Egypt Agribusiness Report - Q1 2021

Q1 2021
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Egypt
Agribusines
gribusinesss R
Report
eport
Includes 5-year forecasts to 2024
Egypt Agribusiness Report | Q1 2021
Contents
Key View............................................................................................................................................................................................ 4
Egypt Agribusiness Covid-19 Impact ................................................................................................................................................................................... 6
SWOT .................................................................................................................................................................................................. 9
Agribusiness SWOT ..................................................................................................................................................................................................................... 9
Industry Forecast.........................................................................................................................................................................10
Grains ..............................................................................................................................................................................................................................................10
Rice ..................................................................................................................................................................................................................................................14
Livestock .......................................................................................................................................................................................................................................18
Dairy ................................................................................................................................................................................................................................................21
Sugar ...............................................................................................................................................................................................................................................24
Commodity Price Analysis .......................................................................................................................................................28

Monthly Commodities Strategy: Remaining Largely Neutral In Q420, Bullish In 2021 Compared To 2020.........................................28
Upstream Analysis ......................................................................................................................................................................40

Africa GM Outlook: Increasing Liberalisation In Secondary Markets.....................................................................................................................40
Africa Machinery Outlook: Covid-19 Disruptions But Longer-Term Opportunities.........................................................................................46
Africa Fertiliser Outlook: Improving Long-Term Outlook & Limited Covid-19 Impact So Far......................................................................50
Downstream Analysis ................................................................................................................................................................60

Food .................................................................................................................................................................................................................................................60
Regional Overview.......................................................................................................................................................................64
Five Key Themes For Middle East And Africa Agribusiness........................................................................................................................................64
Competitive Landscape.............................................................................................................................................................70
Egypt Demographic Outlook....................................................................................................................................................71
Agribusiness Methodology ......................................................................................................................................................74
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Key View
Key View: Our five-year forecast has been modified in the latest update as we account for the Covid-19 shocks to consumption
and factor in for the latest production trends. We are of the view that Egypt will face growing production deficits in grains and meat,
while the dairy sector will benefit from sustained private investment. Leading up to 2024, an expanding population and rising
disposable income will support consumption growth in livestock, sugar and dairy products. The critical challenges that Egypt faces
over the long term are a weak currency, water shortages and the need to improve farming mechanisms to conserve water for
sustained irrigation purposes. Furthermore, the short-term risks continue to be weighed to the downside owing to the severity of
the Covid-19 shocks on incomes and key economic verticals.
Key Forecasts
• Wheat production by 2023/24: 9.1mn tonnes. Wheat production will be supported by government programmes aimed at
improving water irrigation and the shift away from rice production.
• Rice consumption by 2024: 4.7mn tonnes. This will come from lower bread consumption owing to the new food subsidy
scheme. Rice production will be negatively impacted in the country as the government makes a desperate bid to reduce water
consumption by reducing the arable rice production area. The government remains committed to water conservation in the
country and is maintaining an export ban on rice. Furthermore, a number of improved irrigation techniques will be encouraged.
• Poultry production by 2023/24: 1.3mn tonnes. The recent avian flu outbreak will cause only temporary disruptions within
the poultry sector as rural backyard poultry infections have been the hardest hit, and a number of measures have been
implemented to help curtail future outbreaks. A healthy uptick is expected over the coming years but the short-term risks to
poultry are weighed to the downside due to Covid-19 shocks.
• 2020 real GDP growth: 3.5%, down from 5.6% in 2019, and forecast to average 4.0% from 2020-2024.
• 2020 consumer price inflation (average): 5.9%, down from 9.4% in 2019 and forecast to average 6.4% over 2020-2024.
Egypt Highly Dependent On Neighbouring Countries For Water

Selected Rice-Producing Countries – Water Dependency Ratio, %
Source: FAO, Fitch Solutions
Latest Updates And Structural Trends
The Egyptian government remains committed towards bolstering domestic agricultural product, and we expect growing
investments over FY2020/21 to further encourage domestic production. The government plans to bolster domestic food security
over concerns highlighted by the pandemic. In Q220, Hala Saeed, the Minister of Planning and Economic Development stated that
public investments into agricultural would increase to EGP35.5bn (USD2.1bn) in 2020/21, up from EGP33.9bn in 2019/20.
According to Saeed, the government is hoping to bolster domestic agricultural and food production by 11% y-o-y as the area
dedicated to wheat will increase by 200,000 fedans whereas area dedicated to oil seeds will increase by 220,000 fedans (one fedan
= 4,200sq m). Government efforts to bolster domestic sugar output are also underway as the new USD1bn sugar facility in
partnership with UAE investors is under construction while domestic area for beet plantation is expected to rise by 40,000 fedans to
a total of 600,000 fedans in 2020/21.
As construction of the Grand Ethiopian Renaissance Dam draws to an end, the threat to Egypt’s water supply via the Nile becomes
imminent, exacerbating water security concerns in the country. Government efforts to reduce production of water-intensive crops -
such as rice - have thus intensified. We forecast rice production to fall sharply in the coming years. From being virtually self-sufficient
in rice previously, Egypt will see its imports increase to make up for demand. This provides an opportunity for rice exporters to gain
greater market share in a previously untapped market.
We identify four mechanisms that will accelerate Egypt’s rice production decline. On June 5 2018, the government announced that
it will start importing greater quantities of rice, alleviating currently high local prices brought about by grain hoarding and reducing
national dependence on domestic production over the long term. In January 2018, the government implemented a policy that
saw areas designated for rice cultivation reduced and farmers receiving hefty fines if seen to be exceeding the limit. This
follows a ban on rice exports that was re-introduced in July 2017 (first introduced in November 2013 before being reversed in
October 2014), squeezing the profitability of rice trade and incentivising farmers to switch crops.
A number of government programmes will support wheat production in the country. The World Bank-funded Farm-Level Irrigation
Modernization Project, established in 2013, aims to increase the efficiency of the country's irrigation system by 75%. The project will
improve water irrigation by replacing underground plastic pipes. In addition, the government seeks to recycle treated municipal and
industrial water waste and drainage water for irrigation purposes.
Egypt Agribusiness Covid-19 Impact
Global Summary
The grave risks over global food supply that arose in March-April due to potential Covid-19 disruptions to farm work and supply
chains did not generally materialise. However, the agribusiness sector did see - and is still seeing - some impacts from Covid-19. We
note that the pandemic is still spreading as of Q420, as some countries have still not controlled the first wave of infections (for
example, India), while others are recording a second wave (for example, Western Europe). As a result, the situation continues to
evolve and to pose risks to the sector, mostly to consumption.
Impact On Production And Supply Chain:
• Upstream operations have been carrying on without major hurdles so far. Farm production has carried on relatively well
despite the many challenges stemming from Covid-19, in particular linked to the lack of labour amid lockdown measures and
closed frontiers. We have made minimal changes to our agricultural production forecasts across the globe due to Covid-19
during 2020 so far. We expect global agriculture production to rise in 2020/21 (which corresponds to the FY2020 crop) across
commodities (except cotton).
• Disruptions to food manufacturing have been more salient in March-June. Although food manufacturing, like farming,
carried on due to its strategic nature despite lockdown measures, it has recorded disruptions in H120. This was particularly the
case for meat processing plants in the US, Brazil and to a smaller extent in Western Europe. Some manufacturing facilities
stopped operating due to infections among the workforce. Most of these disruptions were resolved in Q320, but risks remain
salient should the pandemic re-accelerate in the coming months and/or countries implement a second wave of strict
lockdowns.
• Trade of staples carried on relatively well, in spite of some countries implementing protectionist policies amid food supply
concerns at the peak of the pandemic (for example, Vietnam and Russia). Trade of non-staples – for example, palm oil imports
into India – took a hit from lower demand and logistics disruptions over the March-June period. However, agricultural trade has
recovered strongly in Q320 and trade is likely to remain buoyant in the coming months in order to replenish inventories.
• In an effort to facilitate trade and prevent delays in customs clearance during the pandemic, many governments (including
South Korea, Australia and Japan) have relaxed regulatory measures for food trade during the
pandemic, particularly in relation to documentation and labelling requirements. In our view, this swift adaptation bodes well for
the adoption of digitalisation tools in agricultural trade supply chains in the future.
• Overall, we believe that the global food supply chain system has overall weathered what we see as a major
resiliency test relatively well as food trade remains robust and food price inflation low, despite some localised disruptions
(meat processing plants in particular and the temporary implementation of trade protectionist policies). However, we note that
Covid-19 happened at a time when underlying risks to food security were low, amid ample supply and stocks, low prices and a
good crop outlook for 2020.
Consumption And Food Prices
• Agriculture and food consumption have been more dramatically impacted by Covid-19, the related lockdown
measures and its economic aftermaths.
• Not only will the pandemic lead to a sharp reduction in global GDP in 2020, but the lasting Covid-19 containment measures (safe
distancing in shops and restaurants; stricter border controls and the ensuing collapse of the international tourism and hotel
sector; etc.) means that the consumer sector has not recovered fully to pre-Covid-19 levels as of September despite drastic
lockdown measures being lifted earlier in the year. The consumer sector is likely to take time to return to pre-
Covid-19 levels, which will dampen the outlook for more expensive non-staple agricultural and food
products, such as meat and cheese (consumed to a greater extent than other commodities in restaurants), cocoa (chocolate
sales rely to some extent on the tourism industry), palm oil and cotton, among others.
• Strict lockdown measures and the sharp reduction in transport and in fuel use also weighed on 'industrial
commodities' via the biofuel channel, which impacted corn, sugar and palm oil.
• We have revised down our agricultural consumption forecasts across a large number of countries over recent
months. In fact, we have often made two consecutive rounds of reduction in our forecasts, in the April-June country-by-country
quarterly update and again in the July-September quarterly update.
• We forecast global consumption of most softs (cotton, sugar, cocoa, palm oil) and some grains (corn, soybean) to
decline in 2020.
• Total meat consumption will also decline in 2020, due to the global recession and the lingering impact of the African swine
fever outbreak on meat availability and prices. Poultry consumption will rise this year given its affordability, but both pork and
beef consumption will decline.
• Meanwhile, consumption of staple agricultural products (rice, wheat) will rise.
2021 Recovery
Along with GDP growth and a likely slow but steady recovery in consumer sales to pre-Covid-19 levels, we forecast demand for
agriculture products to rebound across commodities in 2021. However, we see downside risks to our forecasts should a vaccine
take longer-than-expected to be found/administrated or should the pandemic accelerate. Meanwhile, our current assumptions is
for agricultural production to reach new highs in 2021/22 (which corresponds to the CY2021 crop) across commodities.
Covid-19: Longer Term Implications For Agribusiness
• As the Covid-19 pandemic puts food supply in the spotlight, it will have long-lasting impacts on the agribusiness sector. It adds
impetus to some of the 2020 key themes we identified at the end of 2019 for agribusiness, and it will amplify and accelerate
many of the sector's megatrends that we have been highlighting.
• The increased awareness of the vulnerability of food supply chains, coupled with the ongoing rise in protectionism will lead
to a renewed emphasis on food security and to increased efforts to boost local food production.
• The coronavirus is also likely to accelerate the adoption of mechanisation in developing countries and of some
agtech segments such as indoor farming, vertical farming and hydroponics.
• On the consumer side, the pandemic will lead to a new awareness and emphasis on local origin products as well as
the acceleration of the 'healthification' trend.
KEY FORECASTS
Real GDP growth, % y-o-y 2019 2020f 2021f
Global 2.6 -4.2 4.4
Emerging markets 3.8 -2.0 4.9
Developed markets 1.7 -5.8 4.2
US 2.3 -4.0 3.9
China 6.1 2.2 5.8
f = forecast. Source: Fitch Solutions. Last updated: September 30 2020
Country-Specific Impact
• The macro outlook for Egypt has been lowered in this update. We expect real GDP growth in Egypt will come in at 3.5% in
FY2019/20 (ending June 30) and 3.0% in FY2020/21. These forecasts represent a significant slowdown from the 5.6% recorded
in FY2018/19, driven by the negative effects of Covid-19 on economic activity both locally and abroad.
• Key economic verticals including tourism, hospitality, gastronomy and retail will be hit hard by the weak economic outlook.
Households, especially in the low- and mid-income segment will scale back spending this year, and we expect meat and sugar
consumption to be hit hard.
• Egypt's large tourism industry that has been thriving on European visitors over 2017-2019 will further feel a severe downtrend
due to Covid-19. Therefore, consumption of food, especially sweets, confection and meat will trend downwards.
• We expect the Egyptian government to bolster public investments into the agricultural sector as the Covid-19 shocks encourage
greater food security. Latest estimates suggest that government investments into agribusiness will increase to EGP34.5bn in
2020/21 along with a robust increase in area dedicated for wheat and sugar.
• The government initially banned the import of sugar for three months in June 2020 after global prices fell significantly in a move
to protect the domestic industry. The ban was extended for another three months in Q320 and will keep a lid on low cost
imports for virtually all of H220.
• Since March, the Egyptian government has announced a series of measures related to the coronavirus. On March 22,
Egyptian President Abdel Fatah El-Sisi announced Sunday economic measures to combat the virus, including decisions related
to pensions and agriculture land taxes. In particular, the government is extending the moratorium on the tax law on agricultural
land for two years.
• On March 28, the government also suspended legumes exports for three months to try to maintain food price stability.
SWOT
Agribusiness SWOT
SWOT Analysis
Strengths • Rising disposable incomes and changing consumer habits have helped fuel domestic consumption growth.
• With a growing population of more than 99mn, Egypt is one of the largest markets in the region.
• The government has made development of the agricultural sector a priority, ensuring continued levels of
investment.
• The country's food production industry is better developed than that of many neighbouring states, creating
strong export opportunities.
Weaknesses • Only 3.5% of Egypt's land mass, centred mostly around the Nile delta, qualifies as agricultural land, severely
limiting output growth.
• The poor state of the country's infrastructure makes it costly for farmers to transport their products, both for
domestic consumption and for export.
• Urban migration is reducing Egypt's rural workforce as well as increasing the age and decreasing the output
of the average rural worker.
• A water shortage in the country will force the government to constrain rice production over the short-to-
medium term.
• The country is dependent on imports across a range of key commodities to meet the needs of its growing
population.
• Covid-19-related income shocks will weigh on food consumption, especially sugar and meat.
• Downtrend in the massive tourism industry will weigh in food consumption over the short term due to
Covid-19 challenges.
Opportunities • Import opportunities from the EU will increase if the free trade zone between the EU and all littoral
Mediterranean states is established; the preliminary agreement is already in place.
• Egypt benefits from a large pool of cheap labour, particularly useful for labour-intensive commodities, such
as rice.
• The government will continue to invest in land reclamation projects, increasing the area available for
agricultural output.
• The government has initiated a number of schemes designed to improve food security in the country on
both the production and the consumption fronts.
• Multinational majors are investing heavily in the country and in the region, which will improve production
facilities.
• The government is committed to developing the Sinai Peninsula and is legalising the status of agricultural
farmers and investors in the region.
• Favourable demographics will support strong levels of food consumption out to 2024 and beyond.
Threats • Urban sprawl is encroaching on the already limited land suitable for agricultural production.
• Drought is always a threat, particularly in light of poor irrigation and diminishing water supply.
• The threat of water shortages in Egypt could wreak significant havoc on farming capacity in the country in
the long run.
• Egypt remains one of the largest importers of wheat worldwide, and the country has refused to accept
certain imported wheat crops in the past owing to concerns regarding ergot fungus.
• The constraints imposed by the government on arable land used for rice production will severely limit export
potential.
• Covid-19 related disruptions to gastronomy and tourism could extend into 2021.
• Income softness and headline macro challenges likely to extend into 2021.
Industry Forecast
Grains
Key View: Better water management practices, improved mechanised farming bed practices and high-yield wheat varieties will
support grain output. Leading up to 2023/24, wheat production will be constrained by a greater amount of arable land being
devoted to export-oriented crops. Throughout this period, wheat consumption will be affected by the country's new food subsidy
scheme, inducing the diversification of diets away from bread. Growth in poultry production will support corn consumption.
Latest Updates
• Better water management practices will support wheat output growth. The government expanded the area of irrigated land for
wheat production from 3.3mn hectares (ha) in 2014 to 3.9mn ha in 2017 and plans to add another 3.8mn ha by 2035.
• The government also remains committed to conserving water and improving farming practices. The World Bank-funded Farm-
Level Irrigation Modernization Project (FIMP) aims to increase the efficiency of the country's irrigation system by 75%.
• Concerns over water scarcity have also led the government to discourage rice production (see Rice section) and encourage corn
and wheat production. We expect rice paddy farmers to continue shifting to cotton, corn and wheat production.
• We expect staple wheat consumption to trend upwards in 2020 as low-income households swap costlier food for basic staples
amid a weak macroeconomic environment. That being said, downside risks to grains consumption in 2020 stem from weakness
in the livestock sector.
EGYPT - GRAIN PRODUCTION AND CONSUMPTION OUTLOOK

