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Summary

Agricultural exports to Egypt for the first quarter of fiscal year 2011 reached an all-time high and are on track to reach $2.2 billion by the end of the fiscal year. This would equal the previous record set in FY 2008. Though competition is increasing from other major exporters, Egypt remains the top U.S. market in Africa. The current instability in Egypt could have some impact on U.S. exports in FY 2011, as continued labor strife and uncertain conditions during the Egyptian government’s transition and its impact the overall economy. However, most U.S. exports are oriented toward either basic human needs, like wheat, dairy and beef liver, or are inputs to the domestic livestock and poultry industry. The decline in tourism could have an impact on U.S. high quality beef, fruit juice and other consumer oriented exports, but these make up a small share of total U.S. exports.

Growing Middle Class and Modern Retailing Spur Imports

With a population of 83 million and population growth around 2 percent, food demand is increasing steadily. Additionally, gross domestic product growth between 4 and 6 percent over the past few years and an increasing middle class has pushed demand for high-value and consumer-ready foods. Though the market for consumer-oriented products may be limited, rising incomes and the emergence of an expanding retail food sector (especially in Cairo and Alexandria) should spur greater consumption in the future. Furthermore, changes in diet, more women in the workforce and more tourism all support increased purchases of high-value foods long-term.

U.S. Exports Grow but so does Competition

Egypt’s total agricultural imports from all suppliers reached a record in FY 2010 at $9.7 billion, which was up from the previous record in FY 2008 of $8.1 billion. Egypt has been one of the fastest-growing markets for agricultural products since 2000 with imports up 300 percent from just under $3 billion. Though the United States remains the top supplier, other exporters have gained more from this increasing demand for agricultural products. As seen in the chart below, over the past decade, U.S. market share has fallen roughly 55 percent. During this time, Brazil increased from just 4 percent share to 12 percent due to greater sugar, beef and poultry exports. Russia’s gain was even more dramatic, increasing from under 1 percent to 12 percent, primarily because of increased wheat exports. Egypt is Russia’s leading market for agricultural exports with over 95 percent being wheat, which competes directly with U.S. supplies as Egypt is a very price-sensitive market. With Russia’s current export ban to Egypt, this could change significantly. The export ban, however, is not a trend likely to carry over long into the future.

The European Union remains the second largest supplier of agricultural products after the United States with 15 percent market share, but a free trade agreement in June 2010 could boost EU exports. Most agricultural products from the EU have duty-free access, including many that compete with U.S. products. Duty-free access for apples, pears, dairy products, cereals and pet food could increase EU exports at the expense of U.S. products, though bulk grains and oilseeds should not be impacted. However, like the United States, the EU has lost share (from 25 percent in FY 2000) due to competition from Russia, Brazil, Argentina and the Ukraine.

FY 2011 Looks Promising for U.S. Exports Despite the Current Crisis

While the U.S. export share to Egypt has fallen over the past several years, total U.S. exports and share should recover significantly in FY 2011. Exports for the first quarter (October through December) of the year were very strong. Soybeans have been one of the bright spots in the U.S. product mix to Egypt, having increased from under $30 million at the start of last decade to $373 million in FY 2010. Wheat exports have rebounded after relatively low shipments in 2009 and 2010. Tight supplies and an export ban by the leading wheat supplier (Russia) to Egypt should mean increased opportunities for U.S. wheat as well as corn. Red meat, dairy products and corn gluten meal have all been high growth categories for U.S. exports and the trend is expected to continue in FY 2011. Recently, Egypt removed the 30-month age restriction on beef thus opening the market to all ages of U.S. beef. Additionally, market access was improved for U.S. cotton thereby improving prospects for additional cotton shipments.

The aftermath of the upheival in Egypt in late January has put a dent in economic growth prospects, with GDP growth now forecast at only 2 to 3 percent versus earlier forecasts of 5.5 to 6 percent for Egypt’s July/June fiscal year. The biggest initial impact was on tourism, a major source of foreign exchange. However, it now appears that a general decline in economic activity, due to labor unrest and a drop in foreign and domestic investment during the political transition will have a greater impact on the overall economy. The unrest in Libya is causing the one million Egyptians living and working there to flee the country. Egypt will lose their remittances, but food demand will increase.. The tourist industry is not an important source of direct or indirect demand for U.S. agricultural exports. While wheat exports should remain strong, as the provision of subsidized bread is a bedrock of political stability, there will likely be some decline in exports of corn, soy, feeds, and dairy products to the very limited extent that the local dairy, livestock and poultry and egg industries supply the tourism industry. For example, hotels purchase about 5 percent of the yogurt and cheese produced by major dairy processors and an even smaller percentage of egg production. Industry sources indicate that they expect local consumers to absorb any product not purchased by the tourism industry. Tourism, especially at the Red Sea resorts, is expected to recover relatively quickly once the political situation stabilizes.