Essay About Egyptian Companies And Egyptian Exporters’ Customers

Food Industry in Egypt
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BackgroundExecutive summary Plans for agricultural development require sophisticated high-level equipment that few Egyptian companies are able to supply to support the export activity. The Egyptian agriculture and food market is very promising with estimated growth rates of 15.5% year-over-year till 2017. The food production and export sector is expected to grow more with increasing export to the EU countries as long as it meets the standards set by the EU seizing the competitive advantage of the strategic geographic location; being near enough to maintain the freshness of the vegetables. The Porter five-force model shows that there is a rivalry among competition with the growing growth of the industry with opportunities for new entrants, however the economies of scale is a competitive advantage. The bargaining power of consumers is present and affects profitability. Introduction:The agriculture sector contributes about 14% of GDP and it ranks the 3rd among the most important sectors behind manufacturing and energy.  Approximately one- third of Egyptian labor is engaged in farming.  A large number of people are engaged in the fields of processing or trading agricultural product. 37% of the income of Egyptians is spent on food & tobacco. Food consumption is increasing at a steady rate of 10% per year. Egypt’s strategic geographic location enables it to have an excellent access to the states of the Gulf Co-operation Council (GCC), the Common Market for Eastern and Southern Africa (COMESA), and the European Union (EU) member states. This strategic location is one of the reasons that make Egypt as a strong export base.Agricultural production is very wide in Egypt and due to the climate crops harvest up to three times a year. This explains why Egyptian crop yields are among the highest in the world. The government invests heavily in enlarging its cultivable land and there are plans to increase it by 25% over the coming twenty years.Porter five forcesRivalry among competing countriesLocally nearly all competitors in this industry are following the same structure and same strategy. However, the intensity of the rivalry among competitors increases in proportion to the number and size of competitors. Internationally, there is a substantially strong competition because importers resort to some other countries to source their needs and at the same time get a better quality and standards. Moreover, the small fragmentation of lands does not allow for economies of scale so new entrants can get into this sector. Yet there are a few large growers who achieve modern irrigation systems, new seeds, and modern facilities for drying and harvesting. Low production costs of products in competing countries such as African and Latin countries work as a serious threat of competition. There are about 22 M hectares cultivated lands. Processing industry of vegetables and fruits comprises a large part of vegetable and fruit production. The growth rate of this processing subsector is 34 % where jams, juices, concentrates and dehydrated or frozen vegetables are the most popular products. 37% of the investment in this subsector comes from foreign companies. Moreover, 92% of equipment used for processing vegetables is imported.The bargaining power of consumers Although Egyptian products have a high demand in export markets and in some cases have the leading market share, Egyptian exporters’ customers have a strong bargaining power when it comes to prices to the extent that Exporters report that prices can be as low as one third of those of other competitor countries. This is stems from the following:Price competition among Egyptian exporters which results from lack of experience of some local traders who considerably reduce prices to close a certain deal. Hence, importers use those low-price quotations to practice a bargaining power on reputable Egyptian exporters to reduce their prices.Lack of pure and new grown varieties is quite an issue as most exporters can’t source pure or specific varieties that are not traditionally grown in Egypt. Although some Egyptian export products are irreplaceable to some extent, severe global competition affects the Egyptian industry. Countries, such as India, Morocco, Pakistan, turkey, Romania, Australia and Canada constitute a serious threat as importers resource to those countries rather than to Egypt to meet their quality and cost targets.The bargaining power of supplierThe structure of the export products can be divided into three main segments or in other words the value chain consists of:   GrowersLand fragmentation in Egypt is one of the highest in the world so small farmers cultivate the vast majority of lands dedicated to products.However small farmers formulated an umbrella under which they facilitate their production and trading; farmers’ associations, small farmers have no bargaining power as suppliers.TradersTraders play a significant role in the value chain of the food industry as they deal with growers and exporters and they represent the main gate for small growers.They supervise the harvesting and transportation from the field to the drying facility.ExportersSome exporters follow backward integration policy where they have their own farms and facilities for dying, screening, and packing and outsource the rest of their demand from contracted farms or traders. Those type of exporters don’t comply with any hose type of exporters don’t comply with the bargaining power of suppliers; if any.Exporters with screening and packaging facilitiesExporters with no or contracted farms and factoriesPotential development of substitute productsActually, more or less all products are similar but differ in the purity and quality of product. So, products mainly depend on its quality and the way it is dried.Potential entry of new competitorsGreat global interest in pure / organic foods and drinks creates intense competition locally and internationally. Egyptian legal framework and regulations encourage exportation of agricultural products in general and organic products in particular and this created an opportunity for some new entrants who represent a sort of competition. It can be said that there are low barriers for new entrants to get into the market.