Average Growth Forecast, Drivers
2019/20-2023/2024
Production Corn: 0.7% Improved irrigation techniques, strong domestic demand and a shift away from the
production of water-intensive crops, such as rice, amid water scarcity concerns will
Wheat: 1.5% deliver a boost to grain production.
Consumption Corn: 2.7% Corn demand will outpace that of wheat over the next few years owing to the grain's
more pronounced role as a feedstock for the livestock industry.
Wheat: 2.0%
Trade na Egypt will remain one of the world's largest importers of wheat in the coming years as
strong output from Europe and the Black Sea region will ensure that Egypt has a steady
supply of wheat available to import. The collapse in the local currency's value in Q416 will
make importing far more expensive in real terms. Egypt's grain imports from Ukraine are
on the rise as the country looks to secure staple grains from the Black Sea region.
na = not applicable. Source: Fitch Solutions
RISKS TO OUTLOOK
Risks
Short term • If the current impact of the new subsidy scheme is extended to the whole country, wheat consumption could fall
significantly. The decline in the Egyptian pound has meant significantly higher import costs as the country struggles with
water scarcity and is heavily reliant on import.
• Covid-19 shocks to the livestock sector could depress short-term consumption.
Long term • Increases in urban sprawl and water shortages would threaten production growth. Improved irrigation methods are
necessary if the country is to effectively conserve its water supply to meet growing agricultural demands over the long
term.
Source: Fitch Solutions
Structural Trends
1. Government Initiatives To Boost Production
A number of government programmes will support wheat production in the country. The World Bank-funded FIMP, established in
2013, aims to increase the efficiency of the country's irrigation system by 75%. The project will improve water irrigation by replacing
underground plastic pipes. In addition, the government seeks to recycle treated municipal and industrial waste water and drainage
water for irrigation purposes.
On the consumer side, subsidy reform will increase efficiency. The Egyptian government is streamlining its food subsidy scheme,
which costs about USD4.5bn per year. Two-thirds of this amount has been spent on bread products, the staple foodstuff for low-
income Egyptians. The Egyptian government aims to save EGP11.0bn (USD1.6bn) a year, around half of the annual bread subsidy
expenditure. The new method introduces electronic cards that will more effectively monitor the distribution of bread to each family.
The new subsidy scheme replaces commodity-specific price reductions with a monthly stipend that consumers can freely allocate
to a selection of products. Moreover, it rations the amount of bread receivable by supported consumers in order to counteract the
black market for subsidised bread, limit wheat import expenses and diversify the diet of the country's poorest people.
2. Corn Consumption Growth To Outpace Wheat
The ample availability of wheat imports from Europe and the Black Sea Region will support Egyptian over the short term and
beyond. Egyptians are some of the highest per capita consumers of wheat in the world, consuming an array of government-
subsidised bread and pasta as dietary staples. The government subsidises the popular baladi flatbread in order to make bread
accessible to even the poorest in society on a daily basis. However, the recent reform of the food subsidy system will ration bread
consumption in order to limit import expenses and diversify diets. According to the UN Food and Agriculture Organization, the new
subsidy has resulted in 15-35% declines in consumption where it has been introduced. This will limit consumption and import
demand growth in the coming years.
Robust Livestock Demand Bolster Corn Consumption

Egypt - Corn Consumption By Type, '000MT (2010/11-2020/21)
Note 2020/21 is a USDA forecast. Source: USDA, Fitch Solutions
Corn consumption growth will be driven by the poultry sector as it recovers from an outbreak of avian flu. Corn demand will outpace
that of wheat over the next few years owing to the grain's more pronounced role as feedstock for the livestock industry.
Consumption Growth To Constrain Self-Sufficiency

Egypt - Grain Production Balance (2004-2024)
e/f = Fitch Solutions estimate/forecast. Source: USDA, FAO, Fitch Solutions.
3. Self-Sufficiency Goal Remains Elusive And Imports To Continue
We expect Egypt to remain one of the world's largest importers of wheat in the coming years as strong output from Europe and the
Black Sea region ensure the country has a steady supply of wheat available for import. We also believe that the government's aim to
provide 75% of its domestic needs is overly optimistic. Egypt imports 50-60% of its wheat requirements, and the government's
investment for modernising silos in order to reduce wheat storage loss will not significantly shift the country's import dependence.
Corn imports will also remain strong as we expect the country's livestock-producing sectors - particularly poultry - to recover and
grow in the coming years.
Rising Grain Imports Amid Weakening Currency

Egypt - Corn & Wheat Imports, '000MT (2010/11-2020/21)
Note: 2020/21 is a USDA forecast. Source: USDA, Fitch Solutions
GRAINS PRODUCTION AND CONSUMPTION (EGYPT 2016-2024)

Indicator 2016 2017 2018 2019 2020f 2021f 2022f 2023f 2024f
Wheat production, '000 tonnes 8,100.0 8,100.0 8,450.0 8,450.0 8,770.0 8,900.0 9,042.4 9,078.6 9,114.9
Wheat production, % y-o-y -2.4 0.0 4.3 0.0 3.8 1.5 1.6 0.4 0.4
Wheat consumption, '000 tonnes 19,200.0 19,400.0 19,800.0 20,100.0 20,301.0 20,808.5 21,307.9 21,734.1 22,136.2
Wheat consumption, % y-o-y 0.5 1.0 2.1 1.5 1.0 2.5 2.4 2.0 1.9
Corn production, '000 tonnes 6,000.0 6,000.0 6,400.0 6,800.0 6,400.0 6,450.0 6,579.0 6,934.0 7,032.0
Corn production, % y-o-y 0.7 0.0 6.7 6.3 -5.9 0.8 2.0 5.4 1.4
Corn consumption, '000 tonnes 14,850.0 15,100.0 15,900.0 16,200.0 17,010.0 17,350.2 17,714.6 18,104.3 18,484.5
Corn consumption, % y-o-y 6.8 1.7 5.3 1.9 5.0 2.0 2.1 2.2 2.1
f = Fitch Solutions forecast. Source: USDA, Fitch Solutions
Rice
Key View: Out to 2023/24 rice production will remain under pressure because of a shortage of available land and efforts by the
government to conserve water. Egypt faces a serious shortage of rainfall and water for irrigation purposes as rice farming remains
heavily water intensive. On the demand side, rice consumption will remain on a steady growth trajectory, driven by a strong national
appetite.
Latest Updates
• The government is taking a strong stance on water conservation, having passed a bill in July 2017 that penalises the farming of
water-intensive crops, especially rice, outside designated areas. This poses a risk to our forecast outlook over the next five years.
• Construction of the Grand Ethiopian Renaissance Dam (reported to be 60% complete), which threatens Egypt's water supply via
the Nile, has exacerbated water security concerns in the country.
• In June 2018, the government announced that it will start importing greater quantities of rice in an attempt to reduce
dependence on domestic production.
• Rice production had declined by 34.9% in 2018/19 before growing back to 4.3mn tonnes in 2019/20 (in line with the 10-year
average). Looking ahead to 2023/24, we expect very little room for growth as area allocated to rice will remain limited. There will
only be very modest gains owing to yield variety improvements. That being said, risks to production are heavily weighed to the
downside.
EGYPT - RICE PRODUCTION AND CONSUMPTION OUTLOOK

2019/20-2023/24
Production 12.2% Egypt's agricultural production will be limited by the lack of available arable land and the
country's natural dearth of rainfall, as the entire rice crop is irrigated. The government's
newest measures to save water and reduce arable rice production land substantially will
curb output much faster than we expected. Our five-year average is distorted because of
the 2018/19-2019/20 base effects.
Consumption 2.4% Consumption will rise broadly in line with population growth in Egypt as rice is one of the
country's staple foods and will benefit from lower bread consumption induced by the new
subsidy scheme. The income shocks in 2020 stemming from the economic weakness
will further encourage short-term spikes in consumption as income-sensitive households
cut back on costlier foods.
Trade na Egypt will increase rice imports as its production deficit widens. India currently dominates
Egypt’s rice imports. With Egypt opening up its rice market internationally, other major
exporters, such as Thailand, the US, Pakistan and Vietnam, are in a position to enter the
race for a share of Egypt's rice imports. The rice export ban introduced in July 2017
remains in place.
RISKS TO OUTLOOK
Risks
Short term • The government is currently forced to import around 500,000 tonnes of rice at a time of severe currency devaluation as
the battle over rice prices intensifies with the farmers.
• A weak currency will make the real adjusted cost of imports substantially higher.
Long term • Irrigation is essential for Egyptian rice and water shortages would significantly curtail output. Water shortages threaten
the long-term survival of agriculture in the country over the next decade and beyond.
• The government's plan to reduce arable rice land will significantly reduce output. We will monitor the situation carefully
and make further downward revisions to output as necessary.
Structural Trends
1. Heightened Water Scarcity Concerns Will Lead To Rice Production Decline
The ongoing construction of the Grand Ethiopian Renaissance Dam has heightened water scarcity concerns. Rice production had
declined over 2015/16 and 2017/18, shifting Egypt's production from a surplus to a deficit. For now, we see the deficit to increase
albeit modestly out to 2023/24.
We identify four mechanisms that will limit rice production growth in Egypt. On June 5 2018, the government announced that it will
start importing greater quantities of rice, alleviating the high local prices - brought about by grain hoarding - and reducing national
dependence on domestic production over the long term. In January 2018, the government implemented a policy that saw areas
designated for rice cultivation reduced and farmers receiving hefty fines if seen to be exceeding the limit. This follows a ban on rice
exports that was re-introduced in July 2017 (first introduced in November 2013 before being reversed in October 2014) and which
is squeezing the profitability of rice trade, thus incentivising farmers to switch crops.
Egypt Highly Dependent On Neighbours For Water

Selected Rice-Producing Countries – Water Dependency Ratio, %
2. New Subsidy Scheme To Induce Rice Consumption
Rice is already a central component of the Egyptian diet; however, we expect consumption to increase fairly strongly throughout
our forecast period as a result of the government's procurement scheme. Egypt's government provides 1.5kg of rice per person for
the 68mn people under the ration card programme (around 1.3mn tonnes distributed per year). The new electronic card system
introduced gradually since 2014 will induce substitution away from wheat in favour of rice as it limits the consumption of bread.
Rice consumption will rise broadly in line with population growth in Egypt.
Wheat To Lose Short-Term Growth Advantage Owing To New Subsidy

Egypt - Wheat & Rice Consumption Growth, % y-o-y (2014-2024)
f = Fitch Solutions forecast. Sources: USDA, Fitch Solutions
3. Increased Imports To Provide An Opportunity For Exporters
As Egypt’s rice production deficit widens over the next few years, it will boost imports in order to satisfy steadily growing consumer
demand. This will benefit major rice exporters, in particular those that have so far failed to penetrate the rice market owing to Egypt’s
traditional production surplus in this domain. India currently dominates Egypt’s rice imports. With Egypt opening up its rice market
internationally, other major exporters, such as Thailand, the US, Pakistan and Vietnam, are in position to enter the race for a share of
Egypt's rice imports.
RICE PRODUCTION AND CONSUMPTION (EGYPT 2016-2024)

Indicator 2016 2017 2018 2019 2020f 2021f 2022f 2023f 2024f
Rice production, '000 tonnes 4,000.0 4,800.0 4,300.0 2,800.0 4,300.0 4,400.0 4,450.0 4,475.0 4,621.0
Rice production, % y-o-y -11.7 20.0 -10.4 -34.9 53.6 2.3 1.1 0.6 3.3
Rice consumption, '000 tonnes 3,900.0 4,300.0 4,200.0 4,200.0 4,410.0 4,520.3 4,615.2 4,705.6 4,731.5
Rice consumption, % y-o-y -2.5 10.3 -2.3 0.0 5.0 2.5 2.1 2.0 0.6
Livestock
Key View: Poultry production will post slower growth owing to concerns about bird flu outbreaks but will remain a popular meat
staple in the country. Beef production will grow at a faster pace, growing from a lower base than poultry and supported by strong
domestic demand. Consumers are benefiting from subsidised beef prices as part of the new food subsidy scheme. However, we
note that income shocks and disruptions to hospitality, tourism and gastronomy sectors owing to Covid-19 will weigh on the short-
term livestock outlook.
Latest Updates
• We have revised our poultry production and consumption data based on new market figures. We forecast poultry to contract by
just 0.4% in 2020 to 1.1mn tonnes whereas beef and veal output will decrease by 3.8% to 359,000 tonnes.
• Income shocks and disruptions to hospitality and tourism will result in a 4.0% decrease in poultry demand whereas beef and veal
consumption will contract by 7.0% in 2020. That being said, the outlook for production and consumption is positive over
2021-2024 as household incomes and macroeconomic climate trend upwards.
• The government implemented a law in 2018 that will ban the transport of unlicensed live birds in order to combat pollution and
prevent outbreaks of avian influenza.
• Since around August 2018, an increased level of US beef liver shipments have been rejected at port because of a zero-tolerance
policy for ractopamine, a commonly used veterinary drug.
• Egypt continues to import most of its meat from Brazil and India, and is the largest beef importer in Africa.
EGYPT - LIVESTOCK PRODUCTION AND CONSUMPTION OUTLOOK

