bales.

Citrus fruit production is dominated by oranges, which account for just under two-thirds of total citrus output. The country was the world’s 12th-largest orange producer in 2011 according to the FAO. The USDA puts production in 2011/12 at 2.35m tonnes and estimates 2.5m tonnes will be grown in 2012/13, thanks to increased harvest area. Artichokes are also among the nation’s most important crops.

“Taking into account that even now, with all of the current uncertainty, Egypt is still producing 20% of the world’s artichokes, the government should consider boosting production by giving more incentives to producers,” Mohamed Abou El Dahab, the CEO of food-processing firm, Cold Alex, told OBG.

FISHERIES & AQUACULTURE: Total fish production reached 1.36m tonnes in 2011, according to CAPMAS, up 4.4% from 2010. CAPMAS put the total value of fish production in 2010/11 at LE16.8bn ($2.4bn). According to FAO figures, the aquaculture segment has been developing rapidly, with production rising from 595,030 tonnes in 2006 to 986,820 tonnes in 2011. In 2010, the country ranked as the eighth-largest producer of farmed aquatic animals in the world according to the FAO. The total value of Egyptian agricultural exports stood at $5.16bn in 2011, according to the World Trade Organisation (WTO), barely changed from 2010’s figure of $5.12bn but up strongly from previous years: the value of exports was $3.22bn in 2008.

Despite this growth Egypt continues to run a large agricultural trade deficit, with the value of imports standing at around three times those of exports in 2011, at $15.38bn; however, growth in exports has significantly outstripped growth in imports since 2008, suggesting the gap is closing.

EXPORT OPPORTUNITY: The country is geographically well-positioned for exporting to Europe and the Middle East, and industry players say exports to the latter are growing. “Egyptian products are well received in foreign markets, in particular in Europe, the US and Asia. The major challenge has been the Middle East because in the past Europe was prioritised for the export of high-quality products, leaving second-tier products for the Middle East. However, this is now changing and the Middle Eastern market has become very important for local producers,” said Daniel Leroux, the CEO of Kingdom Agricultural Company (KADCO). The Egyptian Central Bank put the value of exports of foodstuffs at $1.08bn in 2011/12, down from $1.18bn the previous year. Major exports within this group included dairy products and eggs ($195m), fruits ($184m), and raw sugar and its products ($133m). Cereals exports stood at $156.9m, most of which ($69.8m) consisted of “oleaginous fruits and seeds and plants for manufacturing”. Cotton and cotton yarn exports stood at $135m and $92.8m, respectively. Some of the Central Bank data appears inconsistent with data from other sources; for example the value of fruit exports in the Central Bank data in some years is lower than the value of orange exports alone, according to the FAO (see below).

Oranges were the largest exported agricultural commodity as of 2010 (latest available data from the FAO) in terms of value at $398m. In terms of quantity, exports of oranges stood at around 900,000 tonnes in 2011/12 according to the USDA, ranking the country as the second-largest exporter in the world. The USDA forecasts exports of over 1m tonnes in 2012/13, up around 10% on the previous year. Other citrus fruits did not figure into the country’s major agricultural exports. The largescale export of oranges and to a lesser extent other citrus fruits has led to criticisms, as in many countries, that severely water-poor Egypt (see below) is “exporting water”. However, others counter that the country has little economic choice but to do so as it needs the foreign exchange generated by such exports in order to pay for imports of basic foodstuffs in which it is not self-sufficient, such as wheat.

GROWTH OPPORTUNITIES: Industry players say there are several niches in which Egypt is particularly wellpositioned to increase exports. “Broad beans are a growth market,” said Mohamed Kamal, export manager for Cold Alex. “There is very high demand worldwide, with western European markets seeing particularly strong growth, and Egypt’s only major competitor is China, where the quality is not as good as here. The strawberry segment is also doing well as quality improves, and there is a need to develop the asparagus market, for export to the US in particular.”

