Wed, Jul 12, 2006, 02:54 GMT
Sugar continues upward March

May 2006Egyptian food industries and businesses are bracing themselves for a continued rise in sugar prices as the commodity leapt to around £E 3.50 per kilo in April. The hike, which has been attributed to rising prices on the international market and a widening gap between local production and consumption, looks set to continue throughout the year.Sugar prices have risen over 60 percent since the beginning of the year, when sugar was selling for £E 2.15 a kilo. In recent months, the price hike was exacerbated by concerns over dwindling inventories, as well as preparations for last month's Moulid Al Nabi (birthday of the Prophet) vacation. Every year during the celebrations, Egyptians typically buy large quantities of sweets, which causes sugar consumption to spike.But Minister of Trade and Industry Rachid Mohamed Rachid was quick to dispel worries, assuring worried citizens that Egypt's sugar reserves were sufficient to meet domestic consumption needs until the end of 2006. He blamed the hike on the rising international market price, which currently stands at about $480 per ton, citing a recent decision by the EU to shelve subsidies afforded to its sugar cane farmers. He also said Brazil, the world's leading sugar producer, was reducing exports to push for ethanol and electricity production using sugar, in response to rising crude prices, which reached record-highs in mid-April.Industry analysts are concerned with the country's need to address a growing gap between production and consumption. Egypt produces around 1.3 million metric tons of sugar a year, which covers about 65 percent of domestic demand. In 2005, it imported 905,000 metric tons at a cost of $450 million to cover its shortfall.Mostafa Zaki, head of the importers branch of the Cairo Chamber of Commerce, says Egypt needs to increase the cultivation area of cane and beet sugar, and build more refineries, to cope with ever-increasing consumption. But he says a lack of suitable land for sugar cane plantations has thwarted attempts to increase domestic production. Much of Upper Egypt's water-thirsty sugar cane plantations were cut down in the 1990s by security forces hoping to flush out Islamist terrorists that had been using them as cover for attacks on police and tourists.The government is encouraging farmers to increase the cultivation of red sugar beet, a more robust variety that already accounts for nearly 20 percent of Egypt's total domestic sugar supply. Zaki, however, admits it is not the most cost-effective solution to the shortage. "Really, the only way to increase production is what one refinery, Delta Sugar Company, already does - that is to import raw sugar and refine it in Egypt. This method saves about a quarter of the price."While the state's dominance of the sugar market is considered a major impediment to its development, suggestions of privatization have been equally unpopular. Minister of Investment Mahmoud Mohieldin was jeered by lower income consumers last year when he announced plans to privatize several refineries and mills. He has since backed away from the plans.Zaki believes privatization would make Egypt's sugar prices subject to world market fluctations and almost inevitably push them higher. Instead, he thinks the government should privatize only their administration.Despite the government's efforts to cushion the blow by raising prices incrementally over recent months and bringing more of the commodity onto the domestic market and into state-owned cooperatives, the food industry and small businesses are already feeling the burn.As the price of sugar has risen, food producers have taken steps to lower their bottom line. Some sweet and jam factories have lowered the packaged weight of some products by as much as 50 grams to offset the rising costs of ingredients. Supermarket owner Mamdouh Abd Al Azeem says this could help keep the prices of these products manageable for consumers, who have expressed concern about rising prices."It's a real shame," complains Ali Abdel Rehem, 56, "becaue the only treat for the average Egyptian is a good cup of sweetened tea."
By Magdy Samaan
© Business Monthly 2006
Article originally published by Business Monthly 20-May-06


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