Required Report - public distribution

**Date:** 2/18/2004

**GAIN Report Number:** EG4003

EG4003

**Egypt**

**Grain and Feed**

**Annual**

**2004**

**Approved by:**

![](media/image1.wmf)Asif J. Chaudhry

US Embassy

**Prepared by:**

Ali Abdi & Sherif Ibrahim

**Report Highlights:**

U.S. wheat exports recapture the Egyptian market but private sector
wheat imports continue to decline due to the government's intervention
in the traditionally unsubsidized flour market. Egypt\'s total corn
imports are expected to decrease by about 17 percent this year due to
the continuing devaluation of The Egyptian pound, but U.S yellow corn
exports are expected to continue dominate the market.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Unscheduled Report

Cairo \[EG1\]

\[EG\]

Table of Contents

[Wheat 3](#wheat)

[Crop Area 3](#crop-area)

[Consumption 4](#consumption)

[Trade 5](#trade)

[Stocks 5](#stocks)

[Factors Affecting U.S Trade 6](#factors-affecting-u.s-trade)

[Wheat Import Trade Matrix 7](#wheat-import-trade-matrix)

[Corn PSD Table 8](#corn-psd-table)

[Area & Production 8](#area-production)

[Cosumption & Utlization 8](#consumption-utilization)

[Trade, Marketing & Competitors 9](#trade-marketing-competitors)

[Corn Import Trade Matrix 10](#corn-import-trade-matrix)

# Wheat

**PSD Table**

  ----------------------- ----------- ------------- ------- ------------- ------- -------------
  **PSD Table**                                                                   

  **Country:**            **Egypt**                                               

  **Commodity:**          **Wheat**                                               

                                      **2002**              **2003**              **2004**

                          Old         New           Old     New           Old     New

  **Market Year Begin**               **07/2002**           **07/2003**           **07/2004**

  Area Harvested          1008        1008          1008    1038          0       1050

  Beginning Stocks        1499        1929          951     1800          0       2071

  Production              6150        6300          6250    6500          0       6550

  TOTAL Mkt. Yr. Imports  6300        5650          5500    6600          0       6700

  Jul-Jun Imports         6300        5650          5500    6600          0       6700

  Jul-Jun Import U.S.     912         1336          3600    4950          0       5000

  **TOTAL SUPPLY**        13949       **13879**     12701   **14900**     0       **15321**

  TOTAL Mkt. Yr. Exports  10          0             0       0             0       0

  Jul-Jun Exports         10          0             0       0             0       0

  Feed Dom. Consumption   50          70            50      70            0       70

  TOTAL Dom. Consumption  12700       12079         11650   12829         0       12935

  Ending Stocks           1239        1800          1051    2071          0       2386

  **TOTAL DISTRIBUTION**  13949       **13879**     12701   **14900**     0       **15321**
  ----------------------- ----------- ------------- ------- ------------- ------- -------------

# Crop Area

Wheat is planted in October/November and harvested in April/May.
According to the Ministry of Agriculture, total wheat area for the MY
2003/2004 is estimated at 1,038,000 HA or about 3.7 percent over the
2002/2003 area. For MY 2004/2005, the area is expected to be about
1,050,000 HA or 1.2 percent over the 2003/04 level due to adequate rains
at the optimum time. The rain feed area is estimated at 84,000 HA but
usually only 21,000 HA are harvested. Total production for MY 2003/2004
is expected to be 6,5 MMT compared to 6,3 MMT for MY 2002/2003. This
increase is expected to occur due to the increase in area planted with
wheat, and the use of high yielding varieties. The average yield for the
MY 2002/2003 crop is estimated at 6.1 M per HA. According to the
Ministry of Agriculture, all wheat areas are cultivated with new
varieties (Gemmiza 7, Gemmiza 9, Sakha 93 and Giza 168 and Giza 93),
which have potential yield of 7.6 MT per HA. In November, 2003, (ahead
of the planting season), the government increased the procurement price
for local wheat to LE 933 (\$150 per MT) from LE 667 MT (\$121 per MT)
for the 2002/03 wheat crop. This price is lower than the price of U.S
HRW wheat and Australian hard wheat, which is now being imported at
\$167 per MT/ FOB. The total quantity of locally produced wheat sold to
the Ministry of Supply in MY 2003/2004 was 2 million MT, or 150,000 MT
less than the 2002/03 season. In MY 2004/05, The General Authority For
Supply Commodities (GASC) plans to purchase 3 million MT of local wheat.
However, the government's actual local wheat purchases seldom exceed 2.3
MMT. Hence, most industry analysts anticipate that local wheat purchases
by Ministry of Supply will not exceed 2.3 MMT this marketing year.

