VZCZCXYZ0005
RR RUEHWEB

DE RUEHEG #0408/01 0691012
ZNR UUUUU ZZH
R 101012Z MAR 09
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 1822
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC

UNCLAS CAIRO 000408 
 
SIPDIS 
 
SENSITIVE 
 
STATE PASS USTR 
 
E.O. 12958:  N/A 
TAGS: EAGR ECON ETRD ELAB PGOV EG
SUBJECT: Egypt: Local Dairy Farmers Demand GOE Price Support 
 
¶1. (U) Key Points 
 
--  Falling international prices of milk are threatening local milk 
producers who are demanding action by the government to save the 
dairy industry. 
 
-- Egypt is a net importer of dairy products with the majority of 
its imports coming from Australia and New Zealand. The U.S. has 
increased its dairy exports to Egypt substantially over the last 
several years and has a large trade surplus with Egypt in dairy. 
 
-- Egypt suffers from numerous problems with its dairy herd 
including disease and the cost of imported feed, vaccines and animal 
stock. 
 
-- The Egyptian Government has promised action in terms of both 
price supports and higher import duties; sources tell us that such 
government "promises" rarely result in action. 
 
¶2. (SBU) Comment:  We have not seen much real action by the GOE to 
support dairy farmers.  Most milk production comes from small 
farmers who do not have much political clout, and even large farmers 
tell us that the GOE is all talk on this issue. If global dairy 
prices remain low, we expect this problem will worsen, and the GOE 
may be forced to act to support farmers. 
 
BACKGROUND 
---------- 
¶3. (U) The Egyptian Association for Dairy Products Producers has 
called on the GOE to set a new pricing scheme for dairy products and 
requested financial support similar to that offered to exporters by 
the Ministry of Trade and Industry.  Farmers are demanding help from 
the government in the form of a subsidy of at least LE1 (US$.18) per 
kilo of fresh milk produced.  According to Abdul Qader Al Heraki, 
the chairman of the association, the entire industry, which employs 
a million workers, will be in jeopardy if the government does not 
provide targeted subsidies to farmers. Minister of Trade and 
Industry Rachid Rachid, has said "prices have to be reduced for the 
consumers, but we need to maintain a fair price for the producers so 
they would not slaughter the cattle". 
 
¶4. (U) Egyptians are large consumers of dairy products, although 
domestic dairy production has not kept up with domestic demand. 
According to the Central Agency for Public Mobilization and 
Statistics (CAPMAS) total dairy production for 2007 (the latest year 
available) was 5.9 million tons. Dairy imports are concentrated in 
butter, cheese, powdered milk, and whey.  Most Egyptian imports are 
from New Zealand and Australia, though supply issues in those 
countries have given the U.S. an opportunity to strengthen its 
position in the market.  The USDA reports that in dollar terms, the 
U.S. more than doubled its sales to Egypt from 2007 to 2008.  U.S. 
dairy imports from Egypt amount to slightly more than one percent of 
the amount the U.S. Exports to Egypt. 
 
¶5. (U) Egypt's farmers produce small amounts of butter for domestic 
consumption on a commercial scale, but Egypt imports most of its 
butter from New Zealand and the Netherlands.  According to USDA, 
poor refrigeration limits local demand for butter. There is no U.S. 
presence in the Egyptian butter market due to packaging issues, high 
moisture content, and the color of U.S. butter, which does not 
appeal to Egyptian consumers. 
 
¶6. (U) Egypt has a small dairy export market.  In 2007, Egypt 
exported approximately 2400 tons of cheese, of which about 15% of 
cheese exports was sold to the United States.  The export market 
consists primarily of feta-style cheese and a local version of 
Romano cheese.  These exports are made primarily to markets of 
expatriate Egyptians living in the United States and Arab countries, 
with small amounts going to South Africa, Greece, Canada and Israel 
as well.   Exports to the U.S. are subject to tariff-rate quotas. 
 
¶7. (U)  Egypt's dairy industry has been plagued with problems for 
several years.  Outbreaks in 2004 of both foot and mouth disease and 
lumpy skin disease, attributed to cattle imports from Ethiopia, 
decimated the local herd.  The industry has yet to recover.  Most of 
the country's livestock herd is dedicated to dairy production. 
Local dairy breeds are not efficient milk producers, so the dairy 
industry is reliant on imports which are highly regulated by the 
government.  The GOE currently bans imports of live cattle from most 
of European countries due to the blue tongue disease outbreak in 
Europe. The GOE has lifted the ban on some live cattle imports from 
Canada and the U.S.  As a result, and after a ban of nearly ten 
years on the import of live cattle from the U.S. due to the endemic 
presence of EBL in parts of the country, trade has been restored 
after a new protocol for EBL testing was agreed upon.  In December 
2008, one of the largest dairy farms in Egypt imported 1,900 head of 
U.S holsteins.  The cattle were sourced from farms in Oregon and 
 
Pennsylvania.  Interest in U.S. dairy cattle is increasing among 
Egyptian dairymen as a result of the success of the first shipment. 
In addition to imported cattle stock, the dairy industry relies 
heavily on imports of feed, vaccines, and medicine. 
 
¶8. (U) For the present, however, and in spite of the live animal 
imports, local production remains costly.  As a result, local milk 
production remains costly. Falling commodity prices have also had a 
negative impact on dairy farmers and increased demand for imported 
powdered milk.  This dynamic has pitted farm owners against the 
producers of dairy products.  As global commodity prices have 
fallen, the cost of imported powdered milk has dropped by nearly 50% 
over the past 12 months. Though prices of local fresh milk have 
dropped somewhat, fresh milk costs LE2.6 (US$.46)/kilo and is now 
priced much higher than imported powdered milk which costs 
approximately LE1.4 (US$.25). Total milk production in Egypt is 
about 3000 tons/day of which 2300 tons are produced by small farms 
and 700 tons by bigger ones. 
 
¶9. (U) According to press reports, the Ministry of Finance has 
committed to providing LE150 million (US$26.8 million) in subsidies 
for dairy products producers for three months. The decision 
reportedly followed negotiations between the Ministries of Finance 
and Agriculture along with dairy product producers. Farmers 
reportedly have insisted on a supply price of LE2.40 (US$.43)/kg for 
milk, while commercial buyers identified a maximum purchase price of 
LE1.80 (US$.32)/kg with a government subsidy from the MOF making up 
the difference.  There are also reports that the Ministry of Trade 
is considering imposing a tariff of 20% on imported milk in an 
effort to protect local producers. 
 
¶10. (U) Both farmers and dairy producers are skeptical. There have 
been no official announcements from either the Ministry of Trade or 
Ministry of Finance outlining concrete plans for subsidies.  Mohamed 
Waaer, farm manager of Dina Farms, Egypt's largest dairy farm, told 
us this is not the first time the government has made such 
announcement, but there has never been any follow through, and he 
didn't expect anything different in the near term. 
Scobey