Once considered the breadbasket of the Roman and Byzantine Empires, Egypt today is an agricultural powerhouse. Rising domestic demand supports local producers, and it has also led to the country becoming a net food importer. Efforts to increase supply, particularly through enhancing productivity and developing major desert projects, are under way. Meanwhile, a number of export-oriented niches, including citrus fruits, are on the rise, and growers are now looking to move up the value chain. However, the sector faces serious challenges, particularly shortages of land and water. Much farming is inefficient, due to fragmentation and a lack of technical development.
WELL PLACED: “Agriculture is an exciting sector in Egypt,” Richard Tutwiler, a research professor and director of the Desert Development Centre (DDC) at the American University of Cairo (AUC), said. “You couldn’t ask for a better climate, there’s a great deal of knowledge and human capital, the domestic market is very deep and it’s well connected to international markets.” Agriculture accounts for 13.7% of GDP, but employs 30% of the labour force, according to the UN’s Food and Agriculture Organisation (FAO) and Egypt’s State Information Service. Around half of the population, by some estimates, relies on the sector for income.
Egypt had 3.69m ha of agricultural land, occupying just 3.7% of the country’s land area, in 2009, the last year for which statistics were available, according to the FAO. Of this, some 3.53m ha were irrigated, with arable land accounting for 2.77m ha.
Egypt’s history has been inextricably linked to the Nile and the agricultural potential of its valley and delta. For thousands of years, harvests were dependent on the annual flood, which brought rich alluvial deposits to the soil, making it highly fertile. While the Nile flood was first controlled and then stopped by the construction of the Aswan Dams in the last century, the river is still crucial for production, with almost all farming concentrated in the valley and delta, though major desert reclamation projects are coming of age (see analysis).
STRUCTURE: Within the government, the primary responsibility for the sector falls to the Ministry of Agriculture and Land Reclamation (MALR), but the ministries of water resources and irrigation, environment and housing, utilities, and urban development have substantial influence, too. While the ministries cooperate, coordination is not always as close or efficient as it could be, Hans van der Beek, a counsellor for the Dutch Ministry of Economic Affairs, Agriculture and Innovation at the Dutch Embassy in Cairo, told OBG. He said that Egypt needed a properly integrated agricultural master plan, which would both set a long-term strategy for the entire sector, and delineate different organisations’ tasks and responsibilities more clearly.
The majority of Egypt’s farms are smaller than 5 feddan (2.1 ha), but agribusinesses own around 30% of the land. Some farmers in rural areas grow two crops per year, one for domestic consumption (for example, wheat in winter) and one for profit (peanuts in summer). The fragmented nature of Egyptian farming is largely due to inheritance traditions, which see land divided among sons. Average farm size tends to be larger in new land areas than on the Delta and other old farming regions. Moves towards consolidation are being made, including MALR encouragement for adjacent farms to have joint management or to unite as a single entity with farmers as shareholders.
That Egypt manages to be a world-leading producer of a diverse range of crops, and is a top exporter of some, while much of the agriculture sector remains unmodernised, is indicative of the country’s potential. “The average yield per feddan (0.42 ha) in Egypt is very low compared to global averages,” Osman Serag El Din, the managing director of Heinz Egypt, said. “Furthermore, antiquated farming methods mean there is a lot of waste throughout the supply chain.”
CEREALS: Egypt is a both major producer and an importer of cereal crops. Aggregate cereal production in 2011 was around 22.3m tonnes, up 9.3% on the previous year, and not far off the 22.5m-tonne average of the 2007-11 period, according to the FAO. Egypt is the world’s largest buyer of wheat, as domestic supply cannot meet demand. Imports account for some 40% of consumption. Wheat is heavily subsidised, at considerable cost to the government. Bread is the Egyptian staple, and bread prices are a sensitive economic, social and political issue. Bread subsidies are forecast to rise to LE16bn ($2.7bn) in the 2012/13 budget, from LE10.8bn ($1.8bn) in 2011/12, according to local press reports. Egypt imported 10m tonnes of wheat in 2010-11, almost entirely through its state purchasing body, the General Authority for Supply Commodities.