## 

# Consumption

Total consumption of wheat in MY 2003/2004 is expected to reach
12,829,000 MT or 6.2 percent higher than the 2002/03 level. The price of
unsubsidized breed in Egypt has been on the increase since September
2003 due to declining wheat imports by the private sector. The price of
unsubsidized bread increased by about 25 percent since September 2003.
Lack of foreign exchange availability for private sector importers and
the continuing devaluation of the Egyptian pound in addition to high
international prices for wheat have resulted nearly 100 percent private
sector flour increase at the wholesale level. In reaction to price
increases, for the first time in 12 years, in November 2003, the
Ministry of Supply authorized the General Authority for Supply
Commodities to import 120,000 metric tons of wheat per month for the
production of tradionally unsubsidized flour by the Food Industries
Holding Company (FIHC) which competes with private sector mills in the
open market. Since the beginning of the MY 2003/04 through the middle of
February 2004, the Ministry of supply imported 700,000 MT of hard wheat.
A portion of this wheat is used strictly for the production of Fino
bread for schools at 10 piasters per loaf and the other portion is sold
by GASC to FIHC. This effectively displaces private sector wheat
imports. The government plans to spend LE 770 million this year to
subsidize the price of Fino bread for school . As a result, most private
sector mills are increasingly finding difficult to buy wheat. In fact,
many private sector mills are now operating at only 20-30 percent of
normal capacity and some of them have stopped operating. Although the
production capacity of flour mills normally far exceeds demand, the
operating capacity of the country's 30-35 modern mills normally operate
at 60-65 percent in a given year. The Egyptian milling industry has more
than adequate capacity to cover the country's need for 72 percent
extraction flour. While total consumption of 72 percent extracted flour
is estimated at 1.8 MMT or 2.5 MMT of wheat, the total milling capacity
is currently estimated at 2.7 MMT of 72 percent flour, or 3.76 MMT of
wheat. The public sector milling industry consists of 126 mills (mostly
small and medium size) and has a total capacity of about 7 MMT per year.

There are 7 public sector companies that operate these mills and all are
affiliated with one holding company (Food Industries Holding Company).
Out of the 126 public sector mills, 109 mills are currently used for the
production of 82 percent extraction flour and 7 mills are used to
produce 72 percent extraction flour with total capacity of 6,230 MT per
day (1.86 MMT annually). Shares of some of these companies have been
sold to private investors during the past few years. Although the
majority of shares are held by the private sector, the holding company
maintains complete control of these mills. Given that wheat is a
strategic commodity in Egypt, the government is expected to retain
control of most of the milling industry (particularly for the subsidized
baladi bread) for the foreseeable future. There are about 36 private
sector commercial mills with total capacity of 9,000 MT per day (2.8 MMT
annually) as compared with 24 mills with total capacity of 6,350 MT per
day (1.9 MMT annually) last year. These are permitted to produce only 72
percent flour.

Because of the government's intervention in the traditionally
unsubsidized portion of the market, the Holding Company mills are in a
position to sell 72 percent extraction flour at LE 900-950 per MT while
private sector mills have to market the same flour at LE 1,800 per MT or
more. If this situation remains, several private sector mills will
likely be forced to shut down in the near future.

Since July 2003 through February 8,2004, Egypt's total wheat purchases
are estimated at about 4 MMT, of which 77 percent was imported by the
government and the rest was imported by the private sector. According to
wheat traders, the private sector did not import any wheat during
December 2003 and January 2004. Ministry of Supply (GASC) imports are
expected to reach 6 MMT of wheat this year: 4.5 MMT of soft wheat for
the production of 82 percent flour for the production of subsidized
baladi bread and 1.5 MMT for the production of 72 percent flour for the
production of fino bread. In addition, GASC plans to purchase 3 MMT of
locally produced wheat and 500,000 MT of locally produced white corn.
However, in 2002/03 GASC was able to purchase only 2 MMT of locally
produced wheat and 350,000 MT of locally produced white corn for the
production of subsidized bread. The subsidy on baladi bread is estimated
to cost the government about LE 5.8 billion this year as compared to 3
billion last year. Most of the domestic wheat is either sold to the
Ministry of Supply or retained by farmers for on-farm consumption.

Egypt, continues to have one of the highest per capita wheat consumption
levels in the world. In MY 2002/2003, per capita consumption of wheat
was estimated at about 183 Kg compared to175 Kg consumed in 2001/2002,
and this trend is expected to continue . The reasons for this increase
are: 1) Increased government subsidy on both the 82 and 72 percent
flour; 2) in-efficinecs in the government mills which lead to high
losses during storage, handling and the milling processes. The prices of
wheat flour produced by private sector mills have increased during last
few months on average from LE 1,100 per MT to LE 1,800 per MT, while 72
percent extraction flour produced by government mills have been fixed at
LE 500 per MT for the production of subsidized fino bread and at LE
1,650 per MT for other products such as pasta, biscuits and sweets.