2019/20-2023/24
Production Poultry: 3.2% Livestock production will slow in 2020 as Covid-19-related shocks will impact the
economy and reduce investor sentiment and domestic demand.
Beef: 2.5%
Consumption Poultry: 2.8% Despite bird flu concerns, poultry demand will remain strong over the 2021-2024
period driven by low costs of consumption and higher affordability. Meat
Beef: 2.4% consumption will be very weak in 2020 as incomes remain under pressure. That
being said, the outlook will improve from next year onwards. Meat consumption will
be driven by steady income growth, recovery in the national economic environment
and a steady uptick in population and national appetite over the medium and long
terms. The shocks to the massive tourism industry in 2020 will also constrain
demand this year before wider recovery in the sector from 2021.
Trade na Egypt will remain the largest importer of beef in Africa, importing predominantly
from Brazil and India.
RISKS TO OUTLOOK
Risks
Short term • A sizeable depreciation of the Egyptian pound would curtail beef production growth owing to more expensive input
prices.
• A weaker currency would hurt beef farmers significantly, especially if the value of the currency does not quickly return
to a stable equilibrium.
• Downward pressures on the economy could curtail domestic consumption and spending levels, depressing meat
consumption.
• Covid-19-related shocks to the hospitality, tourism and gastronomy sectors will further compound income shocks this
year.
Long term • Another outbreak of avian flu could hinder poultry production if it were to hit the industrial rather than rural
production.
• A protracted, multi-year recession will weigh on long-term meat consumption.
Structural Trends
1. Poultry Production To Slow On Fears Of Bird Flu
Poultry output will decline in 2019 and rebound thereafter. Up until January 2018, there had been at least 362 reported cases of
avian influenza in Egypt. The government, therefore, implemented a law in 2018 that banned the transport of unlicensed live birds.
Furthermore, poultry products may only come from licensed abattoirs. Unlicensed abattoirs will be shut down. The clampdown on
the black market for poultry, which local news sources report to account for 30% of the Egyptian poultry market, will weigh on
overall production in 2019. These measures will most likely reduce risks of further outbreaks of avian influenza and improve
efficiency. We expect output to remain under pressure in 2020 due to Covid-19 shocks but for the trend to turn positive from 2021.
2. Greater Beef Demand From New Subsidy Scheme
Poultry meat is the main source of protein for the majority of the Egyptian population, with consumption expected to grow in line
with population growth and rising disposable incomes. Poultry consumption will outstrip beef throughout the coming years,
according to our forecasts. Per capita consumption of both poultry and beef is fairly low in Egypt by global standards, and we expect
demand for both forms of meat to increase sharply. Moreover, consumers now benefit from subsidised beef prices as part of the
new food subsidy scheme; however, poultry demand will outperform beef as it is still a cheaper form of meat.
Greater Deficits Will Require Additional Imports

Egypt - Poultry & Beef Production Balance, '000 tonnes (2007-2024)
f = Fitch Solutions Solutions forecast. Source: USDA, Fitch Solutions
We forecast consumption growth to outpace production for both poultry and beef, leading to growing production deficits in the
coming years. This will be stronger for poultry owing to the strong consumption growth we forecast and will require Egypt to
increase imports in order to meet the additional demand.
LIVESTOCK PRODUCTION AND CONSUMPTION (EGYPT 2016-2024)

Indicator 2016 2017 2018 2019 2020f 2021f 2022f 2023f 2024f
Beef & veal production, '000 tonnes 357.0 360.0 365.0 373.0 359.0 376.0 389.0 407.0 421.0
Beef & veal production, % y-o-y 16.7 0.8 1.4 2.2 -3.8 4.7 3.5 4.6 3.4
Beef & veal consumption, '000 tonnes 697.0 610.0 665.0 683.0 635.2 674.6 711.7 739.4 765.7
Beef & veal consumption, % y-o-y 4.7 -12.5 9.0 2.7 -7.0 6.2 5.5 3.9 3.6
Poultry production, '000 tonnes 1,007.0 1,044.0 1,067.0 1,075.0 1,071.0 1,107.0 1,142.0 1,189.0 1,254.0
Poultry production, % y-o-y -2.0 3.7 2.2 0.7 -0.4 3.4 3.2 4.1 5.5
Poultry consumption, '000 tonnes 1,134.0 1,266.0 1,131.0 1,136.0 1,090.6 1,150.5 1,198.9 1,248.0 1,297.3
Poultry consumption, % y-o-y 2.4 11.6 -10.7 0.4 -4.0 5.5 4.2 4.1 4.0
Dairy
Key View: We maintain the view that the Egyptian dairy sector will continue to grow in 2020 and out to 2024 as multinational firms
increase their regional investments and domestic demand remains steady. Over the course of the medium term, private investment
will fuel further production growth. The gradual recovery in the Egyptian economy will help disposable incomes, thus increasing the
demand for value-added dairy products and confectionery. However, the risks are presently weighed to the downside as the
Covid-19 pandemic shocks inject uncertainty into the market.
Latest Updates
• Leading up to 2024, Egypt's milk surplus will increase as the country grows in importance as a regional supply hub.
• Butter consumption will benefit from changing diets, and we believe that butter and cheese demand will post stable growth over
the course of our forecast period.
• Egypt dairy imports will trend downwards owing to a weak currency and improved domestic production levels.
EGYPT - DAIRY PRODUCTION AND CONSUMPTION OUTLOOK

Average Growth Drivers
Forecast, 2019/
20-2023/24
Production Milk: 0.6% Private investment will fuel milk production growth, and cheese and butter will grow following
the recovery in the Egyptian economy.
Butter: 1.5%
Cheese: 1.9%
Consumption Milk: 0.5% Strong population growth and rising incomes will see more consumers converting to high-value
packaged milk products. The short-term 2020 consumption growth rates have been lowered to
Butter: 1.7% account for the income weakness that will discourage prove-sensitive households to forgo
costlier dairy products amid an inflationary environment.
Cheese: 1.6%
Trade na Growing domestic dairy production will discourage costly imports as the Egyptian pound
remains at historic lows.
RISKS TO OUTLOOK
Risks
Short term • In the event of an economic downturn, consumers would cut down on processed dairy goods. Nevertheless, regional
dairy exports from Egypt to Middle East and North African countries could receive a boost as a result of the lower
Egyptian pound.
• Covid-19-related income shocks could derail spending on costlier daily and probiotics over the 2020-2021 period.
Long term • If Egypt were able to open up more export markets for its dairy products, it would boost domestic production.
• A low Egyptian pound versus global benchmark currencies will continue to discourage costlier imports of cheese and
butter.
Structural Trends
1. Foreign Direct Investment To Drive Milk Output Growth
We forecast milk production to increase as large-scale farms, which are increasing in number and efficiency as multinational food
and drink firms increase investment in the region, are already providing a boost to Egypt's dairy production. We expect cheese
production to grow at a lower rate than milk production as investment in the latter sector will be more significant. Butter will face
similar problems with lower investment.
Dairy Growth Steady

Egypt - Dairy Production Growth, % y-o-y (2015-2024)
f = Fitch Solutions forecast. Source: OECD, FAO, Fitch Solutions
Out to 2023/24 we believe that private domestic and foreign investment will fuel production growth in the country's dairy sector.
During this period, Egypt's milk surplus will remain steady as the country grows in importance as a regional hub. We expect cheese
output growth to accelerate as the recovery in the Egyptian economy will help disposable incomes rise and, therefore, the demand
for value-added dairy goods. Butter production, which comes from a low base, will continue to grow at a marginally quicker pace
than cheese.
2. Buoyant Growth In Consumption
Dairy products have become an important component of the Egyptian diet. It is estimated that around 75% of Egyptians consume
milk that has not been packaged or pasteurised. However, this figure is dropping rapidly as health and hygiene concerns, as well as
rising incomes, see more consumers converting to packaged milk products. Cheese is also an important part of the Egyptian diet.
Annual per capita consumption is roughly 8kg as many people eat cheese as part of at least one of their daily meals. Butter
consumption will also be affected by changing diets, and we believe that butter demand will marginally outpace that of cheese.
DAIRY PRODUCTION AND CONSUMPTION (EGYPT 2017-2024)

Indicator 2017 2018 2019 2020f 2021f 2022f 2023f 2024f
Milk production, '000 tonnes 6,229.0 6,305.0 6,373.0 6,477.0 6,501.0 6,525.0 6,549.0 6,573.0
Milk production, % y-o-y 1.0 1.2 1.1 1.6 0.4 0.4 0.4 0.4
Liquid milk consumption, '000 tonnes 3,280.0 3,351.0 3,409.0 3,415.8 3,441.4 3,462.4 3,478.7 3,490.2
Liquid milk consumption, % y-o-y 1.4 2.2 1.7 0.2 0.8 0.6 0.5 0.3
Butter production, '000 tonnes 135.0 137.0 139.0 141.0 144.0 146.0 148.0 150.0
Butter production, % y-o-y 1.5 1.5 1.5 1.4 2.1 1.4 1.4 1.4
Butter consumption, '000 tonnes 215.0 221.0 227.0 230.0 234.0 238.2 242.6 247.2
Butter consumption, % y-o-y 2.6 2.8 2.7 1.3 1.8 1.8 1.9 1.9
Cheese production, '000 tonnes 678.0 685.0 695.0 709.0 721.0 735.0 749.0 763.0
Cheese production, % y-o-y 0.4 1.0 1.5 2.0 1.7 1.9 1.9 1.9
Cheese consumption, '000 tonnes 642.0 665.0 667.0 670.3 683.4 696.2 708.6 720.3
Cheese consumption, % y-o-y 2.1 3.6 0.3 0.5 2.0 1.9 1.8 1.7
f = Fitch Solutions forecast. Source: OECD, FAO, Fitch Solutions
Sugar
Key View: Egyptian sugar production will grow steadily as sugarcane acreage remains stable and sugar beet acreage grows at the
expense of cotton. Leading up to 2024, production will strengthen modestly as the government is keen to expand sugar output and
reduce import dependency in the country. Substantial upside risks to domestic production come from a landmark UAE-owned
facility being constructed in the country with a capacity of up to 1mn tonnes. On the consumption side, an expanding population
and rising disposable incomes will stimulate the demand for sugar and confectionery over the coming years.
Latest Updates
• The government imposed a sugar export tariff in 2017 that mandated EGP3,000 (USD165) per tonne exported in a bid to ensure
domestic sugar consumption sufficiency.
• UAE-based Al Ghurair Group stated in 2018 that it would invest heavily into developing a new sugar factory in Egypt. The new
plant will be co-financed by local Egyptian groups and is estimated to produce up to 1.0mn tonnes of sugar a year. The new
production facility is expected to cost around USD1bn totally and will be located on 78,000 hectares with an estimated
completion date of Q422. The government remains keen to close the national sugar deficit and has strongly supported this
landmark project. We will continue to monitor the progress of the project and amend our medium-term forecasts as necessary.
• The average annual growth of sugar production and consumption over our forecast period will remain on a steady uptrend.
• Sugar beet acreage will increase as cotton farmers substitute cotton for sugar beet. This is owing to the government's new policy
of distributing seeds to farmers, contingent on farmers securing purchasing contracts beforehand.
• Sugar production grew by 3.7% in 2018/19 and an additional 13.9% in 2019/20 to reach 2.7mn tonnes. We expect output to
track upwards by a more modest 1.5% in 2020/21 to 2.8mn tonnes.
• Consumption will trend lower in 2020 as income shocks stemming from Covid-19 coupled with social disruptions in the
hospitality and gastronomy sectors. We expect total consumption to decline by 5.0% in 2020 to 2.9mn tonnes before growing to
around 3.5mn tonnes by 2023/24.
• In June 2020, Egypt banned imports of sugar as international prices fell in a bid to protect the local industry. The government
further announced in Q320 that the ban on imports would be extended till the end of 2020.
EGYPT - SUGAR PRODUCTION AND CONSUMPTION OUTLOOK

2019/20-2023/24
Production 4.3% Production will strengthen as the government is keen to expand sugar output in the
country. The sugar crisis of Q416, which extended into 2017, forced the government
to expedite its domestic sugar production policies.
Consumption 2.42% An expanding population and rising disposable incomes will stimulate demand for
soft drinks, sweets, chocolates and confectionery. That being said, consumption will
be weak in 2020 due to the Covid-19-related shocks to income and the hospitality
sector.
Trade na Solid growth in raw sugar imports will come from strong consumer demand for
imported sugar as it sells at a discount compared with domestically produced sugar.
The government has imposed a new sugar export tariff of around USD165 per tonne
in a bid to ensure domestic demand and supply levels.
RISKS TO OUTLOOK
Risks
Short term • Imports could decrease if Egypt were to reinstate an anti-dumping duty to reduce imports and protect domestic
producers.
• Egypt imports around 1mn tonnes of sugar annually, and the declining local currency against global benchmark
currencies has made imports very expensive - a trend that could persist.
Long term • Water shortages could curtail output growth as the cane crop relies on irrigation.
• A strong economic headwind could force consumption downwards as demand for confectionery could diminish,
especially of the Covid-19 social and economic shocks extend into 2021 or beyond.
• The USD450mn project funded primarily by UAE-based Al Ghurair Group could potentially produce as much as 1mn
tonnes of extra sugar nationally by the end of 2021/22.
Structural Trends
1. Production Up As Acreage Increases
We maintain our forecast for an increase in Egyptian sugar production owing to increasing sugar beet acreage. Sugar beet acreage
will increase as cotton farmers substitute cotton for beets owing to the government's new policy of distributing seeds to farmers,
contingent on farmers securing purchasing contracts beforehand.
Steady Growth To 2024

