By Rania Imam – Eiman Rashed – Mahmoud Hammad
Dr. Rasha Shaalan “there are 305 public and private dairy products factories in Egypt”
Abdul Latif Shash, Head of Egyptian Milk Producers Association (EMPA): “Egypt’s dairy products are monopolized”
Egypt’s dairy industry faces a genuine crisis, as five companies dominate the market, which requires the intervention of the state to regulate the informal sector in order to make needed change, particularly as the market has witnessed acquisitions over the past years, leading to absence of real competition in the market.
Foreign and Arab acquisitions have dominated Egypt’s dairy industry in Egypt. Saudi Arabia’s Almarai acquired Beyti, an Egypt-based company that produces dairy products and juices, for EGP 645 million in October 2009.
Qalaa Holdings also acquired, through its subsidiary Gozour firm, the Nile Company for Food Industries (Enjoy), an Egypt-based company owned by Haykala. Haykala is an Egyptian firm owned by a member of Al-Taweel family. The deal was worth EGP 80 million in addition to the obligation to pay EGP 200 million debts owed to banks. Qalaa Holding has also acquired Dina Farms, a private farm with 9,461 feddans and a daily milk production of 64,060 tons in a deal of EGP 480 million.
Qalaa Holding has also acquired Al-Masryeen Company, one of Egypt’s largest cheese producer, in an EGP-84-million deal.
Al-Kharafi Group has acquired Greenland group after acquiring important food companies, such as Egyptian Starch and Glucose Manufacturing Co. (ESGI). On the other hand, Misr Food and Dairy Products Co. has reduced its activity and closed its plants one after the other due to claims regarding lack of funding, restructuring or even privatization etc.
This contributed to the increasing influence of private companies and businessmen and out of the blue; Today we only have five companies dominating the dairy industry as well as dairy imports and supply. These companies are Juhayna, Nestle Egypt, Enjoy and Beyti (owned by majority of shares to Almarai) and Lamar.
For his part, Abdul Latif Shash, Head of Egyptian Milk Producers Association (EMPA), said, “Egypt’s dairy market is dominated by a number of major companies, representing 90% of Egyptian market’s production capacity. Juhayna dominates 70% of the market share while Almarai ranks second and Lamar Egypt ranks third in the market shares. The remaining 10% is distributed among a number of companies, including Domty”.
Abdul Latif asserted, “Egypt’s dairy products are monopolized”, pointing out that the Egyptian Public Fund Prosecution has previously accused a number of dairy products companies of monopoly, convicting them on agreeing on fixing prices of products subject matter of dealings, namely prices of Cow’s milk purchase, this act violated article. No. (1/6) of the Law on Protection of Competition. These companies have accordingly paid fines amounting to a total of EGP 600 thousand, as each company paid EGP 200 thousand. Their payments were accepted in light of the former prime minister’s approval for reconciliation.
Shash has described the Law on the Protection of Competition and Prohibition of Monopolistic Practices as weak and tolerant, as it has allowed a number of companies to dominate many products and fix prices among themselves. He also pointed out that the monopolistic practices are attributable to poor management and appointing unqualified officials, particularly within the Ministry of Agriculture and veterinary bodies.
The government sets a regulation to preserve competition and the freedom for smaller companies to enter the market. If one company or a cartel of companies control the market share, smaller groups will never be able to flourish. The goal is to protect the consumer and avoid overpricing, the government needs to set legislation that is essential to appease the farmers and consumers.
Egypt is developing a principle of free trade and freedom of competition. Therefore, the government has to acquire the responsibility of preventing the formation of monopolies and curbing unfair practices of large corporations. Rasha Saleh Mansour Shaalan asserted in her PhD Thesis at the Faculty of Agriculture, Ain Shams University that, “the Food & Nutrition problem is a main factor in building the Egyptian agricultural and economic policy, yet price hikes over the recent years have been the main cause in this problem. Given the importance of milk and dairy products, significant price increases over recent years has made it necessary to carefully consider reason for such increases so that we can encourage local investments in this sector in order to increase supply and stabilize prices. The thesis aimed to measure profitability of the dairy industry to serve as a guideline for decision makers and investors in attracting more investments to this important industry. She used legal and preliminary data needed to achieve objectives of the thesis. She also used descriptive and quantitative analysis techniques, particularly linear regression analysis and linear programmingmethod.
The thesis results indicated that global milk production is estimated at approximately 651518 thousand tons while Milk production in Egypt is estimated at 4 million tons. It also underlined that Buffalos and cows are the major sources of milk, representing nearly 97.5% of Egypt’s milk production while goat’s milk represents nearly 2.5%. Egypt consumes 70 % of its milk production, consumption is affected by the various economic factors, most importantly population, family income and milk retail prices.
The results also indicated that there are 305 public and private dairy products factories in Egypt and average production cost per ton of white cheese amounted to nearly EGP 9634 in small factories, nearly EGP 8361 in medium factories and nearly EGP 1477 in large factories. In addition, average production costs per ton of dry cheese amounted to EGP 20166.7 in first-category factories, EGP 17876.4 in second-category factories and EGP 17079.3 in third-category factories.
Results also showed that average profit per ton of white cheese amounted to EGP 1115 in first-category factories, EGP 2639 in second-category factories and EGP 3259 in third-category factories. It also indicated that average profit per ton of dry cheese amounted to EGP 3833 in first-category factories, EGP 6523 in second-category factories and EGP 7520 in third-category factories.
Moreover, average profit per ton of processed cheese amounted to EGP 2059 in first-category factories, EGP 3345 in second-category factories and EGP 4667 in third-category factories.
The thesis recommended that we must strive to increase milk production through subsidizing forages, encouraging establishment of dairy farms and increasing number of production units in order to benefit from large production and huge capacity. We must also pay greater attention to utilising idle capacities in dairy product factories, as they would contribute to increasing revenues and profits in this industry without the need to attract new investments.