# Trade

Egypt's total wheat imports are expected to increase slightly during
this marketing year. With respect to imports, the U.S and Australia are
expected to dominate the Egyptian market this year due to the absence of
non-traditional suppliers this year. US wheat exports to Egypt are
expected to increase substantially this year if the current trend
continues. The U.S market share since the beginning of MY 2003/04 July
through end of January) is estimated at 65.6 percent of Egypt's total
wheat imports and 81 percent of GASC imports. This is compared to 23.4
and 34 percent market share respectively during MY 2002/03. In an
attempt to find ways to secure wheat for public sector mills, on
November, 11, 2003, the government of Egypt and Syria clinched an
agreement to import 200,000 MT of semi hard wheat at a reported price of
\$ 157 per MT/ FOB. Reportedly, 25,000 MT of Syrian wheat arrived in
Egypt and, 75,000 MT is expected to arrive during March and April, 2004.
GASC is currently negotiating with the Syrian government for another
200,000 MT of wheat at an undisclosed price.

Imports of wheat flour have become insignificant and are now limited to
international donations including the 30,000 MT donated by the EU during
this marketing year, and about 10,000 MT from the World Food Program.
Customs duties for wheat and corn are 1 percent plus 2 percent other
port charges.

# Stocks

The Government has a policy for GASC to maintain 4‑6 months of strategic
stock. However, due to limited storage capacity, the strategic stocks
are now redefined to include wheat import purchases in the pipeline,
usually in the range of three months of consumption needs. At the
present time, total covered storage capacity for wheat is estimated at
one MMT, including about 350,000MT in silos at three different ports,
about 250,000 MT in inland silos and about 400,000 MT in open storage
mostly in metropolitan areas. In addition to the government storage
facilities, several private sector traders and mills currently have
their own receiving and storage facilities, estimated to be about
500,000 MT.

## Factors Affecting U.S Trade

Both the government and the private sector buyers prefer U.S. wheat
because they trust the quality control system in the U.S. However, on
October 1^st^, 2003, the Egyptian plant quarantine office in the
ministry of Agriculture attempted to initiate a new inspection policy on
wheat imports, which would have required all wheat vessels to Egypt to
be inspected by Egyptian plant quarantine at the port of loading, in
addition to the regular import inspection upon arrival in Egypt.
Egyptian plant quarantine officials justified the new policy due to an
apparent increase in the number of foreign seeds in import samples. If
implemented, this requirement would have caused substantial delays and
additional import costs. Fortunately, the Minister of Agriculture
canceled this requirement the day it was to become affective
(Nov.2,2003). Due to the current market situation particularly the
competitiveness of U.S wheat prices, both the government and private
sector companies are importing more U.S wheat.

U.S. Wheat Associates continues to provide trade services and quality
seminars to Egyptian millers, wheat buyers and traders. U.S Wheat
Associates' quality seal program is widely used to promote products
containing U.S. wheat. The USDA GSM‑102 Program (three‑year credit
guarantee program) is available for both public and private sector
importers of U.S. agricultural commodities, but importers no longer use
the program due to the high exchange rate risk in the Egyptian market.

# Wheat Import Trade Matrix 

  --------------------- --------------- -------------------- ---------------
  **Import Trade                                             
  Matrix**                                                   

  **Country:**          **Egypt**       Units:               1,000 MT

  **Commodity:**        **Wheat**                            

  **Time period:**                                           

  **Imports for**       **MY2001/02**                        **MY2002/03**

  U.S.                  3,507           U.S.                 1,336

  Others                                Others               

  Australia             1,165           France               2,280

  France                510             Russia               1,339

  Turkey                200             Australia            360

  Hungary               154             Ukrain               62

  Canada                110             Poland               51

  Germany               25              Pakistan             50

  Pakistan              25              Yugoslavia           38

  Ukrain                238             India                28

  Russia                212             Romania              15

  Argentina             48              Kazakhstan           12

  **Total for Others**  2687                                 4235

  **Others not listed** 84                                   60

  **Grand Total**       6278                                 5631
  --------------------- --------------- -------------------- ---------------

## Corn PSD Table

  ----------------------- ----------- ------------- ------- ------------- ------- -------------
  **PSD Table**                                                                   

  **Country:**            **Egypt**                                               

  **Commodity:**          **Corn**                                                

                                      **2002**              **2003**              **2004**

                          Old         New           Old     New           Old     New

  **Market Year Begin**               **10/2002**           **10/2003**           **10/2004**

  Area Harvested          735         700           740     720           0       730

