Promoting Agricultural Value Chains
In the OIC Member Countries
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and cheese and sold in small shops (Oxford Business Group, 2012b). Particularly smallholder
farmers in rural areas rely on middlemen to collect and market their milk through such
informal channels, as they do not have access to formal marketing channels. The practice of
utilising middlemen is considered to reduce prices for farmers, as gains are not passed onto
farmers, for instance, when prices are seasonally high (El-Amaiem, 2014). At the same time,
middlemen often provide access to support services, such as credit and health care, in order to
strengthen their market position within a community (El-Amaiem, 2014).
Only about 10-15 percent of the milk produced in Egypt is processed by the modern
commercial sector due to the dominance of the informal milk sector, the lack of contract
farming and very weak relationships between producers and processors (El Lateif Aita et al.,
2012). Similar to the situation at the production level, processing is very fragmented and the
majority of facilities process less than one tonne per day on a relatively informal level. There
are about 25 companies involved in the industrial processing and packaging of dairy products;
14 of which are members of the Dairy Industry Development Association and 7-8t can be
regarded as important players. Most of these companies use fresh milk as main input for the
production processes (El Lateif Aita et al., 2012), but due to the general low level of
production, several of the larger companies import milk powder to increase processing
activities. Actual production is at 500,000-800,000 tonnes per year, which is significantly
below the total capacity estimated at 1.9 million tonnes per year (El Lateif Aita et al., 2012). A
lack of cold chains, adulteration, unhygienic practices during farm production, fragmented
farm base and long distances to dairy farmers further adversely impact on processing
operations (El-Amaiem, 2014).
Manufacturing has recently experienced increased firm consolidation. Until 1980, the dairy
sector was dominated by the public sector, after which the role of the private sector became
increasingly important. By now, public companies play hardly any role. Over the past few
years, the market has evolved from being dominated by local players to a mix of local, regional
and international players. For instance, French giant Danone entered the market in 2005 and
has established itself as a market leader in terms of sales (Oxford Business Group, 2012b). The
entry of international companies was accompanied by some consolidation, including
acquisitions by private equity funds and vertical integration to secure raw materials (raw milk,
fruits and animal feed), and control and expand distribution channels. The yogurt and, more
recently, packaged milk segments have seen the highest levels of activity (El Lateif Aita et al.,
2012). So far, local companies have been able to maintain a strong market position such that
the market for drinking milk products is dominated by local company Juhayna Food Industries
with a market share of about 65 percent. Its products are exported to over 48 countries,
including the US, the Gulf States and Europe (El Lateif Aita et al., 2012).
5.2.5 Trade
Both exports and imports of dairy products have accelerated over the past decade. One of the
main trade items are concentrated milk products or ingredients which are imported to cover
domestic demand for processed dairy products. Low productivity per cow, especially for
smallholder farmers, is considered the main reason for the shortage in national production,
caused by a lack of sufficient and seasonally fluctuating animal feed and the dominance of low
yield cow and buffalo varieties (El-Amaiem, 2014). Milk production is particularly low during
summer months and fluctuations in supply result in high processing costs of raw milk.
Therefore, imports are required to cover up to 40 percent of actual market needs (El Lateif
Aita et al., 2012). Imports are particularly important for butter (main import countries: New