Egypt - Sugar Production ('000 tonnes) & Growth (% y-o-y)
Leading up to 2023/24, we forecast production growth to strengthen as the government is keen to expand sugar output in the
country in an attempt to meet its domestic requirements for the commodity. We note that the landmark USD450mn project
primarily funded by the Al Ghurair Group aims to build a new state-of-the-art sugar production facility about 265km south of Cairo.
This is one of the largest foreign-funded non-energy projects active in Egypt at present and poses significant growth potential. The
Egyptian government is committed to sugar self-sufficiency as national appetite grows. The new sugar production facility is
estimated to be able to produce an additional 800,000 to 1mn tonnes of sugar annually by the end of 2022.
Upside Risks Owing to New Production Facility

Egypt - Sugar Self-Sufficiency, % (2016-2024)
f = Fitch Solutions forecast. Source: USDA, Fitch Solutions.
2. Steady Consumption Growth As Sugary Sweets Remain Popular
We maintain our forecast for sugar consumption to increase despite the new government subsidy resulting in higher sugar prices.
Under the previous system, the price of sugar was directly subsidised for ration card holders. Consumers now have access to a
monthly stipend that they can allocate to a range of products, including sugar. However, the impact of a higher sugar price will be
mitigated by consumers' preference for imported sugar as it is cheaper than domestically produced sugar because of the
government's support price for domestic production. Owing to the popularity of sugary sweets in Egypt, we forecast stable sugar
consumption growth over 2021-2024 as an expanding population and recovering disposable incomes will stimulate demand for
soft drinks and confectionery. That being said, we reiterate our view that the short-term 2020 outlook has been lowered to account
for the income shocks stemming from Covid-19 coupled with social disruptions in the hospitality and gastronomy sectors.
Government Efforts To Curtail Imports

Egypt - Sugar Imports, '000mt (2009/10-2020/21)
Note: 2020/21 is a USDA forecast. Source: USDA, Fitch Solutions
3. Room For Imports Post Quota In 2021
We continue to forecast growth in raw sugar and confectionery imports owing to strong consumer demand for imported sugar as it
sells at a discount compared with domestically produced sugar. Egypt imports raw sugar and refines it domestically. Despite the
government's regular imposition of import tariffs in order to protect domestic producers, we believe that Egyptian imports will
remain on an uptrend in the coming years. Egypt sources the majority of its sugar imports from Brazil; however, we believe that the
EU could become the country's prime supplier since the bloc's sugar production quota was abolished in September 2017. We are of
the opinion that this will lead to greater sugar output from the region from the early 2020s and that Europe could become a net
exporter of sugar in this period. Moreover, sugar from the EU does not incur import tariffs in Egypt as part of the EU-Egypt
Association Agreement, which will reinforce its competitiveness on the Egyptian market. We reiterate the view that the headline
USD1bn sugar production facility is being championed as a landmark project capable of producing up to 1mn tonnes of sugar
annually by the end of 2022. We are cautious about this time line and note that it could take more than five years for the project to
get off the ground and reach its maximum production potential. We expect imports to continue plugging the gap out to 2024
SUGAR PRODUCTION AND CONSUMPTION (EGYPT 2016-2024)

Indicator 2016 2017e 2018e 2019e 2020f 2021f 2022f 2023f 2024f
Sugar market value, % of total 8.1 7.3 5.7 5.9 7.2 7.4 7.3 7.2 7.1
Sugar production, '000 tonnes 2,125.0 2,270.0 2,320.0 2,405.0 2,740.0 2,780.0 2,839.1 2,898.3 2,957.4
Sugar production, % y-o-y 2.8 6.8 2.2 3.7 13.9 1.5 2.1 2.1 2.0
Sugar consumption, '000 tonnes 2,930.0 2,950.0 3,050.0 3,100.0 2,945.0 3,151.1 3,277.2 3,382.1 3,480.1
Sugar consumption, % y-o-y 1.0 0.7 3.4 1.6 -5.0 7.0 4.0 3.2 2.9
e/f = Fitch Solutions estimate/forecast. Source: USDA, national sources, Fitch Solutions
Commodity Price Analysis

Monthly Commodities Strategy: Remaining Largely Neutral In Q420,
Bullish In 2021 Compared To 2020
Key View
• We remain broadly neutral from current levels on commodity prices in the last quarter of 2020, with the exception of gold as the
US Presidential election approaches fast and brings with it uncertainties that will support demand for safe haven assets. While we
are neutral towards base metals and see a possibility of them consolidating in the coming months, we do not expect a strong
trend reversal yet. Base metals have largely regained all their Covid-19 losses and are at levels seen in Q419, with copper and iron
ore at multi-year highs due to strong fundamentals. In regards to oil, we highlight rising risks to our still-positive outlook as
sentiment has taken a sharp turn for the worse in September.
• Looking at 2021, we are mostly positive on commodity prices, in particular towards energy (oil and natural gas) and softs. While
oil prices will be driven by investor sentiment and a focus on improving demand as economies recover, we note substantial risks
on the supply side which is increasing scope for a market shock in 2021. Metal demand will also continue to rise in 2021, but the
pick-up in supply we forecast following the disruptions recorded due to Covid-19 will likely cap significant price gains next year.
Q420: Remaining Largely Neutral Towards Commodities, But Significant Volatility Approaching
As we are about to enter the last quarter of 2020, we remain largely neutral towards commodity prices but note
rising uncertainty as investor sentiment towards the complex will become increasingly volatile with the US
Presidential elections fast approaching. Additionally, uncertainty on a multitude of factors (geopolitical risks, length of the
pandemic and potential for a vaccine, etc) remain elevated with rising challenges from second waves of infections across several
economies. Our view of an ongoing uneven and bumpy economic recovery from Covid-19 – that we have been highlighting in
recent months - continues to directly impact commodities, bringing across a divide in sentiment towards commodities that are
largely dependent on Chinese demand versus those that rely on global demand ex-China.
Our view for China to see a V-shaped recovery continues to receive reaffirmation with economic data for August
showing sustained acceleration. That said, our Country Risk team believes there is further room for year-to-date fixed asset
investment (FAI) growth to pick up to positive territory in Q420 as more infrastructure projects commence through the end of 2020.
This is a direct result of the government’s monetary and fiscal stimulus continuing to feed through, supporting investment,
especially with the announcement of CNY4.75trn worth of special purpose government bonds during the National People’s
Congress in May. As a result, given China’s dominant share in global metal demand, especially through the country’s construction
sector, metal prices have clearly outperformed other commodities in recent months and are back to their pre-Covid-19 levels. While
technical indicators suggest prices are overextended and we could see some stabilisation ahead, we believe sustained Chinese
demand and positive investor sentiment towards China will prevent a clear trend reversal in the upward direction of base metal
prices in the coming months into 2021.
Prospects Faltering For Brent While Looking Bright For Copper

Ratio of Long Vs Short Managed Money Positions - LHC: Brent Crude; RHC: Copper
Source: Bloomberg
That said, within China we expect retail sales growth to be slow as consumers will remain wary of stepping up
spending significantly given that economic uncertainty remains elevated. While in August growth of retail sales came in
positive for the first time in 2020, domestic demand remains sluggish despite a V-shaped economic recovery. Weaker spending
power prospects amidst a global recession, consumers’ concerns over risks of unemployment, an anemic tourism industry, and
added safety measures at shops and restaurants means the textile, restaurant, coffee-shop and hospitality businesses will take time
to recover. This means that while demand for minerals and metals in China will remain strong going forward, demand for non-staple
agricultural commodities will take time to normalise. Using China as a leading indicator – the country started to lift coronavirus
restrictions in April – this bodes ill for global demand for cotton, coffee, cocoa, meat among others until a vaccine is fully available
and consumer mobility and spending return to pre-Covid levels.
Outside of China, countries across the world continue to tackle the virus with varying success. A dismal economic
performance in the second quarter, data of which is currently being released, alongside a second wave of infections
across several developed markets (DMs) over July and August have dampened sentiment towards oil. A sharper
decline in sentiment arose from a more downbeat outlook on emerging markets (EMs), with India’s Q220 contraction gaining
headlines as the biggest fall in any major economy. Given that oil demand growth is mainly driven by EMs including India, the
struggle to contain the spread of Covid-19 among many of the major EM consumers of oil will continue to pressure sentiment.
Positioning in Brent futures has grown steadily more bearish since August and is currently approaching the levels last seen during
the market crash over March to April. While the underlying fundamentals should continue to improve over the coming quarters, we
expect to see a ‘stop-start’ recovery in oil prices. We have maintained our 2020 price forecast for Brent of USD44.0/bbl in the latest
monthly oil price outlook, but note rising risks to our still-positive outlook.
Metals Flying High While Oil Lags

S&P GSCI Industrial Metals (LHC) & Energy (RHC) Spot Index
Source: Bloomberg, Fitch Solutions
2021: Improvement In Prices Across The Commodities Complex In General
Looking at 2021, we maintain a bullish bias towards commodity prices, in particular towards energy (oil and natural
gas) and softs. A number of factors will support the complex next year.
On the demand side, commodities demand will recover more strongly and homogeneously around the world in 2021
as compared to 2020. Our Country Risk team expects global growth to recover to 4.4% in 2021 with favourable base effects after
a contraction of -4.5% in 2020. This will bring the global absolute nominal GDP number in 2021 beyond 2019 levels, supporting
demand for commodities. In fact, several leading indicators are already pointing to a steady improvement, such as Purchasing
Managers' Indices (PMIs) now in expansionary category generally throughout the world.
Barring rising risks to our oil outlook, the rebound in demand will be strongest for oil and softs. We believe the rise in
crude oil prices will support biofuel and industrial agricultural commodities in particular sugar and cotton. We also see the grains
market tightening with most demand disruptions, in particular due to meat plant closures, now behind us. Metals consumption will
also continue to see growth in 2021, but we note the strong rebound had already started since May 2020 with Chinese stimulus
measures and the pace of consumption growth going forward will be more measured.
COMMODITIES RISK MONITOR - SEPTEMBER-OCTOBER 2020

UPSIDE RISKS DOWNSIDE RISKS
Our price forecasts are currently based on the view that the recovery will
Lingering of the Covid-19 pandemic in 2020-2021 - Although
be uneven and challenging in 2020. A fast, smooth and strong global
governments are unlikely to return to full lockdown measures, a
recovery would unleash pent-up demand, improve market sentiment
substantial second wave of the virus could drive the global
and support commodity prices more than we are expecting at the
economy into a double-dip recession
moment.
Geopolitical and domestic political risks remain elevated.

Renewed antagonistic rhetoric between the US and China -
Vaccine available early - Currently medical consensus is for a Covid-19 Compliance by China of the ongoing Phase 1 trade deal has been
vaccine ready to be commercialised by mid-2021. An earlier release low (only partly due to Covid-19 disruptions). The topic
would boost investor sentiment in financial markets, including could come back to the fore in the coming months amidst US
commodities. presidential elections. Renewed threats of a trade war could
dampen market sentiment and put downward pressure on
cotton and soybean in particular.
Risks of La Niña - In June 2020, Australia's Bureau of Meteorology

US Presidential elections in November 2020 - The looming
increased the probability of a La Niña event this year to 50%. This event
election could rattle investor sentiment thus underpinning more
usually leads to drier-than-usual weather in the US and Latin America.
price fragility.
Should it materialise, it could boost grains, oilseeds and softs prices.
Rising long term risks of inflation - Inflation expectations are Unravelling of the OPEC+ deal - The rise in oil prices we
currently low. However, the ongoing accumulation in debt globally sows anticipate in 2021 could lead to lower compliance to the deal
the seeds for future inflationary risks. This would provide significant and to the re-surfacing of Saudi-Russian tensions, putting the
support to commodities, which are a traditional hedge against inflation. deal in jeopardy.
Full Recovery In Demand For Most Commodities By 2021

Select Commodities - Fitch Solutions Global Consumption Forecasts (% chg y-o-y)
f = Fitch Solutions forecasts. Source: Local statistics, Fitch Solutions
On the supply side, while we believe in an output pick-up in 2021 as Covid-19 disruptions clear, the pace of growth
should generally not significantly outpace the growth in demand for metals and oil. For instance, with the exception of
lead and tin, we forecast most metal markets to remain in deficit or tighten in 2021. Similarly, we expect the recovery in oil demand
will outpace the rise in supply over the back end of 2020 and into 2021, supporting a rise in Brent prices. In fact, our data signal y-o-
y declines in global crude, condensate and NGL supply in both 2020 and 2021. Nevertheless, we note rising risks to this as we see
increasing scope for a market shock in 2021 with a possible return of barrels to the market from Libya and Iran.
With regards to agricultural commodities, however, the outlook is mixed. In particular for softs, we are bullish
towards prices in general from current levels in 2021. For instance, the cotton market will tighten significantly as production
will decline by 2.1% y-o-y in the 2020/21 season, which is starting in August 2020 with the Northern Hemisphere harvest. This is
due to a conjunction of factors including unseasonal weather (US) and low prices at time of plantings. We also expect the market to
tighten for cocoa and palm oil, although the sugar and coffee markets will loosen in 2021. That being said, we expect the already
well supplied grains market to loosen further in 2021 (rice, wheat, corn), with the exception of soybean, and we remain largely
neutral on prices next year.
Production To Recover In 2021 Following Covid-19 Disruptions & OPEC+ Cuts In 2020
Select Commodities - Fitch Solutions Global Production Forecasts (% chg y-o-y)
f = Fitch Solutions forecasts. Source: Local statistics, Fitch Solutions
FITCH SOLUTIONS COMMODITY FORECASTS VS CONSENSUS - MOSTLY AT OR ABOVE CONSENSUS FOR METALS AND OIL
2020 2021
Fitch Solutions Consensus Fitch Solutions
Difference (FS Consensus 2021 Difference (FS
2020 2020 2021
vs Consensus) vs Consensus)
Lead, USD/
1,800 1,818 -17.9 1,900 1,894 6.3
tonne
Iron Ore, USD/

95 96 -1.4 90 88 2.0
tonne
Zinc, USD/
2,200 2,200 0.0 2,350 2,288 62.5
tonne
Copper, USD/
6,000 5,980 19.9 6,300 6,456 -156.3
tonne
Aluminium,
1,690 1,660 29.6 1,780 1,717 62.9
USD/tonne
Gold, USD/oz 1,850 1,765 85.0 1,850 1,885 -35.0
Tin, USD/tonne 17,000 16,800 200.0 18,000 18,000 0.0
Nickel, USD/
13,500 13,235 265.0 15,000 14,763 237.5
tonne
Oil - Brent crude,