  Beginning Stocks        400         500           100     100           0       100

  Production              5880        6000          5920    6150          0       6200

  TOTAL Mkt. Yr. Imports  3940        4150          4000    4100          0       4200

  Oct-Sep Imports         3940        4134          4000    4150          0       4200

  Oct-Sep Import U.S.     3150        2900          3200    3000          0       3200

  **TOTAL SUPPLY**        10220       **10650**     10020   **10350**     0       **10500**

  TOTAL Mkt. Yr. Exports  0           0             0       0             0       0

  Oct-Sep Exports         0           0             0       0             0       0

  Feed Dom. Consumption   10120       10050         9920    9750          0       10150

  TOTAL Dom. Consumption  10120       10550         9970    10250         0       10400

  Ending Stocks           100         100           50      100           0       100

  **TOTAL DISTRIBUTION**  10220       **10650**     10020   **10350**     0       **10500**
  ----------------------- ----------- ------------- ------- ------------- ------- -------------

# Area & Production

The total area for corn in MY 2003/2004 is estimated at 720,000 HA, (or
about 2.8 percent more than 2002/2003 level). Most of the area is
planted to white corn and the remainder is yellow corn. This increase is
mostly attributed to the sharp increase in imported yellow corn prices
and accordingly, some farmers have switched from growing rice to corn.
This trend is expected to continue in MY 2004/05 as long as imported
corn prices continue to increase. Total corn production in MY 2003/2004
is expected to increase slightly and reach 6.15 MMT. Further increase is
expected in MY 2004/05 corn production due to the expected area
increases.

## 

## Consumption & Utilization

Egyptian total corn consumption in MY 2003 /04 is expected to be
10,250,000 MT, or about 2.8 percent lower than the MY 2002/03 level.
This expected decrease is due to the sharp increase in corn and other
feed grain prices after the devaluation of the Egyptian pound. As a
result, several poultry farms have been forced to shutdown. Most of the
local corn crop is used for on-farm animal feed and about 1.5 MMT are
used for food purposes (either milled or consumed fresh). Large and
commercial end-users and feed mills rely on imported yellow corn to meet
their requirements. However, the use of corn for feed is expected to
recover slightly in MY 2004/05 due to expected increases in the numbers
of both dairy and beef farms. In MY 2002/03, about 350,000 MT of locally
produced white corn was delivered to the Ministry of Supply for the
production of subsidized baladi bread. So far this Marketing Year
(through the end of January 2004), total white corn purchased by the
Ministry of Supply is estimated at 200,000 MT. A small but growing
demand for food products containing corn (snack food) plus the increase
in demand for corn oil have also contributed to the increased demand for
corn. Egypt imports about 250,000 MT of yellow corn annually for the
production of starch and sweeteners. Approximately 2.2 MMT of imported
corn was used for poultry, about 1.7 MMT was used for ruminants and
about 250,000 MT is expected to be used for starch industry in MY
2003/04.

## Trade, Marketing & Competitors 

Egypt\'s total corn imports for MY 2002/03 was estimated at 4,150,000 MT
or about 17 percent lower than MY 2001/02. This is mainly due to chronic
foreign exchange limitations in the banking sector and the devaluation
of the Egyptian pound. This forced some poultry producers to either
reduce their production or shutdown completely. The U.S market share
decreased to about 70 percent in MY 2002/03 as compared to 89 percent in
MY 2001/02. This is mainly due to price differences between U.S and
Argentinean / Brazilian corn and soybean meal in favor of non U.S.
origin. Corn importers combine corn and soybean meal in one shipment in
order to reduce shipping costs. Since the beginning of MY 2002/03
(October), through the mid February, total Egyptian corn imports are
estimated at 1.3 MMT, of which 1.2 MT came from the US, 78,000 from
Argentina and 5,000 from Canada.

## Corn Import Trade Matrix

## 

##  

  --------------------- -------------- ------------------ ----------------
  **Import Trade                                          
  Matrix**                                                

  **Country:**          **Egypt**      Units:             1,000 MT

  **Commodity:**        **Corn**                          

  **Time period:**                                        

  **Imports for**       **MY 2001/02**                    **MY 2002/03**

  U.S.                  4459           U.S.               2500

  Others                               Others             

  Argentina             526            Argentina          824

                                       Brazil             594

                                       Ukraine            85

                                       China              52

                                       Croatia            34

                                       South Africa       16

                                       Uruguay            12

                                       Germany            6

                                       Bulgaria           3

                                       Russia             3

  **Total for Others**  526                               1629

  **Others not listed**                                   21

  **Grand Total**       4985                              4150
  --------------------- -------------- ------------------ ----------------