Article by: Mohamed Buhaisi, President of BPC-Egypt, Advisor and Strategic partner to Lombard Global, Inc. 

Edited by: William Billeaud, President and Managing Partner of Lombard Global, Inc www.lombardglobal.com

Introduction

For decades, Egypt’s economy was focused on remittances, tourism or the Suez Canal for revenue. Agriculture, an important part of Egypt’s GDP, was often ignored. Egypt’s Agricultural Economics Research Institute (AERI) says that the main focuses of the 25 January uprising are to improve corruption rates, improve per-capita GDP, better distribution of wealth and strengthen Egypt’s agriculture sector.  A strong agriculture sector symbolizes the new Egypt’s ability to sustain life and economic independence domestically and through trade.  It is also a major employer of Egypt’s 87 million people that continues to grow at an annual rate of 1.96% (2011 est.), according to The CIA World Factbook.

Egypt’s agriculture sector remains one of the most productive in the world, despite the small percentage of arable land, irregular and insufficient water supplies and problems with waterlogged and highly salinated soil. Although farmers do not have to pay for water used in irrigation, government drainage efforts have proved insufficient to counter problems in the sector’s performance.

Egypt’s powerful agriculture sector has been in serious decline over the past 30 years, but still comprised 13.7 percent of GDP in 2010, according to statistics from the United Nations Food and Agricultural Organization (FAO). Today, only 3% percent of Egypt’s land is arable, a percentage which has hardly changed since 1972!

Since the mid-1980s, the government has attempted to reclaim the desert for cultivation, and has managed to successfully reclaim some 1 million acres of desert. Plans are underway to reclaim an additional 3.5 million acres by the year 2017 with the South Valley Development project near Lake Nasser. These efforts, however, are countered by the fast pace of urban and industrial expansion, which has been claiming an average of 31,000 acres a year.

According to the World Bank statistics published in 2010, the number of 70 HP farm tractors in Egypt reached 103,188.  Egypt ranks 36 of 147 in world tractor concentration with 390.57 tractors per 100 sq. km of arable land or 26.2 per arable hectar. 40% of Egypt’s total labor force is employed in the agriculture sector, which the AEIR estimates to be 10 million workers or approximately 10 workers per tractor.

According to our research, major brands represented in Egypt include MF, Ford Holland, John Deere, Fiat, Case, Fendt, Deutz, Kubota, Yanmar, Mitsubishi, Mahindra, Hinomoto, Satoh and several others brands. The top 10 brands control 40% of market share and remaining share is distributed by over 90 distributors and dealers. Thus, the Egyptian tractor market is very fragmented.

Like other agriculture emerging markets, the quality of local service shops and credit offerings play very important roles in terms of choosing brands. Reliable market data, however, is difficult to obtain with a reasonable degree of accuracy. Local official historical imports data and data provided by international data providers are neither accurate nor reliable due to grey market practices. Figures for imports, exports, local production and consumption per type/value/brand/origin should be verified from several sources in the supply chain, within the context of a thorough primary information market assessment.

The Challenges

During the 1980s, Agriculture Minister Youssef Wali began aggressively putting into place free-market policies initiated by former President Anwar Sadat. Though these policies were intended to liberalize the economy, they quickly widened the gaps between the rich and the poor, and imported and local goods.

This culminated in Law 96/1992, which granted landowners, whose land was seized and redistributed by former President Gamal Abdel Nasser, the incontestable right to reclaim it despite the fact that millions of ordinary Egyptians farmers had invested in and built their lives on the land since 1952.

Additionally, large food subsidies and unfair trading systems have forced many farmers to re-prioritize their output in less efficient ways. Cotton, once a key Egyptian crop, has seen its output drop over 75 percent from 1972 to 2009, according to the FAO Production Yearbook. Subsidies create dependencies on patterns of consumption that result in millions of Egyptians living below or just above the poverty line. This in turn creates a few beneficiaries and many more losers, according to the World Bank. Agriculture sector advocates say a free market system would provide better wages which would spur economic growth, whereas subsidies institutionalize mass state dependence, control and crony capitalism.

Opportunities

As discussed, only about 3 percent of Egypt’s approximately 1 million square kilometers of land are arable. Large tracts of rich Nile Delta remain uncultivated, while other parts are not efficiently cultivated due to poor farming education and lack of governmental assistance. This land is arable and extremely rich and could potentially allow for two to three harvests per year of high quality crops, rather than the one to two per year it does now.

Embracing the agriculture sector would also address unemployment, perhaps the most troubling issue facing the country. Officially the unemployment rate in Egypt is 11.9 percent, but is probably much higher in reality. With government encouragement, the agriculture sector could provide a viable solution to unemployment through various sustainable employment opportunities, such as farming, marketing, transport and storage.

Agriculture sector advocates say that improving the agriculture sector is especially important now because Egypt needs to monitor its international dependencies. These typically get out of balance in countries during times of crisis. By investing in the agriculture sector during the transition to democracy, Egypt will begin to improve the livelihoods of lower socio-economic classes and increase foreign demand for Egyptian products.