OVERVIEW

In July 2014, the Egyptian government reformed its food subsidy program, which in the past accounted for 80 percent of the total soft oil consumption, trying to implement a more market-friendly approach by eliminating price subsidies on cooking oil, as well as those on wheat flour, rice, and sugar.

Under the old subsidy regime, Egyptian consumers were issued "ration cards" that benefited 18 million households or 69 million people nationwide. The ration card holders were allocated a quota of oil at 0.5 kg per person per month plus up to an additional 4.0 kg per family depending on the family size at a subsidized price of LE 3 per kg ($0.40/kg). At the time, the price was 70-80 percent below the market price of LE 10-17 per kg ($1.35-2.30/kg). Although the prices were low, the system was broken as beneficiaries complained about the bad quality of the product and a constant lack of supply.

In order to deal with the aforementioned market failures, beginning in July 2014, the Ministry of Supply and Internal Trade (MOSIT) implemented the new program. This program eliminated the quotas and the subsidized price of the cooking oil and replaced the previously used ration card with a smart card. Instead of receiving a quota at fixed prices, households receive 15 LE ($1.96) per person per month, with an additional 7 LE ($ 0.9) during the month of Ramadan on their smart cards, which operate like a debit card.

Smart card holders can choose how to allocate their resources by purchasing over 42 items at varying levels of quality and sizes. In the case of cooking oil, they now have the choice of buying different type of oils and are not subject to the low quality government-subsidized oil. The preferred cooking oil is a blend of sunflower oil at 50 percent, soy oil at 45 percent, and palm-based olein at 5 percent due to its thermal stability when used for frying.

Under the program, there are 25,000 privately owned grocery stores linked to the smart card network, in addition to the publicly-owned consumer outlets run by the Holding Company for Food Industries (HCFI) where food items can be purchased by card holders. The program has been very successful in improving the quality and availability of cooking oil and also that of bread, sugar and rice that were previously subsidized under the old subsidy regime. Their price also reflects a more accurate depiction of current market prices (Table2). Post does not expect that the new program will reduce the level of oil consumption, but the early results point to an increase in the use of soybean oil at the expense of sunflower oil. Of course, paying more for certain food items has also been something of jolt to Egypt's working poor.

Sample of Products under the New Subsidy Distribution System ($1= LE 7.63)

Product

Quantity

Price charged

on the card (LE)

Grocer's Profit (LE)

Soy Oil

920 grams

8.45

0.25

Sunflower Oil

920 grams

9.75

0.25

Blended Oil

800 grams

6.50

0.25

Blended Oil

1 liter

8.45

0.45

Blended Oil

1 liter

7.60

0.40

Processed Ghee

800 grams

7.00

0.50

Frozen meat

1 kilo

29.00

1.00

Frozen poultry

1 kilo

14.25

0.75

Half –cooked meal

N/A

11.75

0.25

Packed sugar

1 kilo

4.25

0.25

Imported Packed sugar

1 kilo

4.90

0.25

Packed rice

1 kilo

3.75

0.25

Subsidized v. Market Prices

Item

Old Subsidy System

(LE/KG)

New Subsidy System

(LE/KG)

Market Price

(LE/KG)

Rice

1.50

3.75

4-6

Sugar

1.25

4.25- 4.90

4-6

Vegetable Oil

3.50

6.5-9.75

10-18

Frozen poultry

N/A

14.25

18-22

Frozen beef

N/A

29.00

60-65

PRODUCTION

Soybean Oil: MY 2015/16 soybean oil production is forecast at 350,000 MT. MY2014/15 soybean oil production is revised upward to 330,000 MT from USDA's forecast of 322,000MT. The increase reflects higher crushing activity due to a larger volume of imported soybeans.

Sunflower Seed Oil: Post forecasts sunflower seed oil production to remain at 28,000 MT in MY 2015/16, unchanged from MY 2014/15.

CONSUMPTION

In MY 2015/16, FAS Cairo forecasts that edible (vegetable) oil consumption will total 2.49 MMT, a two percent increase from MY 2014/15 consumption of 2.44 MMT. Of this total, palm oil represents 44.5 percent, sunflower oil 33.3 percent, and soybean oil 22.1 percent of the quantity consumed.