Domestic wheat output rose 17% to 8.4m tonnes, considerably more than the average of 7.9m tonnes of the past five years, due to an increase in the area under cultivation, increasing use of improved seeds, and higher prices paid to domestic farmers by the government.
Since October 2011, farmers have received LE380 ($63) per 140 kg of wheat, up from LE350 ($59) in the previous season, in an attempt to incentivise production. Paddy rice production in the 2012/13 season (May-April) is expected to reach 6.37m tonnes, up 3.4% from 6.16m tonnes in 2011/12, according to the US Department of Agriculture (USDA).
HIGHER EXPECTATIONS: The rise in output, and greater domestic political stability, may allow the government to lift its ban on rice exports, imposed in 2008, according to the USDA. The potential to sell rice overseas may encourage farmers to lift production. The ban was imposed to address domestic shortages that were leading to rising prices. Water shortages led to restrictions on rice production, reducing the land under cultivation, but recovery has been swift. As of mid-2012, prices stood at a “reasonable” LE1850 ($310) per tonne.
The FAO has reported that the outlook for the 2012 winter cereal crop – which is harvested from May – is “generally favourable”. Its initial forecasts suggest wheat output of 8.46m tonnes, similar to 2011’s good harvest. It expects corn production to rise 3.1% in 2012, from 7.32m to 7.55m tonnes, and rice paddy output to reach 5.8m tonnes, the same level as 2012. Corn production will grow by 7.1% to 6.9m tonnes by 2015/16, according to BMI, with demand driven by the use of corn as affordable feed for livestock and supply boosted by the increasing use of higher-yielding seeds.
Rising output is unlikely to keep pace with demand in the immediate future. The FAO expects total cereal imports to rise to 16.67m tonnes in the crop marketing year (June/July) 2011/12 from 16,061 in 2010/12, well above the 14.11m tonne average of 2007-11.
The FAO expects Egypt’s grain import bill to fall in 2011/12, due to high levels of local production and cheaper wheat imports after Russia lifted its export ban in July 2011. However, in the longer term, prices may rise again if the Egyptian pound weakens.
CASH CROPS: Citrus products are now Egypt’s largest agricultural export, earning the country around $1bn annually before the revolution. In 2010, the last year for which data were available, Egypt ranked seventh in the world for orange production (with 2.4m tonnes produced, worth $464m), 11th for lemons and limes (318,111 tonnes), and fifth for tangerines, mandarins and clementines (796,867 tonnes), according to the FAO. Major markets include the UK, Germany and Eastern Europe, and some fruit is sold through auctions in the Netherlands. The basis of the success is a breeding programme that started two decades ago, as well as Egypt’s climatic advantage for winter fruits.
The revolution has affected the sector somewhat. Some foreign buyers have become more reluctant to make payments before delivery, for fear that unrest in the country could cut off supply. Some investors are also holding off starting or expanding projects until the political situation clarifies, according to Tutwiler.
The success of the citrus industry has led to increasing interest in developing other cash crops, including grapes, melons, potatoes, niche fruits such as pomegranates and tropical varieties, as well as cut flowers. “Egypt’s climate is particularly suited to growing tropical fruit,” van der Beek told OBG. “This is an archetypal mango country, and a huge number of mangos are produced, but largely for domestic consumption. With careful breeding, Egypt could improve quality and export. The countries of the Maghreb and Israel have done very well in growing avocadoes – so why not here.” Broadening the range of crops Egypt grows commercially would help add value to the farming sector directly and by increasing the scope for production of processed goods such as fruit juices and concentrates, and cosmetic and dietary products that use plant extracts.
POULTRY: Poultry is Egypt’s largest source of protein, and in 2010 the country produced 685,124 tonnes of chicken meat worth $975.9m, according to the FAO. Competition from importers, particularly from Brazil, is strong. Breeding chickens in Egypt is expensive, largely due to feed, which accounts for 70% of the cost of producing the chicks because it must be imported, Musa Freiji, the chairman of the board of agribusiness Wadi Group, told OBG. In 2009, the last year for which figures were available, Egypt imported $68.21m worth of chicken meat. Many Egyptians still prefer to see the chicken slaughtered at the market where they purchase it – should this preference decline, importers and local processers could gain more ground; currently, Wadi has a 45% share of the chicken market.
