CAIRO: A confluence of factors have ignited a price spike in a number of core commodities in Egypt, such as sugar, wheat and rice, forcing food and drink companies to seek cheaper alternatives in an attempt to protect Egyptian consumers’ bottom line, according to a recent Euromonitor International report.
Since 2008, as the report released in December notes, consumers have been hit hard by high commodity prices due to poor weather conditions coupled with insect infestations.
A key reason for this phenomenon is the direct result of “underdeveloped and exploitative internal trade system and a weak distribution network, which causes spoilage,” the report says.
The consequence of such dynamics has been a reliance on imports as a stopgap measure, but which has resulted in exposure to global price fluctuations; thus, creating a volatile market for consumers.
This, too, has impacted major fast moving consumer goods (FMCG) companies, such as Unilever, Proctor & Gamble as well as Coca-Cola, that rely on such commodities to produce a plethora of their food and beverage items, which have sought to shield consumers from such price instability seeking out alternative ingredients for their products.
The report notes, for example, that “In 2009, Pepsi, which accounts for 20 percent of the Egyptian market, began replacing sucrose with fructose syrup in many of its products to avoid increasing its prices by nearly 55 percent.”
A top diary company has begun introducing a larger number of substitutes into its formulations so as to maintain the taste of its milk and yogurt products without actually diminishing their level of milk content.
The report adds that pastry companies have not been immune to high commodity prices, as the industry relies heavily on wheat, which has been particularly volatile this year, especially in view of the protracted wheat crisis that ensued when the Black Sea region experienced a drought beginning during 2010’s summer months, decimating the wheat supply, and forcing major wheat producers, such as Russia — one of Egypt’s main providers — to ban exports of the commodity.
As a result of this dilemma and other factors, companies that rely heavily on wheat, began using corn flour in wheat’s place.
This was especially true for pastry firms for whom wheat “can account for 60 percent of their total costs.”
The report concludes that such a situation provides “ample opportunity” for suppliers to help manufacturers cut costs through introducing new ingredients and formulas.
Using the carbonated beverages sector as an example, the compound annual growth rate will be 10 percent between last year and 2015.
Against this backdrop, sucrose volumes will surge from 14,000 tons last year to 190,000 tons in 2014.
Such a trend makes it highly feasible for fructose syrup to muscle its main competitor — sucrose — out of the equation.
Again in the pastry business, analogous possibilities may be seized: the sector will grow by 12 percent in the coming five years, opening up opportunities for substitute ingredients to nudge out their increasingly onerous counterparts.
The same may be said for fruits and vegetables sector, the report claims, which will grow by 11 percent during the same period.
The Euromonitor report exhorts ingredients suppliers to “strike while the iron is hot,” and present alternatives for manufacturers, who will seek to manage their customers’ bottom line.