44 42 2.0 51 48 3.3
USD/bbl
Oil - WTI, USD/

38 38 0.0 45 45 0.0
bbl
Cocoa, USD/
1,775 2,370 -595.0 1,725 2450 -725.0
tonne
Wheat, USc/
515 530 -14.8 490 514 -23.9
bushel
Soy, USc/bushel 885 890 -5.0 900 925 -25.0
Cotton, USc/lb 61 61.6 -0.5 68 68 0.0
2020 2021
Fitch Solutions Consensus Fitch Solutions
Difference (FS Consensus 2021 Difference (FS
2020 2020 2021
vs Consensus) vs Consensus)
Sugar, USc/lb 11.9 12.1 -0.2 12.7 12.45 0.3
Coffee, USc/lb 110 110 0.0 105 110 -5.0
Corn, USc/
365 345 20.0 370 370 0.0
bushel
Note: Bloomberg Consensus Estimates as per September 17. Source: Bloomberg, Fitch Solutions
Lastly, our Country Risk team believes the US dollar will continue to weaken over the coming quarters, following on
from recent months (in spite of some risks of a bounce in the very short term). A weakening USD bolsters our positive
view on commodities on a 12-month horizon, as the greenback is traditionally negatively correlated with commodity prices,
particularly oil.
Most Commodities To Average Higher In 2021 Compared To 2020

Fitch Solutions 2021 vs 2020 Price Forecast (% Chg)
Gold: US Presidential Elections In November To Remain Key
We are bullish on gold from current prices in the remaining months of 2020, with November to bring about a strong
rise due to heightened uncertainty around the US Presidential elections which will lead to a boost in demand for safe
haven assets including gold. Prices have largely range-traded in the last month, but remain above 2011 highs. Barring the bouts
of volatility we expect in the coming months, underlying factors remain supportive for gold, as we expect the US dollar to weaken
while bond yields will remain low as central banks keep monetary policies accommodative. This will provide significant support to
non-yielding assets, including gold, in 2020 as well as 2021. Gold will also be supported by elevated global uncertainties amidst still-
rising US-China tensions and still-persisting Covid-19 concerns. We forecast prices to average USD1,850/oz in both 2020 and 2021.
Iron Ore Outperformance To Continue In Q420

Metal Prices, Normalised
Note: Prices Normalised as of December 31 2019. Source: Bloomberg, Fitch Solutions
COMMODITIES STRATEGY AND OUTLOOKS

3-6 12-24
COMMODITY
MONTH MONTH COMMENT RECENT ANALYSIS
SUB-GROUP
OUTLOOK OUTLOOK
After two months of sideways trading Brent dipped briefly back down
below USD40/bbl to start September. While the 10% decline is at least in
part due to broader market selloffs, it is also testament to generally weak
sentiment towards oil. Widening contango conditions, easing OPEC+
cuts and reports of Libyan crude exports restarting have weaken the
fundamentals view and dampened the expectation for undersupply
heading into 2021. Positioning in Brent futures has grown steadily more 'Brent Relapse A Sign
bearish since August and is currently approaching the levels last seen Of Things To Come',
Neutral- during the market crash over March to April. Such sentiment leaves September 16; 'Brent:
Oil Bullish
to-bullish prices heavily exposed to any signs of fundamental weakness. Eking Out Gains, But
Disappointing economic data and signs of resurgence of Covid-19 in key Risks On The Rise',
markets (including parts of the EU, Japan and India) have eroded the September 1
upside case for Brent. Although not our core view the risk of continued
deterioration the global economic recovery coupled with a disputed
election result in the upcoming US elections could see prices fall further
heading in 2021. For now, we hold our 2020 annual average Brent price
at USD44/bbl and 2021 at USD51/bbl though downside risks are
beginning to weigh on the bullish view.
Base metals have continued to perform strongly in recent months with

nearly all base metals higher on the year. Strong demand from China as
stimulus feeds through to the domestic economy has buoyed prices ‘Zinc Prices: Upward
higher alongside positive market sentiment and supply disruptions (in Revision, But Rebound
copper in particular). We continue to expect Chinese demand will remain To Lose Steam’,
Neutral-
strong in the months ahead, thus keeping prices supported. Looking September 7; ‘Copper
Base Metals to- Neutral
over to the longer term, we expect prices to cool off from spot levels for Prices: Outlook Bright
bearish
a few metals such as copper and zinc. For copper, we expect a ramp up As Demand Is
in mineral production and new projects coming online to feed through Buoyant’, September
to higher refined copper output, easing upward pressure on prices. In 11
the case of zinc, a return to oversupply in the market will pressure prices
lower as it embarks on a multi-year downtrend.
Iron ore prices have reached multi-year highs and we expect prices to
remain supported in the coming months, outperforming non-ferrous
metals. Continued concerns over Brazil's iron ore supply, as coronavirus
'Steel Prices: Recovery
cases and deaths continue to plague the country's mining regions, have
Ferrous Neutral- In Process With Asian
Bearish boosted iron ore prices along with strong Chinese demand as steel
Metals to-bullish Prices In The Lead',
production has started to heat up with the country's V-shaped recovery.
August 31
Prices will remain elevated until 2021 before submitting to a modest
multi-year decline. We forecast iron ore prices to average USD95/tonne
in 2020, and steel prices to average USD560/tonne.
Gold prices remain above USD1,920/tonne after having breached this 'Gold Prices: Grinding
Precious 2011 peak level, and we expect prices to remain elevated until the Higher, But Bouts Of
Bullish Neutral
Metals November US Presidential elections at the very least. From a Volatility To Persist',
fundamental perspective, we expect prices to remain supported by August 14
3-6 12-24
COMMODITY
MONTH MONTH COMMENT RECENT ANALYSIS
SUB-GROUP
OUTLOOK OUTLOOK
sustained risk-off sentiment among investors as global uncertainties

surround markets (re-escalation of trade tensions between the US and
China, the US presidential elections, and risks of a second round of
global lockdowns as Covid-19 cases rise once again throughout the
world). Additionally, we expect bond yields to remain low as central
banks keep monetary policy accommodative, which would provide
significant support to non-yielding assets, including gold. We forecast
gold prices to average USD1,850/oz in both 2020 and in 2021.
Grain markets are well supplied, as the fundamental production outlook

is generally positive and food protection measures instituted in March-
April have been eased or removed entirely. Global rice prices were
volatile and rallied in H120 amidst the Covid-19 pandemic, due to
concerns over food supply, but have since receded as trade restrictions
have been loosened and have broadly underperformed the grains index.
'Commodities Sector
Looking ahead, grain prices will oscillate as the market takes stock of
Post Covid-19:
Grains Neutral Neutral isolated poor weather conditions in the US Midwest in early August and
Winners And Losers',
wildfires on the West Coast and Southern plains (which should have a
September 1
moderate bullish impact on prices at most). Prices will be further
buffeted by a combination of factors, including external market volatility,
especially relating to US-China trade, a significant recent ramp-up in
Chinese grain purchases and potential market pessimism towards the
US response to the coronavirus, which will delay the country’s economic
recovery.
We remain mostly neutral on soft prices over the remainder of 2020 as

the demand picture remains clouded amidst low oil prices weakening
demand for biofuels and the incomplete recovery in the consumer 'CME Milk: Price
Mostly sector even in countries that have re-opened after Covid-19 lockdowns. Forecasts Revised
Bullish
neutral However, most of the weak consumption outlook due to Covid-19 has Higher As Covid
(sugar,
(coffee, now been priced in, in our view, which will limit the downside to prices Uncertainty
cotton,
sugar, (cotton, sugar, cocoa, coffee). Cocoa prices are being lifted by ongoing Continues', Sept 1;
Softs cocoa,
cocoa), political risks in Côte d'Ivoire and the impending implementation of the 'Cocoa: Forecasts
palm oil)
bearish living income differential (LID) policy, but further upside is likely to be Lowered As
to neutral
(palm oil, capped by a lacklustre chocolate demand outlook, in particular in Asia. Consumption
(coffee)
cotton) We continue to believe the palm oil rally will soon fade as production Impacted By
picks up. We remain bullish on a number of softs in 2021 (sugar, cocoa, Covid-19', Aug 20
cotton, palm oil) as we see consumption rebounding in 2021 along with
the full economic recovery and a pickup in crude oil prices.
Outlook from current prices as of September 17 2020. Sources: Fitch Solutions
SELECT COMMODITIES - PERFORMANCE AND FITCH SOLUTIONS FORECASTS

Current YTD (% 1 Year (% 2020f 2021f 2021 yoy
Commodity Unit 2019 (ave) YTD (ave)
Price Chg) Chg) (ave) (ave) % Chg
Agriculture
Class III Milk

(Third- USD/cwt 17.60 1.3 -6.0 16.83 16.76 17.00 17.05 0.29
Month)
Cocoa
GBP/tonne 1,802 1.2 0.9 1,780 1,807 1,775 1,725 -2.82
(London)
Coffee
(Second- USc/lb 120 -9.1 14.9 104 111 110 105 -4.55
Month)
Corn
(Second- USc/bushel 380.5 -3.6 0.1 392 350 365 370 1.37
Month)
Cotton
(Second- USc/lb 65 -5.9 5.5 67.2 61.7 61.00 68.00 11.48
Month)
Feeder
USc/lb 141 -3.3 2.9 141.5 133.4 na na na
Cattle
Lean Hogs USc/lb 65 -8.7 2.5 70.1 56.3 na na na
Live Cattle USc/lb 107 -14.4 8.9 115.7 104.0 na na na
Palm Oil
(Third- MYR/tonne 2,909 -4.7 32.8 2,248 2,504 2,450 2,450 0.00
Month)
Rough Rice
(Second- USD/cwt 12 -7.0 -0.1 11.6 13.0 13.00 12.50 -3.85
Month)
Soybean
(Second- USc/bushel 1,018 6.6 12.2 901 889 885 900 1.69
Month)
Sugar #11 USc/lb 12.35 -8.0 11.4 12.34 12.24 11.90 12.70 6.72
Wheat
(Second- USc/bushel 549 -2.3 11.8 498 532 515 490 -4.89
Month)
Energy
Coal,
Thermal USD/tonne 53 -18.9 -19.6 77.5 58.0 55.00 58.00 5.45
(Newcastle)
Coal, Coking USD/tonne 155 6.8 2.7 172.4 131.2 130.00 130.00 0.00
Brent Crude USD/bbl 42 -36.4 -35.0 64.2 42.6 44.00 51.00 15.91
OPEC
USD/bbl 39 -42.1 -34.4 64.04 na 39.00 47.00 20.51
Basket, Oil
Current YTD (% 1 Year (% 2020f 2021f 2021 yoy

Commodity Unit 2019 (ave) YTD (ave)
Price Chg) Chg) (ave) (ave) % Chg
WTI Crude USD/bbl 40 -34.7 -32.8 57.0 38.1 38.00 45.00 18.42
Natural Gas USD/

2 2.2 -16.1 2.53 1.91 2.10 2.40 14.29
(HH) mnBtu
Natural Gas USD/

3.91 -6.5 -19.8 4.86 2.48 3.16 5.41 70.81
(NBP) mnBtu
Industrial Minerals & Metals
Aluminium USD/tonne 1,796 -0.8 0.1 1,813 1,659 1,690 1,780 5.33
Cobalt USD/tonne 34,200 4.4 -6.3 33,440 31,256 na na na
Copper USD/tonne 6,777 9.8 15.5 6,020 5,818 6,000 6,300 5.00
Iron Ore
(62% CFR, USD/tonne 127 48.0 34.0 90 96 95 90 -5.26
Qingdao)
Lead USD/tonne 1,894 -1.7 -9.7 2,006 1,807 1,800 1,900 5.56
Lithium USD/tonne 6,250 -32.4 -39.8 11,310 na na na na
Nickel USD/tonne 15,226 8.6 -12.3 13,970 13,064 13,500 15,000 11.11
China
Domestic
Hot Rolled CNY/tonne 3,947 3.0 5.0 3,815 3,693 na na na
Steel
Average*
Tin USD/tonne 18,275 6.4 6.6 18,585 16,484 17,000 18,000 5.88
Zinc USD/tonne 2,528 11.3 6.9 2,507 2,141 2,200 2,350 6.82
Precious Metals
Gold USD/oz 1,948 28.4 29.7 1,393 1,729 1,850 1,850 0.00
Palladium USD/oz 2,400 25.7 50.8 1,521 2,108 na na na
Platinum USD/oz 953 -1.9 0.9 866 874 na na na
Silver USD/oz 27 51.5 50.7 16 19 na na na
Note: * We forecast a global average of steel prices; therefore, our forecasts are not included on this line. All metals prices except steel and iron ore refer to generic third-month
contracts. All energy and agricultural prices refer to generic front-month unless otherwise stated. Data as of September 17 2020. na = not available. Source: Bloomberg, Fitch
Solutions
Upstream Analysis
Africa GM Outlook: Increasing Liberalisation In Secondary Markets
Key View
• Uptake of GM seeds and biotech in Africa will increase gradually over the coming years despite structural challenges and
institutional deficiencies.
• Seed varieties not destined for human consumption, such as cotton, will drive GM adoption.
• We expect South Africa to remain the leading country on the African continent for GM use and development, but other
countries, especially East and West Africa, continue to show signs of regulatory liberalisation.
Consistently Poor Yields
African countries have experienced serious and chronic food shortages in the past two decades and have historically
faced domestic production deficits about every three years. The continent's agricultural yields are very low by global standards and
crops are highly dependent on weather patterns, with heavy rains often leading to outbreaks of disease for vulnerable crops, such as
cocoa, while prolonged episodes of dryness have dire consequences for grain crops.
In the 1990s South Africa was the first country in Africa to commercialise the biotech production of cotton, maize and soybean,
followed by Burkina Faso (cotton), Sudan (cotton) and Egypt (corn and cotton). South Africa is by some distance the largest user of
genetically modified (GM) crops in Africa and the ninth largest producer of GM crops in the world. According to the USDA, 94% of
corn plantings, 95% of soybean plantings and 100% of all cotton plantings in South Africa are grown from GM seeds. Overall, the
country had a biotech crop production area of 2.7mn hectares (ha) in 2018, up from 2.3mn ha in 2015 but the same as in 2017.
Sub-Saharan Africa A Laggard

Regional Corn Production Yields 2019/20 (tonnes/hectare)
Source: USDA, Fitch Solutions
Long-Running Structural Challenges
GM use across other parts of Africa will remain comparatively low (relative to other regions) over the coming years owing to
structural problems across the African agricultural sector. Farmers on the continent have difficulty building savings or acquiring
credit for expensive inputs, such as GM seeds and machinery. Profitability in the sector remains poor owing to low yields and
inadequate infrastructure. A large proportion of farming on the continent can be characterised as subsistence farming, as opposed
to commercial-scale farming. Smallholders make up 80% of farmers in Sub-Saharan Africa (SSA), with many living from one harvest
to the next, despite efforts to move towards large scale agriculture in the 1970s and 1980s (these efforts mostly failed). According to
the Food and Agriculture Organization, between 1960 and 2000, 15 of 19 African countries surveyed saw average farm size
decrease. However, African farming will have to move away from subsistence agriculture and become more profitable in order to
support a thriving GM sector. We believe that partnerships with food companies, the development of cooperatives and greater
access to credit are three of the most important strategies the sector could adopt in order to achieve greater profitability.
African Countries Rank Poorly