The country has also been affected by avian influenza (H5N1). As a result, production has dipped; it peaked at 704,702 tonnes in 2007, before dropping to 628,799 tonnes in 2008, and has recovered slowly.
LIVESTOCK: Livestock farming is a major component of the agricultural sector and is likely to become increasingly important as Egypt consumes more meat in the future due to population growth and rising incomes. Livestock accounted for around a quarter of agricultural GDP in 2007, according to the FAO. The majority of the meat consumed in Egypt is domestically produced. Exports, however, are very limited.
To an even greater extent than arable farming, livestock raising is fragmented. Most herds are of fewer than 10 animals. According to the FAO, “inadequate feeding is the major limiting factor for animal development”, which constrains production potential. The FAO is confident that opportunities exist to improve the efficiency of the livestock sector, particularly through the development of better feed supplies, from the rehabilitation of rangeland, greater use of berseem and tapping sources of saline water to grow fodder crops.
FMD: In March 2012 a serious outbreak of foot and mouth disease (FMD), a virus which particularly affects cattle, struck Egypt, with significant effects on the meat and milk segments. By mid-April, 77,000 animals had been affected, 10,000 of which died. The FAO estimated that 6.3m cows and buffalo and 7.5m sheep and goats were at risk from the highly infectious disease, which is windborne. The SAT2 strain that struck Egypt is particularly dangerous, as most livestock have no immunity to it. The outbreak may have started with cattle imported from the Horn of Africa, as SAT2 is prevalent in the region – if this is the case, import controls could be made more stringent. Lack of awareness among farmers, a delay in delivering vaccines and the weather made controlling the spread of FMD more difficult.
The government’s response was rapid and mostly effective, a positive sign indeed. Immediate measures limiting animal transport were introduced, and an FAO emergency team was called in to help with containment measures and the planning of a control strategy. Climatic conditions also helped, at the onset of summer – heat makes FMD inactive – so there were remaining concerns that unless the disease is properly managed, it might re-emerge later in the year.
FISHERIES & AQUACULTURE: Egypt’s fisheries produced 1.3m tonnes in 2010, 919,585 tonnes through aquaculture and 385,209 tonnes captured, according to the FAO. Deep-sea frozen fish are one of Egypt’s largest agricultural commodity exports to Europe, and the country also has a growing aquaculture industry, one of the largest in Africa, with 170,707 feddan (71,697 ha) of fish farms, according to the General Authority for Fish Resources Development. These largely produce three types: tilapia (accounting for 56.6% of the total), mullet (28.5%) and carp (10.5%). Fish farm output has more than doubled in the past decade, from 340,093 tonnes in 2000 to 705,490 in 2009.
With such pressure on water resources, agricultural experts are advocating increasing the use of fish as a source of protein in Egypt. Current legislation only allows the raising of freshwater fish on used agricultural drainage water. Though in practice, small-scale freshwater farming is tolerated, van der Beek argues that this rule makes little sense, as freshwater in which fish have lived is nutrient-rich and good for soil. Thus it may be more resourceful to allow fresh water to be used in fish farming first, and then used in the fields.
There is considerable potential for brackish and salty water in lakes, rivers and elsewhere away from the sea to be used to breed saltwater fish, as it is usually not suitable for irrigating fields, while the large lakes in the south could also be developed for aquaculture. Wadi Farms operates Egypt’s first saltwater desert fish farm, rearing sea bass in Beheira governorate, 120 km south of the Mediterranean coast. With water temperatures around 19-27°C year round, the fish tend to grow more rapidly than they do in the sea. The company aims to ramp up production to 40 tonnes per year, exporting largely to Europe, where it can get a better price for the fish than on the domestic market.
INFLATION AND SUBSIDIES: Several factors make Egypt susceptible to food price inflation, particularly the fact that importing around 40% of its food needs means that prices are more easily influenced by international fluctuations, as well as to currency risk. The climate and the nature of the agricultural sector make harvests more vulnerable to weather, natural disasters and disease. This is all particularly significant as Egyptian consumers, particularly the poor, feel the effect of rising food prices acutely. Egyptians spend 40% of their income on food, a proportion that rises to 50% among the poorest. A large majority, around 63m citizens, have rationing cards for those on low incomes (considered less than LE1000, or $167, per month), which can be used to acquire flour, rice, sugar, cooking oil and tea.