Most horticultural crops are covered by free trade agreements with Europe and there are major windows of opportunity for particular products, such as green beans, when they are out of season in more northern countries. Another opportunity for growth is in olives, which are well suited to Egypt as they do not consume much water. Olive production currently only covers a small area, but the Ministry of Agriculture and Land Reclamation (MALR) is working with producers to expand the amount of land available. However, observers say that in order for the country to take advantage of opportunities, there is a need to improve farmers’ awareness about them through market intelligence.

“There are huge opportunities in terms of export windows to Europe but farmers need to know about them,” Ali El Saied, senior adviser for business intelligence and agribusiness at ACDI/VOCA’s Egyptian office, told OBG, explaining that improved market intelligence provided to farmers had already helped to increase fresh strawberry exports enormously; FAO data put exports at $48m in 2010, up from $117,000 in 2000.

“Farmers do not have the right information at the moment but this can be changed,” said Anderson. “The south in particular has not been properly integrated into the supply chain, but its growing season correlates to the counter-season in Europe. If farmers took advantage of this, they could knock suppliers of some produce from South America, South Africa and Israel out of the European market entirely.” El Saied argued that the authorities need to play a greater role in ensuring this takes place. “There is a need to get marketing signals to farmers, but at the moment the government’s focus is 100% on the technical side,” he told OBG.

Other industry players say that increased investment and foreign expertise are also required. “Egypt has the resources for agricultural success – the manpower, the soil and the water; however, the sector lacks expertise in some areas as well as money,” Kamal told OBG. “What is needed is joint ventures with large foreign companies, such as major European importers; this would allow Egypt to produce new crops and could see investors save 20% or so compared to importing crops, such as asparagus from Latin America. Now is the time for such firms to invest in Egypt as the political situation means that assets are inexpensive.”

Efforts to help boost exports include an initiative backed by USAID and local firm Blue Moon known as the Premium Project, which assists farms with matters like obtaining Global GAP certificates and other certification and establishing traceability. Strengthening linkages between farmers and local processors, and improving farming practices in order to ensure longer periods of supply for agribusinesses, represent another opportunity for the sector. One example highlighting the potential is a $7m public-private partnership project that will assist eight small-scale tomato farmers in becoming reliable suppliers for the tomato processing industry and boost ties between the two.

The project was funded by USAID under its Global Development Alliance programme and carried out by ACDI/VOCA, in cooperation with HJ Heinz Company, though it also brought in other processors. The project led to a doubling in the average tomato production for the farmers involved. “We could have trebled it except for an outbreak of disease,” said Anderson of ACDI/VOCA. “The project showed that small-scale farmers can be linked into the value chain and that the production season for tomatoes, for example, can be expanded dramatically, from around 100 days a year previously to as much as 250.” The project worked with farmers to improve practices and encouraged them to innovate by entering into forward contracts with processors. Income for the farmers involved increased from around $1000 per feddan to $2000.

THE OLD & THE NEW: Egyptian agriculture is broadly divided into two segments. The first, which accounts for the great bulk of agricultural activity, consists of traditional farming that takes place along the length of the Nile, comprising around 4m mostly small-scale farms. The other group consists of large-scale, modern farms located on land reclaimed through the use of groundwater or water pumped in from major reservoirs. This segment is mechanised and uses modern techniques, such as drip-feed irrigation, and is mostly export-oriented; however, it represents less than 5% of the sector, according to El Saied, with most of the rest of the sector largely untouched by modernisation. “90% of the sector is still almost pharaonic in its practices; until recently the practices you saw in ancient Egyptian art and in the actual fields were often the same,” he told OBG. He argued that the authorities need to better recognise the potential of the traditional segment to realise Egypt’s agricultural potential. “The government tends to view agriculture mostly as a subsistence rather than a commercial activity; the growth potential of the traditional sector is not recognised and there is not really an inclusive value chain. Essentially the government is putting a ceiling on growth by not ignoring the potential of 95% of the sector.”

