Ag imports unfazed by political turmoil

KEY AG COMMODITIES LOOKING BETTER THAN EVER

a year of political turmoil has devastated some aspects of Egypt’s economy – notably tourism, which is down more than 85% – but imports of key agricultural commodities are looking better than ever.  Wheat shipments set a new record of 10.6 million metric tons (mmt) last year, maintaining Egypt’s status as the world’s largest wheat importer.

Corn purchases are projected to hit six mmt for the first time ever in 2011/12, and soybean imports have climbed past the 1.6 mmt mark and may also set a new record this year.

PHOTO: TRADITIONAL BAKING IN EGYPT

The political disruptions have affected some trade patterns and slowed growth, but USDA still projects steady increases in Egyptian wheat purchases from last year’s record to 12.5 mmt by 2021/22.  The same analysis, issued in February, suggests corn imports may hit 7.3 mmt by then.

All of which is no surprise to experts tracking Egyptian agriculture.

“Egypt has a rapidly growing population, and their economy and per capita income have been growing,” explains Ronald Trostle, a U.S. Department of Agriculture economist who contributes to USDA’s Long-term Projections for world agricultural trade.

“They have also been diversifying their diets, especially with poultry, and that means more feed grain and protein meal imports to support their livestock sector,” he notes.

At the U.S. Grains Council, Chris Corry, senior director of international operations, adds to the economic picture:  “Wages are up tremendously in the private and public sector, and that means greater demand for meat, milk, and eggs. 

“Over the past 12 months, Egypt’s government has put more emphasis on keeping hyperinflation out of the food side of the economy, so they have been providing subsidies to help the livestock sector increase production.  They’ve also stimulated an increase in fish consumption. Aquaculture has been a constant growth sector, year in and year out.”

A recent outbreak of foot-and-mouth disease won’t necessarily slow corn purchases, according to Corry.  “With the FMD, Egyptians have turned a bit from red meat and gone to more poultry purchases, so increased corn use in poultry may offset some of the lost demand in cattle.

“We’re likely to see an increase in poultry imports too, because the Egyptian industry can’t respond that fast [to the new demands].”

Wheat has a unique status in Egypt, explains Steve Mercer, director of communications for U.S. Wheat Associates.  “The word for ‘bread’ in Egyptian means ‘life’ so bread [and similar wheat-based foods] are very entwined in the culture.” 

The result, he says, is that the political struggle is not likely to impact wheat sales.

“The government buys most of the wheat Egypt imports, then parcels it out to local millers to be made into flour.  The flour is given to bakers to produce low-cost bread.  It’s an essential system that has continued throughout the political changes,” he explains.

Government buyers look for ways to minimize costs and will typically buy the least expensive wheat that falls within Egypt’s standards.  Recently that has given an advantage to wheat from the Black Sea countries because of their low freight costs, but Egypt may take soft or hard red winter wheat from countries like Canada and the U.S., always depending on price. Egypt can try to grow its own wheat, but with a population of 84 million and less than 5 percent of its land arable, it will have to continue importing, Mercer says. 

“USDA did some analysis of the world wheat trade out to 2030.  It shows the world will have to produce 40% more wheat by then to feed everyone, and trade will have to double to get the wheat from where it’s grown to where it’s needed.  The world will need Canada, Russia, the U.S., Australia, even China to grow what it will need.”

Within that broader picture, he says, Egypt will continue to be a huge market.

Trostle agrees that Egypt will remain a fairly steady market for exporters but sees two questions that could affect that trade:  how Egypt will establish new trade relationships under the new political environment and whether it will have the foreign currency to continue buying in international markets.

The USGC’s Corry also red-flags political stability and economic development
as issues.

“The demand is there, but a lot will depend on economic development.  Right now it’s really unclear about future policies on things like investment and ownership, and there won’t be any waves of foreign investment until there’s some political stability.  Without investment, you lack job creation.”

Still, “Egypt is always going to have a need for imports,” he says. “In the long term, we’re bullish that things will work out.” •