Selected Countries - Trade & Investment Risk Index Scores (2019)
Note: Scores out of 100; higher score = lower risk. Source: Fitch Solutions
Limited Policy Cohesion
Another major barrier to GM seed growth in the continent is the lack of agreement between African nations. According to the New
Economic Partnership for Africa's Development (NEPAD), one of the major reasons for the lack of wide-scale GM adoption is
the absence of functional regulatory systems both domestically and across the continent. As of April 2020, only seven countries in
SSA (South Africa, Kenya, Burkina Faso, Nigeria, Ethiopia, Malawi and Sudan) planted GM crops commercially; however, a number of
countries are conducting field trials or have biosafety laws in place.
There is also little cohesion in policy decisions. According to the NEPAD African Biosafety Network of Expertise, 22 African countries
have at least some form of biosafety regulatory framework in place (which is usually needed before field trials begin and GM
varieties are approved). At one point Uganda had been conducting field trials without biosafety laws (the country has since
implemented a biosafety law) and Nigeria did the same before passing a biosafety law in 2015. Kenya previously authorised field
trials for GM corn, but the government cancelled all tests in March 2017 and stated that the country was not yet ready for such
experimentation, but seeds were eventually commercialised in 2019. In Zambia, planting GM seeds remains illegal, but enterprises
that want to buy products with GMOs must apply for a permit, and in some cases chain stores in the country sell them without one.
Disparate GMO Status In Africa

Africa - GMO Status By Country (2020)
Note: Countries labelled Biosafety Laws are not doing any field trials. Apart from Uganda, all countries labelled Field Trials have biosafety laws in place. All countries labelled
Commercial GMO have biosafety laws in place. Data for most countries are as of 2018 but incorporate developments up to April 2020 where available. Source: African Biosafety
Network of Expertise, Fitch Solutions
One of the greatest points of contention over GM use in Africa is the control of first-generation seeds. First-generation seeds are
patented by seed companies and are allowed to be used for only one season before farmers have to purchase new seeds for the
following year. Using seeds derived from the resulting crops for the next season is, therefore, illegal. According to the USDA, 80% of
African farmers currently reuse seeds from the previous crop. Consequently, patent rights will prove to be a major obstacle for GM
companies in Africa.
Adapting GM Technology To Africa Will Support Uptake
We believe that there is great potential for GM uptake by African farmers if the technology adapts to their needs and budgets.
Developments over the last five years in GM varieties for crops such as sorghum and cassava, which are staples in many African
countries, will help to promote the technology on the continent. The greatest successes will be achieved through close cooperation
with local stakeholders, such as African scientists and farmers collaborating on improving local strains to adapt to changing
conditions.
Moreover, the continent's traditionally firm opposition to GM technology appears to be easing as a growing number of countries are
conducting field trials or improving their regulatory frameworks on GM crops. The extensive droughts and floods that have hit the
continent in recent years continue to weigh on the region's food security has the potential to accelerate a change in mind-
set. Countries in southern SSA, such as Zimbabwe, which enforce a ban on GM imports, could be forced to authorise imports of GM
food over the coming months as an extraordinary measure to alleviate food security threats, especially in the context of Covid-19.
The continent's traditionally firm opposition to GM technology appears to be easing as a growing number of countries are
conducting field trials or improving their regulatory frameworks on GM crops. The extensive droughts and floods that have hit the
continent in recent years continue to weigh on the region's food security has the potential to accelerate a change in mind-
set. Countries in southern SSA, such as Zimbabwe, which enforces a ban on GM imports, could be forced to authorise imports of GM
food over the coming months as an extraordinary measure to alleviate food security threats.
SSA - ONGOING DEREGULATION OF GM

COUNTRY RECENT DEVELOPMENTS PENDING APPROVAL
Sweet potato (nutrient

enhanced), rice
(nitrogen-use efficient,
Ghana Commercial release of Bt cowpea in 2019 in partnership with Nigeria. water-use efficient, salt
tolerant - newest),
cowpea (Bt) cotton (Bt),
cotton (stacked traits)
There have been efforts to increase domestic cotton production, and commercialisation of Bt
Ethiopia cotton was approved in 2018. The government has also authorised confined field trials for Bt Cotton (Bt)
drought-resistant corn.
Côte d'Ivoire National Biosafety Law was approved in 2016. na
Cotton stacked Bollgard

II and Roundup Ready
Flex (insect and
Cotton (Bt) has been commercialised in Burkina Faso but is not being planted owing to an herbicide tolerance),
Burkina Faso
unresolved dispute with Monsanto regarding fibre lengths. cowpea (Bt - insect
resistance
to Maruca vitrata), maize
(Bt)
Senegal Updating its national biosafety law. na
Maize (drought-
tolerance, water-
efficient maize for
Africa), maize (pest-
Has revised the strict liability clause in its Environment Management Biosafety Regulations. It
Tanzania resistant), cassava
began conducting GM research trials in 2016.
(tolerant to
cassava mosaic disease
and cassava brown
streak disease)
COUNTRY RECENT DEVELOPMENTS PENDING APPROVAL
Sorghum (bio-fortified),
rice (nitrogen-use
Signed a biosafety bill and established the National Biosafety Management Agency in 2015. efficient, water-use
Nigeria
Cowpea (Bt) and cotton (Bt) have been approved for commercial use. efficient, salt tolerant -
newest), super cassava
(fortified with vitamin A)
Now in a position to start research trials of GM crops after having approved amendments to the Maize (drought-
Mozambique Biosafety Regulations at the end of 2014. The country began its first GM corn field trial in February tolerance, water-
2017. efficient maize for Africa)
Maize (drought-
tolerance; water-
efficient maize for
Africa), cotton (insect-
resistant), super cassava
(fortified with vitamin A),
cassava (tolerant to
GM gypsophila cut flowers now seem most likely to move forward to open field trials given cassava mosaic disease
Kenya widespread enthusiasm to pioneer this new variety on the world market. Plans are also under way and cassava brown
for Bt corn open field trials, and commercialised Bt cotton in 2019. streak disease), sorghum
(enhanced pro-vitamin A
levels, bio-available zinc
and iron), sweet potato
(resistance to sweet
potato virus disease),
gypsophila flower (pink
colour flower stability)
Niger Parliament approves biosafety law October 2019 na
Note: Regulations as of 2019. na = not applicable. Source: USDA
Promising Cotton Outlook, But Patchy Potential Remains
We expect continued progress to be made first and foremost in products that are not intended for human consumption (such as
cotton or cut flowers) and in countries where the regulatory approval process is most developed (South Africa, Kenya and Ethiopia).
We continue to believe that cotton offers the greatest growth opportunities for seed firms in Africa over the next few years despite
cotton already being the continent's main GM crop and promising results from drought-resistant grain seed trials. Many of the
nations that were among the first conducting GM field trials - such as Nigeria, Uganda and Ethiopia - are major cotton producers
relative to the size of their agricultural industries.
In May 2015, Ethiopia relaxed its strict policy on GMOs and commercialised GM seeds in 2019. Ethiopia is a major producer of cotton
in Africa, and the Ethiopian textile and apparel industry is considered a key sector for the country's economic development.
However, the industry's growth is outpacing domestic cotton production, making it dependent on imports and impeding its
development. The introduction of GM seeds for the 2019 season (the 2018 approval came too late to be used for the 2018 season)
could fill this shortfall. By contrast, wide opposition to human consumption of GM crops will ensure that policy bottlenecks remain
over the coming years, which underpins our view for GM cotton to outperform other crops. News reports in Zambia leading up to
December 2019 showed increased pro-GM sentiment, and the government has urged the country’s National Biosafety Authority to
enhance public awareness around GM seeds given the threat of climate change on the country’s staple crops.
However, challenges to implementation remain. Nigeria ultimately commercialised some varieties, but social unrest has been
significant. A number of civil society groups have marched against the government and protested the potential commercialisation.
Ugandan President Yoweri Museveni declined to sign long-delayed biosafety legislation, which effectively blocks the introduction of
GMO crops in the country. President Museveni highlighted several concerns, including lack of adequate measures to ensure that
GMO crops do not contaminate organic crops, intellectual property rights and community engagement.
Africa Machinery Outlook: Covid-19 Disruptions But Longer-Term

Opportunities
Key View
• Structural constraints will prevent a considerable increase in regional machinery sales.

• Prior to the Covid-19 outbreak, the outlook for the agricultural sector in Sub-Saharan Africa was more positive over the coming
quarters as financial conditions and harvests improve.
• However, the virus and subsequent policy responses will have severe macroeconomic consequences, which will significant
reduce machinery sales growth prospects.
• The dependence of African farmers on support from governments and multinationals will keep future prospects contingent on
wider economic development across the continent.
Starting From A Low Base
The agricultural mechanisation rate in Sub-Saharan Africa (SSA) is the lowest in the world. According to the UN Food and Agriculture
Organization (FAO) and the European Agricultural Machinery Association, roughly 65% of land preparation is done manually by
labourers in SSA, compared with around 40% in East Asia, 30% in South Asia and 25% in Latin America and the Caribbean. South
Africa, Morocco and Algeria traditionally dominate Africa's new tractor sales market, accounting for a large portion of the continent's
total sales per year; however, more than 80% of these are light machinery of less than 100 horsepower and are two-wheel drive. In
another example, Algeria had 140 tractors per 100sq km of arable land in 2008, compared with 271 in the US and fewer than seven
in Nigeria.
AFRICA - COMPARISON WITH OTHER REGIONS

Region Cereal Yield (kg/ha) Fertiliser Use (kg/ha) Irrigation (% of arable land) Tractors (per 1,000ha)
Africa 1,040 13 5 28
Selected comparable countries 3,348 208 38 241
Note: Africa excludes Egypt and Mauritania. Selected comparable countries are Bangladesh, Brazil, China, India, South Korea, Pakistan, the Philippines, Thailand and Vietnam.
Source: World Bank, Fitch Solutions
Three major dynamics would need to materialise in order for agricultural machinery sales to pick up across most of Africa over the
coming years:
• higher farm incomes, mainly resulting from high commodities prices and good harvests
• positive financial conditions, such as low real interest rates and better access to credit
• favourable exchange rates as African nations continue to rely on imports of agricultural equipment
Individual farm financing remains difficult to acquire in many SSA countries. The FAO has stated that a 'lack of finance is the
overwhelming reason why farmers cannot purchase machinery'. For example, after his re-election in December 2017, Kenyan
President Uhuru Kenyatta announced the Big Four Agenda aimed at modernising the Kenyan economy; however, there appeared
to be no indication of any enhanced financial support for farmers, let alone for machinery purchases.
Such financing will remain difficult to acquire, even more so in the context of the Covid-19 outbreak, as we expect overall SSA
growth to contract by 3.3% in 2020, down from 2.7% growth in 2019. Indeed, we expect a sharp downturn in economic activity in
SSA in 2020, as the widening impact of Covid-19 weighs on exports, fiscal revenues, investment and private consumption across
the region. Moreover, we expect the global spread of Covid-19 to dampen sub-regional growth through three main channels: first,
muted external demand and tourist flows weighing on exports; second, contagion fears weakening private consumption; finally,
lower profit margins discouraging investment. More broadly, we believe that these challenges will only be exacerbated by long-
standing structural obstacles to growth in Southern Africa, such as high unemployment and/or unattractive operating
environments, which already act as headwinds to investment and household spending.
Rates To Rise Over Coming Years

Selected SSA Economies - Central Bank Policy Rate, %
e/f = Fitch Solutions estimate/forecast. Source: National sources, Fitch Solutions
Indeed, looking at South African tractor sales as an example, June tractor sales of 414 units were considerably higher than June last
year, but this is partly because farmers are expecting the rand to weaken and are just expediting purchases before prices increase.
On a year-to-date basis, tractor sales are now 6% lower y-o-y (combine sales have increased). Despite the improvement in sales,
according to the South Africa Agricultural Machinery Association (SAAMA), current industry sentiment is that 2020 sales will still be
10% lower than in 2019 despite a generally improving environment due to good harvests.
Key Long-Term Post-Coronavirus Challenges
Prior to the coronavirus, machinery companies were slowly becoming more optimistic about the long-term sales growth prospects
in the region. For example, Deere & Co said that it expected demand for its farm equipment in Africa to grow 8-10% annually (from a
low base) over the coming years, and the head of the company’s SSA unit singled out Ethiopia, Zimbabwe, Nigeria and Angola for
opportunities. As part of this, Deere is looking to extend credit to African farmers who have traditionally made purchases in cash and
is partnering with local start-ups to allow farmers to hail tractors when needed. Despite the optimism, we believe that once the
economic disruption from the coronavirus passes, countries in Southern Africa and North Africa will remain the key markets for
agricultural machinery companies in Africa over the next five years. We expect these regions - already the continent's largest grain
producers - to see the strongest growth in corn and wheat production between 2019 and 2024.
The outlook for the region's currencies will also have an impact. Overall, SSA currencies will see moderate depreciation in the
coming quarters following broad sideways trading. In particular, we expect depreciatory pressure on Sub-Saharan Africa’s major
currencies to persist but lessen somewhat from Q220 levels given a moderation of global risk-off sentiment. A range of commodity
prices have picked up on the possibility of a recovery in major economies, particularly China, allowing currencies such as the South
African rand to pare back losses. However, the global economy remains in recession, and we continue to highlight that the recovery
will be slow and uneven given that regional outbreaks and lockdowns have been asynchronous. Sub-Saharan Africa (SSA)’s major
currencies will, therefore, remain under pressure in the short-to-medium term. In SSA itself, many governments have started to ease
lockdown measures despite either a rising number of cases, or inadequate testing programmes, adding uncertainty to the timing of
any recovery. On top of this, macroeconomic fundamentals in many of Sub-Saharan Africa’s main economies remain weak, with
economic activity contracting despite significant monetary easing by many central banks.
Major African Currencies Remain Under Pressure

