"Egypt Agribusiness Report Q1 2014" Published

Egypt remains the world's largest wheat importer, and moderating global prices will help to decrease pressure on the fiscal situation and on local inflation. Even though imports were halted for the first months of 2013, we do not believe this is a trend and expect the country's imports to only increase in the coming years. We continue to see the lifting of the three-year ban on rice exports as providing a boost to the local industry. The sugar industry is benefiting from a tight local market and higher domestic prices, while the cotton industry is likely to be helped by the recent recovery in prices. The livestock and dairy industries are likely to recover soon from the recent foot-and-mouth disease outbreak, which had a milder impact than expected. We like the growth opportunities for companies such as Juhayna Foods, which is likely to benefit from the strong consumer story in the country.

Key Forecasts

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* Wheat production growth to 2016/17: 13.4% to 9.5mn tonnes. This will largely be the result of government efforts to increase area planted and yields in the coming years.
* Sugar consumption growth to 2017: 14.3% to 3.3mn tonnes. This will be driven by growth in the local confectionery and soft drinks industries on the back of population and income growth.
* Poultry production growth to 2016/17: 18.3% to 986,600 tonnes. Improvements in productivity as well as better integration of livestock producers will result in gains in margins and output growth. Our forecast for a moderation in grain prices in the medium term also is likely to benefit the industry.
* Real GDP growth: 1.9% year-on-year (y-o-y) in 2013 (up from 2.2% y-o-y in 2012).
* Consumer inflation: average 9.50% y-o-y in 2013 (up from 7.2% y-o-y in 2012).
* BMI universe agribusiness market value: 1.0% y-o-y increase to US$10.8bn in 2012/13; forecast to grow on average 1.9% annually between 2011/12 and 2016/17.

Industry Outlook

We have revised up our forecast for wheat production in Egypt in 2013/14 and now see production rising 5.9% y-o-y to 9.0mn tonnes. The increase will come on the back of an increase in area harvested to a forecast 1.4mn ha, up 50,000 hectares from last season. This was encouraged by high procurement prices. Still, our forecast is below official sources (which project wheat production at 9.5mn tonnes), as we believe high fertiliser prices and fuel shortages are putting pressure on grain yields and the progress of the harvest. We do not believe the higher procurement prices offered by the government will offset these constraints on farmers' profits.

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