FRAGMENTATION: One of the main challenges to the development of the traditional segment is the high fragmentation of land ownership, which is caused by inheritance traditions under which land is divided among the sons of a farmer, breaking it up into smaller plots as each generation passes. Furthermore, land owned by a single farmer is often divided into several plots in different places, further exacerbating the problem and damaging the efficiency of farms. The small size of plots mean that is rarely worthwhile for small-scale farmers to introduce mechanisation, which also undermines efficiency. As a consequence, the overall rate of mechanisation in the country is low.

One potential partial solution to the issue of fragmentation is the consolidation of small farms into cooperatives. However, some observers also say that small-scale Egyptian farmers are less willing to band together than in many other countries. “It is very important to encourage small-holders to form cooperatives,” said Essam El Din Wasif, director of the Agricultural Engineering Research Institute. “In the Delta however, it is very tough, as it runs counter the prevailing local mentality.” Although farmers work with government-run cooperatives, from which they are heavily reliant for obtaining inputs, such as seeds and fertiliser, observers say that these are not cooperatives in the true sense of the work and that farmers’ relations with them are often poor. “They are not cooperative in the sense of being member-driven; there is top down control,” said El Saied. “Farmers often do not trust them as they are used as a tool of enforcement by government and often dominated by local notables, and as a result they often try to avoid dealing with them where possible.”

However, others assert that farmers are increasingly willing to pool resources, providing it is shown to be of benefit to them. “There is some resistance on the part of farmers to working together but it can be overcome; the key is to show them the economic benefits,” said Anderson. “Farmers often see cooperation as something forced upon them by the government,” added Alexandra Harrison, project director at ACDI/VOCA. “However, when it is presented as a choice or an opportunity, they are more likely to participate.”

LAND & DESERT RECLAMATION PROJECTS: Much of the modern agricultural sector consists of large-scale projects based on reclaimed land and desert land converted for agricultural use. Efforts to green the desert date back to the 1950s at least, however, such projects are most closely associated with the Mubarak era. The largest two such schemes are the Toshka project near the border with Sudan in the far south (also known as the New Valley project), and the North Sinai Agricultural Development Project (NSADP). Toshka is based around using water pumped via a 50-km pipeline from Lake Nasser (an artificial lake created by the Aswan High Dam) and supplemented by local groundwater to irrigate more than 200,000 acres of land in the western desert. Acting as a “second Nile valley”, Toshka was eventually supposed to attract 20% of Egypt’s population to the area. The project was inaugurated in 1997; however, it lost momentum in 1999 following a political reshuffle and only a small proportion of the land has been developed. Sceptics point to problems, like the extreme heat that characterises the climate, which, while allowing for planting twice a year, also discourages workers from moving there. Its distance from Egypt’s main population centres and ports, and the salinity of the local soil were also cited as problems.

Nevertheless the project has attracted a number of large investments. One of the most prominent is from the Saudi-owned KADCO, a subsidiary of Saudi Arabia’s Kingdom Holding company, which is currently farming 25,000 acres at Toshka, growing crops including grapes and melons. The company is also developing a further 6500 acres as part of the project, due to be ready in 2014 and to reach full production in 2017. Leroux told OBG that the firm has invested $65m in the project so far and is currently investing $10m a year.

Another Gulf-based firm, the UAE’s Al Thaherah, in 2012 announced plans to develop 100,000 acres of land over five years to build the country’s second-largest poultry plant in the region. Other investors active in and around Toshka include several state-owned companies and national brewer Al Ahram Beverages. While a lack of infrastructure is also posing a challenge, many investors in the area are building their own infrastructure to help compensate for this.

The NSADP has faced less scepticism than Toshka as a result of being located closer to major cities and ports. The project is based around the irrigation of 168,000 ha of land in the northern Sinai peninsula by water pumped from the Damietta branch of the Nile. In early 2012 the government said that almost 95% of the infrastructure for the project was complete.