Sub-Saharan Africa - Spot Returns Against USD, Selected Currencies, %
Note: Year-To-Date Movements As Of July 16. Source: Bloomberg, Fitch Solutions
Key Players Expanding Presence In Region
The competitive landscape of the African agricultural machinery market will remain largely stable over the coming quarters owing
to the lasting structural impediments we have outlined above. India-based tractor companies, such as Mahindra &
Mahindra (M&M) and Sonalika, will see solid results in Africa as their products are better suited to the continent's current
agricultural industry climate. This is owing to the fact that Indian companies mainly produce lighter tractors, in line with Africa's
small-scale farming and local farmers' limited budgets. In October 2017, M&M announced that it will set up new production sites in
Durban, South Africa, which began operations in mid-2018. Around the same time, M&M also set up an office in Cairo, its first in
North Africa and fourth in Africa. In mid-2018 Escorts, India's third largest tractor maker, announced a desire to quintuple exports
over the next two years by focusing on Africa, saying that the region could eventually be a second home market.
AGCO announced in early 2016 that they are planning on increasing sales in Africa by 20% annually over the coming years after
adding new capacity on the continent during that time. Specifically, the company built new facilities in South Africa, Algeria and
Zambia. AGCO's key focus in terms of sales will be the Democratic Republic of the Congo and Egypt. Ethiopia - which is slowly trying
to modernise its farming system through the use of exchanges and subsidies - is also a target market for the company. The
company reiterated its commitment to Africa in its 2018 annual report, stating that it is establishing a greater manufacturing
and marketing presence and expanding its use of component suppliers.
SSA In Pole Position Beyond 2020

Construction Sector Growth By Region, % y-o-y
Sources: Fitch Solutions
Infrastructure Outlook Deteriorating Globally
A number of African governments and multinational agricultural machinery companies have tried to improve mechanisation rates
through significant investment of capital in recent years. Our view is that these efforts will ultimately have limited success unless
inherent institutional problems are addressed and other input use develops. In order to increase profitability in African agriculture,
we believe that three primary goals need to be achieved: partnerships with food companies, the development of cooperatives and
greater access to credit. Similarly, investment in sectors strongly linked to agricultural equipment will be needed if the sector is to
thrive in the coming years. The development of infrastructure - such as roads, ports, power and finance - will be necessary for
sustained growth in the agricultural equipment sector.
The SSA region is facing a dimmer growth outlook over the medium term. We have now made downward adjustments to our
Construction Industry Value real growth forecasts for markets in every region globally. These revisions have been most keenly felt
across the Asia region, in part due to them being in the first wave of markets impacted, as well as having the greatest exposure to
China. Subsequently, our revisions in regions such as Europe, Africa, Middle East and North Africa, and the Americas are mostly less
severe, but given that the situation in some of these markets is only now beginning to develop, we are flagging more acute
downside risks to our outlook for these regions.
Africa Fertiliser Outlook: Improving Long-Term Outlook & Limited

Covid-19 Impact So Far
Key View
• Low farm income levels and structural barriers will continue to constrain fertiliser consumption growth in Africa over the long
term.
• Consumption and import growth will also slow slightly from a high base over the coming months as fertiliser prices increase.
• Sub-Saharan African countries will see new projects coming online in the coming years and consumption will grow at a superior
rate compared with other global regions.
• So far, local observers have reported limited disruption to the West African fertiliser industry due to the onset of Covid-19.
Inorganic fertiliser use in Africa have been rising over the last few decades, but is still low compared with other parts of the world.
Between 1980 and 1995, fertiliser consumption fluctuated around 1.0mn tonnes of nutrients per year. However, after 1995
consumption began to climb substantially, reaching almost 1.6mn tonnes of nutrients in 2010. From 2006-2017 usage doubled.
However, while the global average of application per hectare of cultivated land is 135 kg (where about 50% of the crop yield growth
is attributable to fertiliser), in SSA it stands at just 17 kg per hectare (/ha) as of 2018, far below the 50kg/ha level that is considered
adequate.
Smallholder farmers, who make up the majority of farmers in the region and who farm most of the land, frequently apply little or no
inorganic fertiliser, as many farmers in SSA rely on livestock manure to maintain soil fertility. However, this has chemical limitations
(one cow produces only about 15 kg of nitrogen as manure each year, while a maize crop yielding about three tonne/ha requires
about 100 kg of nitrogen per hectare). Other forms of organic fertiliser also face various problems, including availability and logistical
issues. Consequently, total levels of fertiliser use are insufficient to replace the soil nutrients that are mined each year through crop
production.
Limited Relative Consumption In Africa

Selected Countries - Fertiliser Consumption, kg/ha of arable land (2015)
Source: FAO, AGRA
Structural Factors Keep Regional Per Capita Consumption Low
In SSA five countries (Ethiopia, Kenya, Nigeria, South Africa and Zambia) account for almost two-thirds of consumption. In the
Middle East and North Africa (MENA), three countries (Egypt, Iran and Morocco) account for 75% of consumption. There are
numerous reasons why, broadly speaking, fertiliser demand is low in Africa. According to the Alliance for a Green Revolution in Africa,
these are divided into three categories: lack of knowledge, lack of affordability and poor incentives.
Lack Of knowledge: The vast majority of smallholders in SSA have little or no knowledge of soil nutrients and the potential of
fertiliser to boost crop yields. Many have no idea which types of fertilisers they should use on which soils and crops or what the
correct rate, placement and time of application are. This is the result of low education and literacy levels and weak agricultural
extension (advisory) programs, which governments cut when the structural adjustments programmes of the 1980s and 1990s
forced them to reduce fiscal spending. Some countries, such as Ethiopia, have re-invested in their extension services, while external
actors, such as NGOs and development projects, have set up their own programmes, but with mixed success.
Lack Of Financing: Smallholders usually have disposable cash for a few months after harvest time but have limited cash available
during the lean season when they need to buy fertiliser and other inputs. Owing to the real or perceived risk to smallholder farming,
farmers often cannot get access to credit to buy fertiliser and other inputs from the traditional financial sector, and when they can
get loans, rates average between 20-30% per year. Regional agrodealers face similar problems.
Weak Incentives: The effectiveness of fertiliser applications depends on many factors aside from the fertilisers themselves, and
because of such risks and uncertainties, many farmers decide to use fertilisers only on crops for which they are confident they can
make a reasonable profit, reducing overall use.
African Fertilisers At A Premium

Select Countries - Urea Prices (USD/ton)
Source: AfricaFertilizer, Fitch Solutions
Poor supply and distributions systems from port to farm mean that SSA fertiliser prices are almost double global averages and
hinder consumption. This supports illegal fertiliser trade across the region, with issues including cross-border smuggling of
subsidised fertilisers as well as the sale of counterfeit fertilisers. Moreover, international fertiliser companies often refrain from
entering partnerships with local ministries to supply subsidised nutrients owing to frequent delays in payments, which reinforces the
position of illegal fertiliser traders. At the end of the supply chain, inadequate storage facilities mean that cost-effective amounts of
fertiliser cannot be regularly purchased, resulting in substantial waste.
We believe that significant improvements in physical and financial infrastructure will need to be made in many African countries
before fertiliser consumption approaches developed market levels. Although our Infrastructure team sees strong growth potential
in transport infrastructure in SSA countries, this will unlikely improve the fertiliser trade in the coming years. Moreover, investors will
remain cautious in their exposure to SSA infrastructure investment owing to the challenging operational environment, various
macroeconomic headwinds, poor access to electricity and underdeveloped financial markets.
Poor Transport Network Increases Cost Of Imported Fertilisers In Africa

Selected Countries - Transport Network Index
Fitch Solutions
Movement Regarding Policy Initiatives
To deal with the low levels of fertiliser use, African governments have created multiple plans in recent years. In 2003, the
Comprehensive African Agricultural Development Plan called for a target of 6% compound annual growth in agricultural
productivity by 2015 and called on governments to allocate at least 10% of their budgets to the agricultural sector. In 2006, African
leaders adopted the 12-point Abuja Declaration on Fertilizer, which committed countries to increasing fertiliser use from the then-
average of 8kg of fertiliser/ha in 2005 to 50kg/ha by 2015.
Since 2006 to now, overall fertiliser use in Africa (both total consumption and quantity per hectare) has increased, and the outlook is
improving. Over that time, Africa is the only continent that has had annual fertiliser consumption growth exceed 8%. Some of the
notable successes have been in improving government subsidy programmes, increasing private sector participation (including
renewed external donor interest) and addressing some of financing concerns. However, other resolutions continue to see limited
progress, including a lack of national level fertiliser policies and monitoring capabilities, regional procurement challenges, and
limited intra-regional trade. This has led to calls for the African Union Commission to convene an Abuja II. This would involve
implementing initiatives to again increase fertiliser use levels, with the focus going beyond fertilisers to cover soil health, integrated
soil fertility management and the importance of farming profitability.
Halting Progress So Far

Abuja Declaration Scorecard
Note: Colours broadly follow traffic light system, with dark shading indicating best results and red indicating limited progress. Source: AGRA, Fitch Solutions
Subsidies: More Momentum After Abuja
Of the main reasons why many Abuja recommendations haven’t been met up to 2020 is poor government policy, notably the lack
of suitable policies and laws, poor implementation and enforcement of laws that do exist, lengthy processes for licensing new
fertilisers/commercial actors, and inefficient subsidies, which has been the main policy used by governments in SSA. Fertiliser
promotion programmes in Africa began in the 1970s and were characterised by large direct government expenditure. However,
these programmes were expensive and governments lacked the capacity to implement them effectively. Consequently, many were
eliminated in the 1990s as part of structural adjustment programs.
Since Abuja in 2006, subsidies have returned to an extent and remain relevant to most countries in in SSA. As of 2020 most SSA
countries have some type of subsidy programme in place, which includes allowing the private sector to import fertilisers and
remove some of the bureaucratic burden from national governments. In some countries the government manages the subsidy
programme, while in others the private sector manages the programme. The type of programmes that governments have
implemented vary significantly. Some governments are attempting to make subsidies market friendly by introducing at least some
attributes of smart subsidies, while others have used input vouchers and still others use electronic transfer or e-wallet systems using
mobile phones. Mozambique and Uganda are yet to implement large-scale subsidy programmes. Finally, government advisory
services have revived in recent years in several countries, such as Ethiopia which has invested heavily in this area.
FERTILISER POLICY ERAS IN AFRICA

Phase 1: 1960s To Early 1990 Phase 2: 1990 To Phase 3: Mid-2000 Phase 4: 2015 To
Mid-2000 To 2015 Present
Policy context Government top-down command and Structural adjustment, Expansion of private Government
control of fertiliser value chain market liberalisation sector, smart withdrawal
subsidies
Fertiliser consumption Growth in fertiliser use and agricultural Reduced consumption Increased Shift to fertiliser
productivity consumption, blends
adoption by more
farmers
Private sector Little involvement Domestic private firms Expansion of private Competitive market-
emerge, multinationals sector: based provision,
enter and expand manufacturing, public-private
imports and partnerships
distribution
Government Price controls, universal subsidies, Liberalisation, regulation, Smart subsidies, Withdrawal from
subsidised credit, in-kind aid, overvalued removal of subsidies, promoting direct involvement
exchange rates giving incentives for use, exchange rate competition, in value chain, focus
large-scale extension, support for export liberalisation targeting small on improving
crops farmers business
environment,
incentives to ease
supply and access,
regional policy
harmonisation
Source: NEPAD, CAADP, AGRA, Fitch Solutions
Low Prices Prompt Short-Term Consumption Optimism
Although the aforementioned structural factors will constrain long-term consumption in SSA, short-term consumption growth has
outperformed, with regional consumption growing by 15% annually from 2015 to 2017, compared with just 2% globally. Nigerian
consumption alone doubled to 1.0mn tonnes in 2017 and Ethiopian consumption increased by 43% over the same period. On the
trade front, OCP Group - a Moroccan state-run phosphate monopoly - saw exports of phosphate-based fertiliser increase by more
than 50% y-o-y in H117 and exports to SSA almost tripled between H115 and H117. Destinations included Nigeria, Ethiopia and
Kenya. For the full year 2019, OCP’s exports to Africa fell slightly year-on-year. Nevertheless, overall phosphate imports to SSA grew
by 7% in 2019, and we expect the region’s broad trend of strong consumption growth to continue over the coming quarters. The
International Fertilizer Association sees SSA total fertiliser demand rising by around 8% annually to 2021. In the long
term consultancy firm CRU predicts that Africa’s annual fertiliser consumption will reach 13.6mn tonnes of nutrients by 2030, from
7.6mn tonnes in 2017, an implied compound annual growth rate of around 4.8%.
Price Weakness Aiding Consumption

Fertiliser - Select Prices (USD/short ton)
Note: 'Potash' = Green Market Fertilizer Potash Cornbelt Granular Spot Price; 'DAP' = Green Market Fertilizer DAP US Gulf NOLA Spot Price; 'Urea' = Green Market Fertilizer UREA
US Gulf NOLA Granular Spot Price. Source: Green Markets, Bloomberg, Fitch Solutions
Production Opportunities Exist As New Plants Come Online
Africa as a whole is a net fertiliser exporter and is projected to have a surplus of both nitrogen and phosphorus in 2020 (while
running a deficit in potash). This is mainly a result of major production facilities north of the Sahara, with production concentrated in
six countries: Algeria, Libya, Egypt, Morocco, Nigeria, South Africa and Tunisia. By contrast, SSA imports 95% of the fertiliser it
consumes. In SSA only a few corporations produce fertiliser; no more than four firms operate in any of the producing countries in
the region. However, this is not for lack of opportunity as Africa possesses considerable mineral and hydrocarbon reserves that
could be used to produce fertiliser or to power the facilities and infrastructure needed for commercialisation. Moreover, many
fertiliser plants in SSA currently operate at below capacity, hindered by severe infrastructure constraints, government
intervention and scarcity of financial capital.
We hold a favourable view on fertiliser producers in the MENA region over the coming years, and production growth will improve in
SSA as well given the number of various new projects coming online. As of 2019 there were 14 fertiliser manufacturing plants in
SSA producing nitrogen- and phosphate-based fertiliser products (there are no potash manufacturing plants). Also included in this
category are plants producing lime supplements, micronutrients and organics. As of 2018 Notore Chemicals
Industries and Indorama Eleme Fertilizer & Chemicals in Nigeria were the only urea production plants in the region
(Madagascar and Zimbabwe produce other nitrogen-based fertiliser), while phosphate plants are located in Mali, Senegal, Togo,
Tanzania and Zimbabwe. Access to ample reserves of natural gas and phosphate rock at a cheap cost in comparison with
competitors in North America, Asia and Eastern Europe underpins our expectations for solid performance from fertiliser companies
based in the MENA region.
Plenty Of Available Supply For Africa

