Egypt Agribusiness Report Q3 2012

BMI View: Even though Egypt food inflation has moderated since 2011's popular uprising, we still see food prices as a very sensitive political issue. However, because we see a sufficient increase in wheat output in 2012/13 and high ending stocks, we expect smaller import needs for grains in the coming months. We have revised down our forecast for beef production because of the recent outbreak of foot and mouth disease (FMD), which should also impact growth in dairy production in the coming months. Cotton farmers should plant less of the crop in 2012/13 because of recent disputes between farmers and traders and relatively low global prices. Key Forecasts

Cotton production growth to 2015/16: 24.7% to 694,600 bales. We believe cotton production could rebound strongly as prices should recover slightly from their current bottom. However, because we do not expect prices to return to their 2011 highs, cotton production growth should only be on average 3.0% for the last two years of our forecast period.

Wheat consumption growth to 2016: 11.2% to 19.0mn tonnes. Because Egyptians are already some of the highest per capita consumers of wheat in the world, we expect further consumption growth to come from population growth.

Cheese production growth to 2015/16: 9.7% to 497,600 tonnes. As the economy recovers and disposable incomes begin to rise again when the country's political situation stabilises, so will the demand for more value-added dairy goods, which in turn will fuel a production growth.

Real GDP Growth: 2.3% year-on-year (y-o-y) in 2012 (up from 1.8% y-o-y in 2011)

Consumer inflation: 12.0% annual average y-o-y in 2012 (up from 10.1% y-o-y in 2011).

BMI universe agribusiness market value: 5.4% year-on-year (y-o-y) decline to US$8.7bn in 2011/12, forecast to grow on average 1.3% annually between 2010/11 and 2015/16. Industry Developments Egyptian wheat imports are set to be smaller in 2012/13 thanks to a smaller production deficit and high ending stocks. The USDA forecasts the country's export to be 10.0mn tonnes in 2012/13, compared to 10.3mn tonnes in 2011/12. This is because the country's General Authority for Supply Commodities (GASC) is projected to import 6.0mn tonnes, while about 4.0mn tonnes should be imported by the private sector. In fact, we forecast the country's production deficit to decrease again to 741,900 tonnes, compared to 760,000 tonnes in 2011/12. Also, the country's 2011/12 wheat ending stocks are very strong at 5.5mn tonnes, significantly higher than the 10-year average of 3.5mn tonnes. We have revised down our forecast for beef production to 280,000 tonnes in 2011/12 due to the recent outbreak of FMD among the country's livestock population. According to local estimates, up to 18% of the country's 1.8mn head cattle herd could be culled, given the number of expected cases and a mortality rate of 16%. The mortality rate, which is high by FMD standards, is a function of weak vaccination practices given the significant fragmentation of the sector and the fact that small farmers generally have less access to such vaccinations. There have been comparisons raised to the last major disease outbreak in 2006, which resulted in the loss of almost 1mn head of cattle. To combat this, the country has assembled 1,500 veterinary teams throughout the country to dispense SAT2 vaccine. We have revised down our forecast for Egyptian cotton production to 550,000 bales in 2012/13 as farmers decreased plantings after they were unable to sell their production in 2011/12 because of disputes with traders and the government about prices. In fact, the USDA forecasts area harvested to decrease from 220,000 hectares (ha) in 2011/12 to 155,000 ha in 2012/13. Even if yields should increase slightly from 737kg/ha in 2011/12 to 773kg/ha in 2012/13, production should overall fall 26.2% y-o-y in 2012/13.