WATER AND SOIL ISSUES: Agriculture accounted for 86% of freshwater withdrawals in 2011, according to the World Bank. Although the Nile provides plentiful water for irrigation along its length, the country is mostly desert and extremely water poor on a per capita basis. Renewable fresh water resources per capita stood at 22 cu metres, ranking Egypt the fourth water poorest country in the world, according to World Bank data, and placing it well below the upper limit of “absolute water scarcity” of 500 cu m per person per year, as defined by the Falkenmark Water Stress Index (one of the most commonly used water scarcity measures). The country’s reliance on the Nile for agriculture faces potential threats upstream uses of water and dam-building, giving rise to tensions between Egypt and upstream neighbours, such as Ethiopia.

The government previously managed all agricultural irrigation facilities; however, this suffered from a lack of funds and was not always efficient. In order to improve the use of water, and in line with long-term plans to reduce the role of the state in the sector, the authorities are now delegating management and maintenance for some tertiary irrigation canals to farmers themselves. This is being done with the assistance of the Japanese International Cooperation Agency, which is providing technical advice and other support.

Another long-term challenge in recent decades has been the loss of soil to high salinity due to factors such as irrigation, the fact that the Nile no longer removes minerals from the soil by flooding, a high water table, and evapotranspiration, particularly in the delta. The intrusion of salt water from the Mediterranean into soil in the delta and northern farming areas, which could be significantly exacerbated by global warming and attendant rises in sea levels, is also causing problems with soil salinity. In addition to the threats posed directly by high salinity, the issue represents another barrier to the extension of modern irrigation techniques to Egypt’s traditional farming segment, damaging efforts to reduce water usage.

“Almost all new farming on reclaimed land uses modern techniques; however, older land often uses surface irrigation because it needs more water due to higher levels of soil salinity,” Hany Mohamed Ramadan, director of the Soils, Water and Environment Research Institute, told OBG. However, he added that there are a variety of solutions to the problems, including land reclamation, leaching, putting in place new drainage networks and also selecting new varieties of crops that are better able to tolerate heightened levels of salinity. The institute has a number of projects in the works studying crops for salinity tolerance as well as to measure the water table in parts of the country using technologies, such as GPS and radar.

IMPACT OF THE REVOLUTION: The sector faces a number of challenges arising from the political and economic instability brought on by the revolution. For example stepped-up industrial action, although primarily an issue for industry, has also affected farming. “We experienced major labour unrest in May 2011, just before the harvest, which led to a 40% decline in revenue,” Leroux told OBG, adding that KADCO was looking to move into less labour intensive crops because, he said, labour management generally is difficult in Egypt. As of April 2013 the country’s transportation sector was also still suffering from a shortage of benzene and diesel (known locally as “solar”) that emerged in January, following similar previous shortages. In addition to causing disruptions to transport and increasing freight trucking prices, the shortages also posed a direct threat to farming given its reliance on the fuel to power activities like irrigation, tilling and harvesting.

TRANSPORTATION: Transportation more generally can also be a challenge for the sector. Given the large size of the country and the low population density in some areas and in Upper Egypt in particular, many farmers are often located a great distance from markets. The quality of roads away from major population centres is also often poor, slowing deliveries and making the transportation of equipment difficult (constituting a further barrier to mechanisation). Small-scale farmers located far from markets are particularly reliant on brokers and middlemen, as they often do not have their own means of transporting produce.

OUTLOOK: Providing that current trends can be maintained, exports are set to grow and the agricultural trade deficit will be significantly reduced. However, with enthusiasm for large-scale desert reclamation projects appearing dimmer, much depends on the development of the traditional sector and ensuring that small farmers are aware of opportunities and integrated into markets. “Egypt has incredible agricultural potential and resources, but many countries with less in the way of resources are doing better in this sector,” said El Saied. “What the country is lacking is a market-driven strategy to make use of its agricultural advantages. We need to recognise that Egypt is an agricultural country and ensure that we use our resources properly.”

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The Report: Egypt 2013

Agriculture chapter from The Report: Egypt 2013

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