{"id":636333,"date":"2024-07-30T00:00:00","date_gmt":"2024-07-30T00:00:00","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/2024\/07\/30\/agricultural-exports-marred-by-inefficient-export-system\/"},"modified":"2024-07-30T00:00:00","modified_gmt":"2024-07-30T00:00:00","slug":"agricultural-exports-marred-by-inefficient-export-system","status":"publish","type":"post","link":"https:\/\/enterpriseam.com\/egypt\/2024\/07\/30\/agricultural-exports-marred-by-inefficient-export-system\/","title":{"rendered":"Agricultural exports marred by inefficient export system"},"content":{"rendered":"

The agricultural<\/strong> export industry is at war with itself:<\/strong> Egypt\u2019s exports of agricultural goods have seen considerable growth over the past few years. However, a significant portion of Egypt\u2019s exports are traded through a commission-based system also known as consignment \u2014 a system that has long been criticized for lowering the sector\u2019s returns.<\/p>\n

(Tap or click the headline above to read this story with all of the links <\/strong>to our background as well as external sources.)<\/p>\n

Where we currently stand: <\/strong>Egypt\u2019s agriculture exports reached 7.4 mn tons last year, up from 6.5 mn tons in 2022, with the exports including 406 different products shipped to 160 countries, a source from the Agriculture Ministry told Enterprise. \u201cRevenues have gone up, but the rate of growth doesn\u2019t reflect the fair value of the vast quantities of goods exported annually from Egypt \u2014 and the current commissions-based system is among the biggest reasons for this,\u201d the source added.<\/p>\n

How the system works:<\/strong> The commission-based export system involves local exporters selling their goods in foreign markets through locally-based traders who earn a percentage of total sales revenues. Importantly, the agreements between the exporter and the trader do not stipulate the price of the traded good at the point of sale to consumers, leaving that to be decided by the importer selling in their local market. The system is used for 50% of Egypt\u2019s agriculture exports, according to the Agriculture Ministry, and applies to all agricultural products \u2014 though it affects some products more negatively than others, our source said.<\/p>\n

The problem:<\/strong> The commission-based system pushes both exporters and importers to sell as much product as possible, even if they do so at lower prices than the fair value. For exporters, the differences in exchange rates between Egypt and importing markets \u2014 alongside government subsidies that range from 6-12% of the total export revenues \u2014 mean that the transaction can still be profitable for exporters, even when selling below fair value. For the importer, selling as much as possible increases the commission they earn from the exporter on total revenues.<\/p>\n

\n

EXPERTS WEIGH IN-<\/p>\n

The commission-based system is very flawed.<\/strong> \u201cYou\u2019re sending more goods to a market than it needs, without agreeing on a set price, and then these goods are either sold or not at varying price points based on supply and demand,\u201d former head of the Agriculture Export Council Sherif El Beltagy tells us.<\/p>\n

We need more market coordination: <\/strong>Any export system that increases the supply of a commodity in a foreign market will negatively affect the prices of that commodity, be it the current commission-based system or direct sales, Egyptian Businessmen\u2019s Association chairman and former Agricultural Export Council head Ali Eissa told Enterprise. Egypt should conduct market studies that look at different markets\u2019 seasonal needs to avoid harming export revenues, Eissa said.<\/p>\n

The system can still function well<\/strong> \u2014 however, it can\u2019t be done without the necessary coordination between exporters and proper studies of the needs of international markets, he said. <\/p>\n

Other potential drawbacks: <\/strong>The lower prices that result from commission-based sales also negatively impact local companies that rely on direct sales, as they become pressured to lower their prices amid higher production costs in Egypt, with the gap in prices reaching up to 50%, El Beltagy said. Moreover, exporting more products than needed causes shortages in the local market, which can contribute to rising prices.<\/p>\n

This doesn\u2019t mean we should reverse plans of increasing agricultural export volumes <\/strong>\u2014 but it does mean that the Egyptian market is currently competing with itself and missing out on potentially higher USD revenues, one of Egypt\u2019s leading agricultural exporters tells us.<\/p>\n

The solution? <\/strong>Exporters have proposed a number of solutions that could help resolve the issues, that includes:<\/p>\n