Food inflation has slowed somewhat in 2012, but was still running at 10.8% in April that year, according to official figures. The FAO noted a sharp decline in fruit inflation in early 2012, but the price of food other than fruit and vegetables was up 27.8% in February, due partly to a spike in poultry prices as consumers bought more chicken instead of beef during an outbreak of FMD.
SUBSIDIES: Food prices also affect the government’s strained finances, due to Egypt’s generous and unwieldy subsidy regime. In the 2012/13 budget, food subsidies were substantially increased to LE26.6bn ($4.5bn), up from LE18.9bn ($3.2bn) the previous year.
Subsidies largely fall on imported goods, including those in the rationing scheme, but do have a significant effect the domestic sector, both directly and indirectly. The fact that the price of bread is artificially low – at subsidised bakeries it costs as little as five piastres ($0.008) – partly accounts for Egypt’s position as the world’s largest bread consumer.
Input costs are also affected by subsidies. Those on fuel, for example, keep down not only the cost of transportation (important in a large country), but also irrigation, as most water for agricultural use is pumped with diesel machinery. Fertilisers, heavily used in many parts of Egypt, are also subsidised.
CUTTING BACK: Over the medium to long term, Egypt is expected to taper down subsidies, largely because it simply cannot afford them at current rates. Indeed, the government announced plans to phase out both energy and food subsidies in 2010. But while fuel support was cut to LE70bn ($11.7bn) in the 2012/13 budget, from LE95.5bn ($16bn) the previous year, doing so for foodstuffs has proved considerably more difficult, due to the political and economic situation.
Also on the supply side, and closely linked to inflation and food prices, one of the biggest challenges that the sector faces is serious cost pressure from rising wage demands from workers. Salaries have been rising since the revolution, when the sudden emergence of political and social freedom gave workers the opportunity to protest against wages that had long been low and eroded by inflation. Tutwiler suggests that in some cases, daily agricultural wages have risen from LE10 ($1.70) per day to LE30 ($5) or LE40 ($6.70), considerably above the rate of prices of agricultural produce. Wages have been substandard for some time and an increase was needed, but higher costs are particularly acute issue in such a labour-intensive sector.
WATER SECURITY: Around 80% of Egypt’s annual water consumption, or 55bn cu metres (cu m), goes to agriculture. Some 95% of Egypt’s water comes from the Nile, according to the Egyptian Water Partnership, a nongovernmental organisation (NGO), a situation that is clearly unsustainable as the population rises – and usage upstream in Sudan and Ethiopia increases. Improving water use is thus a pressing priority for the sector.
Better treatment and recycling of water will be crucial, and increased use of desalinated water would also reduce pressure on the Nile. Desalination plants are expensive, but costs are falling – and the investment may well be worth making if it increases water and food security. Waste is also a serious issue: 2-3% of Lake Nasser’s water is lost every year after the harvest, according to van der Beek. The FAO estimates that 14bn-15bn cu metres could be saved annually with more efficient use. The spread of drip irrigation in new land is a positive sign, though most old land continues to be irrigated traditionally. Farmers receive their water free of charge, which means there is little incentive to use it sparingly. Increasing water efficiency will also involve improving usage of “virtual water” – that is, water used in the production of goods and services that is then “embedded” in the product. In practical terms, this means the amount of water used to produce a certain amount particular good (its water footprint). For example, it takes around 15,400 litres of water to produce 1 kg of beef, but only 4330 litres for a kilogram of chicken and 1827 litres for a kilo of bread, according to the Water Footprint Network, a Dutch NGO.
POTENTIAL POLICIES: The concern is not a new one, and there is a lively policy debate on the issue. However, cutting down on virtual water use is much easier said than done. For instance, reducing the area of land used to grow rice, a water-intensive crop (1670 litres per kg against 1000 litres per kg for wheat), is cited as one way, but rice paddies in the north of the delta not only provide food but push down the saltine water table. If they were removed, the soil could become too saline for most crops, offsetting virtual water gains.
