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The Egyptian political crisis could hardly have happened at a worse time for the European food industry, struggling to contain the recent significant increases in commodity prices.

According to the UK’s Food and Drink Federation, raw material costs have not been immediately matched by higher retail prices and two-thirds of its members expect to increase prices in 2011.

This problem has been compounded by Egypt’s growing importance to the European food sector. Egypt’s food exports to the European Union (EU) are soaring thanks to the EU-Egypt Association Agreement in 2004, rising 80% over the two years immediately after the deal and still increasing.

The EU has granted duty free access for pasta, cocoa preparations, processed vegetables, tobacco and other products from Egypt, while the African country’s main exports to the EU are oil seeds and oleaginous fruits, preparations of fruits and vegetables, and sugar confectionery.

According to EU statistical agency Eurostat’s latest figures, Egyptian food exports to Europe were valued at EUR598m in 2009, with EU food exports to Egypt worth EUR1.5bn.

However, this valuable trade has been hit by the closure of the country’s 11 ports amid the current political turmoil.

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By GlobalData

The Egyptian embassy in Paris said that although Egypt’s customs department was officially still at work, it was not sure what work was actually being done. The embassy cited “a dreadful protest” at the harbour of Suez [the main Red Sea port] that had blocked the departures of ships. The embassy also said there were similar problems in the Mediterranean port of Alexandria, the main port for goods being shipped to Europe.

Egypt is a major food producer and exporter, with some 6,000 registered companies that employ 500,000 people. Food and drinks manufacturing represents an estimated 20% of Egypt’s overall GDP, according to Egypt’s Food Export Council (FEC). Annual sales from the entire sector exceed US$18bn, according to the FEC.

The processed food sector is particularly large – valued at US$1.2bn in 2007 and forecast to be worth EGP22bn (US$3.75bn) by 2013, according to the Egyptian Chamber of Food Industries (ECFI).

Indicative of recent growth was that between 2006 and 2007 (the latest statistics available from the chamber), processed food exports increased by 49%, while fresh product exports rose from EGP6.5bn (US$1.1bn) to EGP8.6bn (US$1.45bn) in 2008.

Major international companies have manufacturing facilities in the country, including Kraft Foods, Heinz, Nestle, Danone, Pepsico and Carrefour. Kraft, Nestle and Danone are among those that have had to suspend operations in Egypt since the unrest began, while Carrefour and German retail giant Metro Group have had to close stores.

Lisa McCooey, communications director of the EU food industry association CIAA, said the price and availability of raw materials is a growing concern for EU food manufacturing firms, “not only because of the Egyptian problem but other natural disasters”. There is a particular worry over supplies of GM-free cereals, she said. And this could be exacerbated by prolonged hold-ups in Egyptian shipments. The UK’s Home Grown Cereals Authority has just reported that some African countries “have been bulk buying commodities such as wheat and grain in response to worries about shortage caused by the situation in Egypt”.

There is particular concern in Italy, Egypt’s largest trading partner in the EU. Italy imported EUR90m of food products (including conserves) from Egypt last year, according to the Italian Trade Commission (ICE). It also imports significant amounts of petrol and this has fuelled speculation about petrol prices, raising concern about potential effects throughout Italy’s food industry, especially regarding distribution.

But direct imports from Egypt are the main problem. Puglia-based wholesaler Rino Storelli imports beans, grapes, artichokes and strawberries from Egypt and sales manager Maria Grazia Di Benedetto said that no shipments had left Egyptian ports since last week. “We will be supplementing the lack of Egyptian products from the local market,” she said. The Italian Association of Fruit and Vegetable Traders, Fruitimprese, confirmed on Wednesday (2 February) that shipping was at a standstill and that Egyptian imports (such as potatoes, beans and artichokes) would most likely be replaced by local produce in the short-term.

Another important Italian food sector affected is the important grain market, where national growers association Coldiretti has signalled significant price increases. “Prices have reached US$8.5 a bushel, which is what they were at when fire and drought in Russia last sent prices soaring,” said spokeperson Paolo Falcioni. Price rises had been caused by Egypt’s announcement it would buy more grain to help mollify protestors angered by soaring bread prices.

Egypt’s market itself is large, with nearly 80m consumers. However, demand is primarily for low- and medium-priced goods because most Egyptian consumers are poor: a recent report by Egypt’s Information and Decision Support Centre showed Egyptian families spend 44.9% of yearly income on food. Supermarket chains have been slow to make inroads in the country, especially outside of Cairo.

Within Egypt, as protests paralyse Cairo, many currently fear widespread food shortages. The escalation of the demonstrations last Friday (Jan 28) and the subsequent cut-off of Internet and mobile phone services, plus the imposition of a curfew led Egyptians into panic buying of staples. But six days later, food is still being supplied to the capital, with little price speculation.

“Some prices are going up and some prices are staying the same,” explained a Cairo mother-of-three to just-food, with some vendors taking advantage, but many keeping prices stable. Indeed, the manager of the New Market food store in Mounira, a neighbourhood in downtown Cairo, said: “There is no change in prices. The things that are running out right now are rice, macaroni, and vegetable oil – the staples. We have enough of these to resupply till the beginning of next week.”

Looting is a problem though, especially last weekend when Carrefour and the Hyper One Centre suffered severe damage. Mahmoud Zada, one of the owners of Alfa Market, one of Cairo’s largest supermarket chains, said some food manufacturing factories have closed. “Yoghurt is short on supply and some processed meat. They started to re-supply milk today (2 February),” he said. But Alfa Market is running out of imported goods: “Everything in the port is staying in the port. No ships are coming. We expect the goods to be released from the ports today, but we don’t know. There is no transportation between the provinces…so we prefer to keep the [stock] in the port.”