USDA: Egyptian livestock feed costs high despite low global commodity pricing

By Lynda Searby

- Last updated on GMT

© iStock
© iStock

Related tags: International trade

Despite global commodity prices being at their lowest levels in years, livestock producers in Egypt face surging input costs on the back of a depreciating Egyptian Pound, according to the USDA’s Foreign Agricultural Service. 

 

Egypt’s livestock producers are heavily dependent on imported feed ingredients, which account for 60% of the industry’s needs. Most producers use a combination of bran, corn silage, alfalfa, hay, yellow corn, beet, soybean meal and sunflower meal, mainly imported from Argentina, Brazil, the US and the Ukraine.

However, the Egyptian government’s Central Administration for Plant Quarantine’s (CAPQ) agricultural import measures and efforts to address its foreign exchange shortfall have been causing supply shocks at a time of low global commodity pricing.

“Egypt has the soybean meal crushing capacity to supply most of what the local market needs, but the Ministry of Agriculture’s quarantine office measure and practices have resulted in several soybean cargo rejections in 2016, leading to increased meal imports this year,” ​Ron Verdonk, regional agricultural minster counselor with the USDA, told FeedNavigator.

In combination with the depreciation of the Egyptian Pound (EGP) against the US dollar and the shortage of foreign exchange, this has resulted in surging prices of imported ingredients, reported the USDA (United States Department of Agriculture).

Government policy not helping

In its latest GAIN (Global Agricultural Information Network) report on Egypt livestock and products,

the USDA said this was because importers were returning to the parallel market to meet their foreign exchange needs, and this commands a premium of 20-30% over the official exchange rate.

“Egypt has an official exchange rate of $1 = 8.8 Egyptian Pounds, but the unofficial, black market rate that private enterprise (including importers) has to pay is now closer to $1 = 12.5 Egyptian Pounds. This parallel market rate has climbed since the last official devaluation in March 2016, so, with the passage of time, imported goods, including feed, have become more expensive as more and more Egyptian Pounds are needed to pay for these imports,”​ explained Verdonk.

As an example of the increases, as of May, the price of millers’ wheat bran had risen by almost 11.5% or EGP 300/MT ($33.7/MT) versus a year earlier to reach EGP 2600-3000/MT ($293-338/MT).

Egypt relies on imported corn to meet 60% of its consumption needs and on soybeans and meal imports to meet 100% of its requirements for this protein source. However, prices of both imports have been pushed up by the lack of foreign exchange and other government measures.

The gap between international and domestic prices for corn has widened considerably in the last 18 months, with soybean and corn prices on Egypt’s domestic market increasing disproportionately to world commodity prices. For example, the gap between international and domestic prices for corn increased from $50/MT in January 2015 to $120/MT in May 2016. Egypt’s domestic corn price was most recently reported at just under $300/MT.

No respite likely

Unfortunately for Egypt’s livestock producers, this situation is only likely to worsen in the near future.

“Feed prices will keep rising in tandem with the Egyptian Pound’s depreciation, and as long as the Ministry of Agriculture attempts to enforce measures that are out of the mainstream as applied by the international trading system,”​ said Verdonk. 

“The government doesn’t seem to understand that pegging the Egyptian Pound to the US Dollar without the sufficient reserves will only lead to a higher exchange rate in the parallel market. It also seems to be oblivious to the fact that its agricultural measures are counterproductive to efforts to reduce food inflation,”​ he added.

Whilst domestic beef producers are on the one hand, benefiting from high beef prices as a consequence of food price inflation, on the other, they are facing the uncertainty of escalating feed prices for the foreseeable future.

Related topics: Markets, Middle East, Supply chain, Meat

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