Decreasing the production of water-intensive sugar cane (1780 litres per kg for refined cane sugar) is another suggestion. Sugar beet (920 litres per kg for refined sugar) would be a natural replacement in dietary terms, and it is also a relatively salt-tolerant crop, which could be suited to cultivation on the coast. Egypt produced 15.7m tonnes of sugar cane in 2010, and 7.8m tonnes of beet. Beet production has increased from 2.9m tonnes in 2000 and 3.4m in 2005, whereas cane production has fallen back to 2000 levels fallen from 16.3m tonnes in 2005, according to the FAO.
Van der Beek suggests increasing the use of potatoes as a source of carbohydrate, as they are relatively cheap, not too water-intensive, and Egypt already has a substantial crop for export. While changing the national diet may seem easier said than done, van der Beek points out that rice was introduced on a large scale relatively recently, but now is a staple.
FINANCING: Until recent years, most agricultural financing came from the Principal Bank for Development and Agricultural Credit, a state organisation with some 3m customers that was in the process of modernisation prior to the revolution. A system of informal loans to farmers from neighbours or local merchants exists, according to Tutwiler, but the cash is largely used to support farmers and their families from season to season, rather than for investment. “Access to finance has been a challenge as only 3% of the total financing in Egypt is allocated for agriculture,” Hesham El Naggar, the vice-president of Daltex, told OBG.
The private sector is now showing interest in the sector beyond the big agribusinesses, as banks more broadly are looking into financing small and medium-sized enterprises and microfinance. This process has slowed since the revolution, as banks guard liquidity as they wait for greater political and legal stability. A rise in land disputes since early 2011 is another factor in their currently restrictive lending. But as normality returns, commercial lenders and Islamic finance institutions in particular are likely to renew interest in this large but under-banked sector.
International organisations also provide financing and logistical support for such agricultural development, including the FAO and the European Bank for Reconstruction and Development, which in March 2012 signed an agreement to promote private investment.
SUPPLY CHAIN: Egypt has been pursuing a policy of vertical integration in agriculture to create a more direct and efficient link from farm to customer, to this end strengthening supply chains and logistics – a strategy that also suits the private sector. Agricultural logistics is an area in need of large capital investments, improvement to the rural road system being among them. Around 40% of fresh vegetables are lost due to spoilage in the supply chain between field and retail outlets, according to Tutwiler – compromising farmers’ revenues. Egypt also needs to increase its silo capacity and quality, as around 20% of wheat spoils in storage – a massive amount, given consumption levels.
Recent years have seen a growing trend towards retailers and agricultural firms directly signing supply contracts with individual growers, which benefits both parties: smallholders get a guaranteed sale at a fixed price, while the purchaser gets a constant supply at competitive costs, without going through a middle-man. Retailers often specify the parameters for the farms, including which fertilisers to use, tillage and so on, supporting the modernisation of small farms.
EDUCATION AND RESEARCH: The development of Egypt’s large and skilled but rather disjointed agricultural human resources pool would also be of benefit. Many agricultural labourers are experienced, but there is a lack of specialist knowledge that could help small farms move up the value chain.
On the other hand, Egypt has an abundance of agricultural engineers and managers with academic and vocational education, but little practical experience in farming. Bridging the gap should be a priority, said Tutwiler, for example through continuing education for farmers and farm internships for officials. Fields in which skills are especially needed include mechanics, water management, irrigation and quality control, mapping closely to the areas in which the agricultural sector has pressures and shortcomings.
OUTLOOK: It is difficult to exaggerate the importance of agriculture to Egypt. It is a major generator of GDP, provides the livelihoods of more Egyptians than any other sector, and feeds a large and growing population.
Helping smallholders modernise and develop their farms is one of the country’s most enduring and important challenges. This will involve investment, better access to financing, and efforts towards consolidation. Meanwhile, the biggest companies will continue to look to expand, often with an eye on exports. Fisheries and the citrus industry are two areas that have grown particularly strongly in recent years, and could act as a best-practice model to other value-added segments.
Everyone from subsistence farmers to agribusinesses will benefit from continuing efforts to improve agricultural efficiency and infrastructure, including better water management and applied research and development. Again, there are past successes on which to build, with yields of many key crops having improved due to the use of better seed stocks and breeding.
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