Soybean Oil: MY 2015/16 soybean oil consumption will reach 552,000 MT. MY 2014/15 consumption is estimated at 530,000MT, revised upward from USDA's official estimate of 522,000 MT. Increase in soy oil consumption is related to the inclusion of soy oil under the new food subsidy program. It has also prompted the private sector to roll-out advertising campaigns highlighting the health benefits of soy oil.

Sunflower Oil:MY 2015/16 sunflower oil consumption is forecast to total 830,000, a reduction of 2,000 MT from post's MY 2014/15 estimate, which has been revised downward from USDA official estimate of 845,000 MT. Post attributes slightly lower levels in sunflower oil consumption due to the changes cited in food subsidies, as the program has increased to 5 the different grades of oil that consumers can choose from. In the past, the program only offered a blend of 50 percent soybean oil and 50 percent sunflower oil.

Palm Oil: Post estimates palm oil consumption in MY 2015/16 at 1.1 MMT, up 2.7 percent compared to the current marketing year. Palm oil and its products are the most consumed vegetable oils, due to their lower pricing and availability.

Post estimates that 85 percent of palm oil is utilized in human food consumption, out of which shortening and margarine comprise about 35 percent. Shortening is used for frying, especially in hotels and fast food chains, while margarine is used by private bakeries and patisseries. Palm oil's primary consumers are the food manufacturing and food service sectors. These sectors are rapidly expanding as demand for processed foods, fast foods, and street foods are rising due to increased urban populations and the growing trend of hypermarkets and large retail outlets.

Additionally, the government's decision to allow blended palm olein cooking oil to be distributed under revised subsidy program will have an impact, although on lesser scale than soybean oil. However, acceptance of palm oil is growing, which has not gone unnoticed by large cooking oil producers, as these have increased their supply of blended palm olein cooking oil under the program.

TRADE

Prior to the implementation of the changed food subsidy program, the majority of soybean and sunflower crude oils were purchased from the private industry and traders via monthly tenders held by the Holding Company for Food Industries (HCFI) and MEDI Trade Company (MTC) of the Ministry of Supply and Internal Trade (MOSIT) . The tendered oil would then be taken by MOSIT's General Authority for Supply Commodities (GASC), which refined it through affiliated state-owned companies under HCFI management or private companies.

However, with the changes that took effect in July 2014, HCFI became the only government entity responsible for crude oil importation, purchasing it via tenders from the private sector, and refining takes place in its affiliated oil companies or other private sector companies. The refined product is than delivered to the Egyptian Company for Wholesale, another company operating under HCFI which the distributes the oil to consumer outlets and grocery stores linked with MOSIT.

There were shortages of subsidized oil countrywide during the months of February and March due to restrictions on foreign exchange access for private sector importers, and these tighter supplies were more evident in rural Egypt. Moreover, the depreciation of the Egyptian Pound versus the U.S. Dollar to 7.63 EGP/USD had a significant impact on oil imports by the private sector which is the major supplier to HCFI. According to several sources in the banking sector, greater stability in the Egyptian Pound is expected in the coming months which would support higher imports.

Soybean Oil Imports: Soybean oil imports in MY 2015/16 are forecast to reach 290,000 MT. up 3.5 percent from the current marketing year's estimated volume of 280,000 MT. The increase in imports is attributed to an increase in soy oil consumption whether pure or blended with sunflower oil under the revised subsidy program. Soybean oil re-exports in MY 2015/16 will likely remain at 85,000MT similar to MY 2014/15 due to blending palm-based olein with sunflower and soybean oil and re-exporting it to certain African markets.

Sunflower Oil: Sunflower oil imports in MY2015/16 are forecast at 810,000 MT. MY2014/15 imports are revised down to 800,000 MT from USDA's official estimate of 850,000. Higher exchange rates in certain periods during MY2014/15 caused lower sunflower oil imports, as the private sector opted for more affordable soy and palm oil, in addition to the new subsidy program that increased the number of product grades to choose from.

Palm Oil:Imports of palm oil in MY2015/16 are projected at 1.23 MMT, up 2.5 percent over MY 2014/15. We attribute the increase in palm oil imports to its availability at lower cost compared to other imported edible oils and the wide range of palm-based products being produced for human consumption and industrial use. The average palm oil import price in March 2015 was $630/MT; sunflower oil's average import price hovered around $960/MT, while soybean oil was imported at an average price of $750/MT. The growth in the palm-based oil market has driven the key industry players to re-export palm oil based products to African nations with projected exports in MY2015/16 at 120,000MT, similar to MY2014/15 due to adequate and efficient refining capacity, enhanced logistics and existing demand.

