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Cultivating the food industry

CAIRO: Non-dairy processed food was a LE 3 billion industry last year, with most of this production coming in the form of jams, concentrates, pickles, sugar, sauces and frozen and dried vegetables. Egypt s ample arable land, much of which is unused, provides opportunities for growth in the food sector, while global health-scares and the …

CAIRO: Non-dairy processed food was a LE 3 billion industry last year, with most of this production coming in the form of jams, concentrates, pickles, sugar, sauces and frozen and dried vegetables. Egypt s ample arable land, much of which is unused, provides opportunities for growth in the food sector, while global health-scares and the increasing importance of traceability present regulatory challenges to the industry. Three leading processed food companies share their views in exclusive interviews with The Daily Star Egypt.

Douglas Anderson, vice chairman of National Food Company, outlines the country s competitive advantages on the agricultural front; the Nile and its generous supply of fresh water is an obvious benefit. Complementing this are vast tracts of land with rich soil.

Egypt s geography gives it three further advantages. First, as a result of its location the climate is conducive to year-round cultivation of fruits and vegetables. Second, its proximity to Africa, the Middle East and Europe provides Egypt with timely access to a large segment of the world s population. Third, a number of ships transit through the Suez Canal with excess capacity; these are typically vessels returning from Europe to the Far East after delivering shipments. This excess capacity results in cheap shipping costs to certain destinations.

Access to the European food market, however, is a challenge due to the European Union s rigorous and intricate food safety standards. This difficulty is amplified by the existence of different requirements in each member country, resulting in what Anderson describes as disparate and multi-tiered regulations.

The variety of label conditions is a simple example of the difficulty in dealing with disparate regulations. In addition to different contents on the label, food producers must print labels in the language of each member country. Anderson s company therefore prefers the homogenous market of the United States, where the food safety regulations of the federal government are dominant.

But not all producers avoid the European market. Tarek Tawfik, chairman of the government s export council for food and managing director of Farm Frites, explains that when the E.U. introduced its rigorous food safety measures in the 1990s, other country s cried foul play, claiming that the measures were essentially non-tariff trade barriers intended to protect the European farmer. However, companies that invested in complying with those standards, says Tawfik, excelled and raised the quality of their products.

Regulations are also a challenge on the domestic front, with Tawfik explaining that Egypt s laws governing food safety are outdated and prone to abuse by authorities. For example, the law does not clearly differentiate between fraud and minor unintentional errors in food production. Both are treated as crimes. As a result, slight differences in the color, smell or taste of processed foods are considered fraud and frequently prosecuted by the Ministry of Health. Tawfik cites one company that had 250 cases against it last year. He asserts that all the cases were unwarranted because they were related to inconsequential issues.

In addition to convoluted legislation, food producers suffer from having to deal with multiple government ministries and agencies. Khalil Nasrallah, executive manager of Wadi Food Industries, explains that this is a major impediment to his business because of time and money spent on providing samples for testing to several government departments.

Nasrallah also suspects that the government s testing process is sometimes flawed, saying that shipments of foodstuff that he believes are clean are occasionally rejected by the government with claims of contamination.

As the chairman of the food export council, Tawfik describes the government s plans to address these domestic regulatory and testing issues. The Ministry of Trade and Industry is in the process of creating an umbrella organization for all government bodies that deal with food safety. This new organization will be similar to the U.S. Food and Drug Administration and will act as a single point of contact for food producers.

In terms of legislation, the industry is pushing for a unified law on food production that would supersede all previous legislation. Tawfik says that there are listening ears in the government for this idea and hopes that it will be implemented.

With regard to the testing process, the government is encouraging private and public laboratories to obtain international certification. This would improve the standards of testing and pave the way for authorities to allow producers themselves to choose from a range of certified testing facilities.

In addition to these regulatory changes, an enhancement of the entire supply chain is needed to meet the requirements of other countries. Traceability of the inputs back to their origin is especially important in light of increased public awareness of health issues. As an extreme example, Anderson says that consumers in Japan can scan the barcode of a head of lettuce and find out the location of the farm where it was grown. Such traceability is frequently impossible for Egyptian producers who rely on others for their inputs.

Tawfik, whose company currently relies entirely on its own cultivation of fruits and vegetables, concedes that improved traceability is important and that vertical integration is only a temporary solution. Wadi Food also depends largely on its own food production and is converting all its plantations to organic ones in order to address traceability issues and to avoid the risk of pesticide residue.

Anderson and Nasrallah agree that Egypt has a huge potential for organic foods due to the abundance of virgin land that has not been contaminated by years of pesticide and fertilizer use. Nasrallah explains that it takes at least three years for the chemicals in a non-organic plantation to dissipate; non-organic plantations cannot therefore be converted to an organic one until this period elapses.

Anderson adds that the common perception that organic food is more expensive to produce is a myth. He explains that the agricultural yield of organic plantations is about the same as that of non-organic ones. The processing costs are also equivalent for both.

In terms of supplies, packaging is a common complaint for companies that rely on others for glass jars and bottles. Anderson says that the level of defects from some domestic glass suppliers is as high as 7 percent, well above the level of 1 to 1.5 percent that he would consider acceptable. These defects manifest themselves when a lid does not fit and the bottle or jar breaks, resulting in the loss of both the container and its contents.

In order to address the problem with local glass manufacturers, Hala Frieji Rosteck, brand and image manager at Wadi Food s parent company Wadi Holdings, says that her company is building their own glass factory. Rosteck anticipates that this will save Wadi the losses they experience from defective jars and bottles as well as increase the variety of shapes for their containers.

In addition to glass, plastic is also a common packaging material for processed foods such as frozen and dried vegetables. Companies that rely on plastic, including Farm Frites, have established factories in Qualified Industrial Zones (QIZ). Such companies import their packaging material from Israel and benefit from the elimination of tariffs on exports to the U.S. There are currently 23 food companies that have obtained approval to produce in QIZ areas.

The tariffs on food exported to the U.S. vary depending on the nature of the product. The tariff must be high enough to justify the increased cost of importing 11.7 percent of inputs from Israel as required by the QIZ protocol. Tawfik estimates that the size of the U.S. market for such tariff-based products is approximately $1 billion, which Egyptian companies can take advantage of through QIZ areas.

Topics: FJP

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