Manufacturers in Egypt turn to local sourcing

cairo — In green fields near Egypt’s Mediterranean coast, PepsiCo is harvesting its first crop of potatoes produced from local seeds to make a leading brand of chips.

Like other big manufacturers in Egypt, the global food and beverage giant is sourcing more of its raw materials locally to keep a lid on costs and limit price rises as consumers struggle with food inflation running at above 40 per cent.

PepsiCo’s Chipsy brand accounts for about 55 per cent of the local potato chip market and requires 360,000 tonnes of potatoes a year, previously grown exclusively from imported seeds.

The cost of imports has soared in Egypt since the country abandoned its currency peg of 8.8 pounds to the US dollar in November, imposed restrictions on imports and increased tariffs on more than 300 products to curb a gaping trade deficit.

“Localising raw materials is extremely important at this time. We cannot depend on a dollar-based cost structure with an Egyptian pound revenue streamline,” PepsiCo’s North East Africa general manager Ahmed El Sheikh told a recent conference.

PepsiCo started developing seeds locally in 2013 and the 2017 potato crop is the first to be use them. It used to import 12-15,000 tonnes of seeds a year for its Chipsy production.

The company still had to import about 40 percent of the seeds it needed for the 2017 crop but hopes to cut the proportion of imports to 30 per cent next year.

Egypt has long relied on imports, with even local producers sourcing most components and raw materials abroad. The resulting trade deficit, coupled with the flight of tourists and

We cannot depend on a dollar-based cost structure with an Egyptian pound revenue streamline Ahmed El Sheikh, GM of PepsiCo for North East Africa

investors following the 2011 uprising, has left the economy perpetually short of dollars, putting pressure on the Egyptian pound.

It has halved in value since floating last year and inflation has hit consumers purchasing power, making it difficult for companies to pass more costs onto the public. Instead, manufacturers, including several major listed companies, are looking to replace imports with local supplies.

US candy and pet food conglomerate Mars, which produces chocolate bars such as Galaxy, Mars, Twix, Bounty and other popular brands, has been increasing its base of local packaging suppliers in Egypt over the past three years. About 70 per cent of its packaging is now sourced within the country and it plans to make that 100 per cent by 2018.

Delays in clearing imports as a result of the new rules has also been a problem for major manufacturers, adding to costs and creating bottlenecks, encouraging firms to cut back on imports.