Although Egypt will remain a net oil importer, due to its strategic position, the country has become something of a hub for refining, packaging and re-exporting imported palm oil in the region. With existing capacity and increased processing in the works, it's conceivable that Egypt could also re-export more sunflower seed and soybean oils in the years ahead.

Tariffs

At present, there is no tariff on soybeans, sunflower seed, linseed, palm kernel, and sesame seed. Oilseed meal and cake extracted from oilseeds are subject to an import duty of five percent. Import tariffs on bulk crude and refined soybean, sunflower oil are currently at two percent. Crude cottonseed and palm oil duties are zero.

Oil, Soybean

2013/2014

2014/2015

2015/2016

Market Begin Year

Oct 2013

Oct 2014

Oct 2015

Egypt

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Crush

1,680

1,680

1,800

1,850

0

1,950

Extr. Rate, 999.9999

0.1786

0.1786

0.1789

0.1784

0.0000

0.1795

Beginning Stocks

78

78

9

9

0

4

Production

300

300

322

330

0

350

MY Imports

213

213

280

280

0

290

MY Imp. from U.S.

10

10

0

0

0

0

MY Imp. from EU

5

5

5

0

0

0

Total Supply

591

591

611

619

0

644

MY Exports

86

86

85

85

0

85

MY Exp. to EU

0

0

0

0

0

0

Industrial Dom. Cons.

12

12

12

12

0

12

Food Use Dom. Cons.

484

484

510

518

0

540

Feed Waste Dom. Cons.

0

0

0

0

0

0

-

0

0

0

0

0

0

Total Dom. Cons.

496

496

522

530

0

552

Ending Stocks

9

9

4

4

0

7

Total Distribution

591

591

611

619

0

644

TS=TD

0

0

0

0

0

0

Oil, Sunflowerseed

2013/2014

2014/2015

2015/2016

Market Begin Year

Oct 2013

Oct 2014

Oct 2015

Egypt

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Crush

65

65

66

66

0

66

Extr. Rate, 999.9999

0.4154

0.4154

0.4242

0.4242

0.0000

0.4242

Beginning Stocks

94

94

51

51

0

22

Production

27

27

28

28

0

28

MY Imports

800

800

850

800

0

810

MY Imp. from U.S.

0

0

0

0

0

0

MY Imp. from EU

0

0

0

0

0

0

Total Supply

921

921

929

879

0

860

MY Exports

35

35

35

25

0

25

MY Exp. to EU

0

0

0

0

0

0

Industrial Dom. Cons.

0

0

0

0

0

0

Food Use Dom. Cons.

835

835

845

832

0

830

Feed Waste Dom. Cons.

0

0

0

0

0

0

Total Dom. Cons.

835

835

845

832

0

830

Ending Stocks

51

51

49

22

0

5

Total Distribution

921

921

929

879

0

860

TS=TD

0

0

0

0

0

0

Oil, Palm

2013/2014

2014/2015

2015/2016

Market Begin Year

Oct 2013

Oct 2014

Oct 2015

Egypt

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Planted

0

0

0

0

0

0

Area Harvested

0

0

0

0

0

0

Trees

0

0

0

0

0

0

Beginning Stocks

102

102

102

102

0

102

Production

0

0

0

0

0

0

MY Imports

1,165

1,165

1,225

1,200

0

1,230

MY Imp. from U.S.

0

0

0

0

0

0

MY Imp. from EU

1

1

0

0

0

0

Total Supply

1,267

1,267

1,327

1,302

0

1,332

MY Exports

120

120

150

120

0

120

MY Exp. to EU

0

0

0

0

0

0

Industrial Dom. Cons.

120

120

130

130

0

130

Food Use Dom. Cons.

925

925

945

950

0

980

Feed Waste Dom. Cons.

0

0

0

0

0

0

Total Dom. Cons.

1,045

1,045

1,075

1,080

0

1,110

Ending Stocks

102

102

102

102

0

102

Total Distribution

1,267

1,267

1,327

1,302

0

1,332

TS=TD

0

0

0

0

0

0