Selected Regions - Fertiliser Production Balance, '000 tonnes of nutrients
We hold a more positive view on the near-term prospects for fertiliser production in SSA, especially for nitrogen-based fertilisers.
Over the past few years, several companies have shown interest in establishing new complexes to produce ammonia or urea. More
than a dozen projects in Nigeria, Ethiopia and elsewhere have been under study since 2010. Large greenfield projects are also
under consideration in several countries, either as autonomous projects or in partnership with foreign entities in at least 11 North
African and SSA countries. One project that stands out is the Dangote fertiliser project. Both plants are expected to be fully
operational by 2021 and will produce a combined 3mn tonnes of fertiliser. Combined with the country’s roughly 2mn tonnes of
existing production, this would be enough for Nigeria to begin exporting nitrogen fertiliser.
NEW AFRICAN FERTILISER PROCESSING OR MANUFACTURING FACILITIES BY COUNTRY

COUNTRY NUMBER OF PLANTS
Angola 1
Burkina Faso 2
Côte d'Ivoire 2
Ghana 1
Mali 1
Niger 1
Nigeria 18
Rwanda 1
Senegal 2
Sierra Leone 1
Tanzania 4
Note: Includes all new plants either completed or operating as of 2020. Source: AfricaFertilizer, Fitch Solutions
In terms of phosphate fertiliser, Africa will see the largest increase globally of more than 20%, adding 11mn tonnes of new potential
supply a year over a five-year period (2017-2022) to reach 67mn tonnes by 2022. Pre-production work has also been done in
several countries with large phosphate reserves, including Guinea Bissau, Mali, Togo and Uganda. Overall, there are around 37 new
fertiliser processing and manufacturing facilities in SSA that are either operational or expected to come online. A network of fertiliser
blending plants process imported or locally produced fertiliser into balanced nitrogen, phosphorus and potassium blends
throughout Africa.
Fertiliser Use A Key To Sustainability In Africa

Selected Regions - Potential Carbon Sequestration From Reforestation Of Agricultural Land Spared
Source: Vlek et al (2017), AGRA, Fitch Solutions
Sustainability: Additional Fertiliser Use To Reduce Greenhouse Gas Emissions
In the context of Africa, an increase in fertiliser use will be a key driver towards improving sustainability and reducing the continent’s
admittedly small carbon footprint. Low fertiliser use is leading to the depletion of soil nutrients in many parts of Africa, and some
estimates argue that almost 100mn ha of land have already been degraded through soil erosion, leaching of nutrients and nutrient
mining via harvests. Many observers believe that the continued low or imbalanced use of fertiliser will lead to negative
environmental consequences along with reduced biodiversity. In particular, in places where fertiliser use is low, soils can’t sustain the
yields required to meet food demands. Consequently, farmers need to cultivate a larger area for crops, which means large-scale
deforestation, less biodiversity and greater volumes of greenhouse gases (GHGs). The deficit in food production also requires food
imports, which in turn stimulates environmental degradation elsewhere.
Research by Vlek et al (2017) has shown that increasing the fertiliser use in Africa by 20% would increase GHG emissions by only
0.37mn tonnes of CO2 equivalent emissions a year (a similar 20% increase in South Asia would lead to an additional 6.5mn tonnes
of CO2 emissions). However, the increased use of fertiliser would raise yields of rice by 5%, wheat by over 1% and maize by 9.9%,
which would potentially permit 2mn ha of currently cultivated land to be set aside for reforestation, thus potentially
sequestering between 7.7mn and 18.8mn tonnes of CO2 per year. The research demonstrates that significantly increasing African
fertiliser use could result in a considerable decline in carbon emissions, provided the excess land would be used for reforestation.
Limited Disruption So Far From Covid-19
There has been relatively limited reporting on the impact of Covid-19 on Africa’s fertiliser markets, but most local observers have
said that West Africa, which has been the focus of coverage, has seen relatively limited disruption so far as of July 2020. In particular,
according to the West African Fertilizer Association and IFDC, national governments in West Africa, in conjunction with WAFA have
deemed fertiliser an essential agro-commodity that move despite other restrictions in place. While port operations in some
countries have been impacted by curfews, this has not resulted in major congestion. By contrast, roads in the region have been
operating at below normal rates, and curfews have added to delays. Cross-border trade is functional in general but with increased
delays due to increased authorisation requirements. Finally, fertiliser shops are open for business and still deliver agro-inputs to
farmers in all 15 ECOWAS Member States, with a few exceptions in regions and cities heavily affected by COVID-19.
Downstream Analysis
Food
Key View: In 2020, food spending in Egypt is forecast to surge substantially as consumers continue to prioritise food purchasing
due to the Covid-19 pandemic. Over the longer term, we believe economic reforms and favourable demographics will make Egypt
an attractive investment destination for food manufacturers.
Latest Updates
• In line with the global spread of the Covid-19 virus, in Q320, we adjusted our food spending forecasts for 2020. As an essential
spend segment, we believe that consumer spending on food will be shielded from the negative impact on overall consumer
spending.
• Our upward revision for the 2020 food spending forecast in Egypt is 18.0% y-o-y, from the pre-Covid-19 forecast of 12.0% y-o-y.
Through to 2024 we forecast food spending to grow by around 9% a year on average.
• Growth in spending for 2021 is forecast to slow to 0.7% y-o-y. It may well be that Egyptian consumers will start to trade down
price points.
• We also note several demand-side risks exist. These risks will dampen demand for more expensive food products in the short
term.
• Staple items, such as bread, rice and cereals and meat and poultry, continue to represent the major share of spending for local
consumers.
FOOD SALES (EGYPT 2017-2024)

Indicator 2017e 2018e 2019e 2020f 2021f 2022f 2023f 2024f
Food, sales, EGPmn 439,500.4 534,918.4 616,056.0 726,742.4 731,668.0 797,158.9 874,453.7 956,909.8
Food, sales, EGPmn, % growth y-o-y 31.3 21.7 15.2 18.0 0.7 9.0 9.7 9.4
Bread, rice and cereals, sales, EGPmn 64,251.2 78,632.4 90,872.6 107,707.6 108,510.4 118,455.5 130,187.0 142,704.1
Bread, rice and cereals, sales, EGPmn, %

32.3 22.4 15.6 18.5 0.7 9.2 9.9 9.6
growth y-o-y
Pasta products, sales, EGPmn 2,427.6 2,491.0 2,467.9 2,570.8 2,563.8 2,436.1 2,248.2 2,009.5
Pasta products, sales, EGPmn, % growth

9.3 2.6 -0.9 4.2 -0.3 -5.0 -7.7 -10.6
y-o-y
Baked goods, sales, EGPmn 1,521.9 1,612.7 1,649.8 1,654.5 1,654.4 1,633.7 1,591.5 1,528.4
Baked goods, sales, EGPmn, % growth y-

12.6 6.0 2.3 0.3 0.0 -1.3 -2.6 -4.0
o-y
Meat and Poultry, sales, EGPmn 129,149.5 161,908.1 190,407.7 229,249.0 231,150.4 255,015.1 283,441.6 314,054.4
Meat and Poultry, sales, EGPmn, %

36.6 25.4 17.6 20.4 0.8 10.3 11.1 10.8
growth y-o-y
Fish and fish products, sales, EGPmn 35,184.6 44,105.8 51,866.7 62,462.3 62,979.8 69,471.0 77,202.0 85,526.5
Fish and fish products, sales, EGPmn, %

36.6 25.4 17.6 20.4 0.8 10.3 11.1 10.8
growth y-o-y
Dairy, sales, EGPmn 59,056.4 71,780.3 82,520.3 97,444.3 97,649.8 106,132.2 116,234.0 127,051.2
Dairy, sales, EGPmn, % growth y-o-y 31.1 21.5 15.0 18.1 0.2 8.7 9.5 9.3
Indicator 2017e 2018e 2019e 2020f 2021f 2022f 2023f 2024f
Oils and Fats, sales, EGPmn 42,087.2 50,248.9 56,993.7 66,037.1 66,465.5 71,689.1 77,762.3 84,150.7
Oils and Fats, sales, EGPmn, % growth y-

28.2 19.4 13.4 15.9 0.6 7.9 8.5 8.2
o-y
Fresh and preserved fruit, sales, EGPmn 26,078.4 31,828.5 36,706.4 43,414.3 43,713.5 47,661.2 52,314.4 57,276.6
Fresh and preserved fruit, sales, EGPmn,

31.8 22.0 15.3 18.3 0.7 9.0 9.8 9.5
% growth y-o-y
Fresh vegetables, sales, EGPmn 54,036.5 62,766.4 69,658.2 78,529.3 78,911.2 83,826.5 89,384.7 95,079.8
Fresh vegetables, sales, EGPmn, %

24.0 16.2 11.0 12.7 0.5 6.2 6.6 6.4
growth y-o-y
Sugar and sugar products, sales, EGPmn 15,314.7 16,819.8 18,201.9 20,229.5 20,495.0 21,649.3 22,993.2 24,400.1
Sugar and sugar products, sales, EGPmn,

16.7 9.8 8.2 11.1 1.3 5.6 6.2 6.1
% growth y-o-y
Other food products, sales, EGPmn 10,392.3 12,724.7 14,710.9 17,443.8 17,574.2 19,189.2 21,094.8 23,128.5
Other food products, sales, EGPmn, %

32.4 22.4 15.6 18.6 0.7 9.2 9.9 9.6
growth y-o-y
e/f = Fitch Solutions estimate/forecast. Source: National statistics, Fitch Solutions
With Egypt beginning to reopen, we hold a positive view for food spending in the short term. At the end of June it was announced
that cafes, restaurants and hotels will be allowed to reopen and the night-time curfew abolished. We now foresee food spending
growing by 18% y-o-y in 2020, in comparison to the 15.2% y-o-y we estimated for 2019. Over 2021, we foresee spending slowing to
a rate of just 0.7% y-o-y. This will take food spending to a value of EGP731,668mn, growing from the EGP726,742mn we forecast for
2020. Over the medium term, we foresee food spending growing by around 9% a year on average, taking spending to a value of
EGP956,909mn by 2024.
Food Sales
Egypt, 2016-2023 (2017-2024)
e/f = Fitch Solutions estimate/forecast. Source: National statistics, Fitch Solutions
Demand-Side Risks As A Result of Covid-19
We highlight that despite countries gradually opening up, there exists several demand-side risks to our consumer outlook.
1) Economic Reality Hits
Lockdowns, travel bans, movement restrictions and the shuttering of non-essential retail are all feeding through to have a negative
impact on the economic outlook and by extension consumers' propensity to spend. The 'economic reality' of Covid-19 is now
hitting consumers and we believe they will continue to focus their spending on priority purchases (food and health spending) as
they did in the lead up and during lockdowns, and will also trade down price points across all categories of spending.
2) Purchasing Triggers Diminished
Two key consumer purchase drivers (work and social) remain disrupted. Some office workers are still working from home, while
social distancing means that social activities have not returned to a pre-Covid-19 normal. We believe this continued disruption post-
lockdown to work patterns and social lives of consumers will impact retail segments and we highlight fashion, cosmetics and
hospitality as most exposed.
3) 'New Normal' Of Shopping Lacks Appeal
Temperature checks, health checks, store and restaurant wipe downs, queues and social distancing are the 'new normal' for
consumers post lockdown. These new requirements might be steadily lifted, as the risk of infection decreases, or consumers will
adapt to a 'new normal' just as they did with lockdowns. We believe, however, that at least in the short term these measures will
negatively impact the appeal of shopping and dining out for consumers.
4) Residual Fear of Infection
Lockdowns and social distancing that remains in place and fears of a second wave of infection will all be feeding into consumer
behaviour. Having been told to limit social contact and remain indoors during lockdowns, it will take time for consumers to actively
seek more crowded settings, such as shopping malls and restaurants.
Structural Trends
It will take time (2020-2021) for food spending to return to the highs seen prior to the currency devaluation. Consumers will
therefore remain price-conscious, and we expect high-cost foreign brands to remain out of favour as households switch to food
staples and more affordable local produce. This creates opportunities for local companies to outperform multinationals, as price will
be the key consideration over quality for the majority of households. Private labels, smaller packages and tie-ups with local
producers are trends we expect to see play out over the next five years.
Egypt holds a large and rapidly growing consumer base, with the largest population size across the Middle East and North
Africa region. Its forecast population of 102.3mn in 2020 is set to increase to 110mn by 2024. Food consumption in Egypt will grow
impressively in nominal terms over this period, although this will be driven primarily by inflation. Coming from a low base, food
expenditure will be fuelled by continued (albeit subdued) economic growth, combined with favourable demographics and rapid
expansion of the mass grocery retail (MGR) sector. In per capita terms, food consumption growth will trail total consumption growth,
indicating that the rapid expansion of the country's population will be a pertinent driver of growth.
On a more optimistic note, food and drink companies are currently presented with an opportunity to enter Egypt, or strengthen
their existing presence in the country, in order to take advantage of the strong long-term growth prospects. Following three years of
political turmoil and a deterioration of investor confidence, relative political stability and commitment to economic reform are
positive signals. Reflecting the improvements in the economy, foreign investors have shown growing interest in mergers and
acquisitions. We have already seen an uptick in investment over recent years, with food and drink majors such as Kellogg,
Cargill, Pepsi and Coca-Cola announcing ambitious investment plans, while Nestlé acquired Caravan Marketing Company, an
Egyptian instant coffee maker.
Food Staples Remain Dominant
The two largest categories of spending in the Egyptian food market are taken by bread, rice and cereals and meat and poultry.
These two staple categories accounted for almost half of total spending in 2020.
Spending in the bread, rice and cereals category will grow by around 9% on average on a yearly basis through to 2024 with growth
being driven by the bread segment. Bread is part of the food subsidy programme in Egypt, meaning it is economically priced, thus
appealing to consumers. The other cereal products segment is widely consumed in Egypt and is a large component of traditional
diets; moreover, it consists of economically priced products that are filling, which will appeal to consumers whose food budgets are
constrained. Packet foods will also show good growth as they are cheap, convenient and versatile.
The meat and poultry category will also experience strong growth, with spending growing by between 10% and 11% on average per
annum through to 2024. This growth will be driven by the poultry segment, which will benefit from the expansion of the MGR
sector and poultry's suitability as a beef substitute, which is expensive by comparison.
Spending on dairy products is forecast to grow by between 8% and 9% on average per annum through to 2024, supported by the
milk segment, which will experience strong growth as a result of consumers increasingly switching to processed milk from raw milk.
This switching out is fuelled by consumers' perceptions of processed milk as being safer than raw milk, and we expect this trend to
play out throughout our forecast period. We believe that Egypt's strategic geographic location as an export hub and free trade
access to the Gulf region and a number of Sub-Saharan African countries will be the key driver of growth in the domestic dairy
industry.
Regional Overview
Five Key Themes For Middle East And Africa Agribusiness
Key View
• We expect a sharp downturn in economic activity in Southern Africa in 2020, as the widening impact of Covid-19 weighs on
exports, fiscal revenues, investment and private consumption across the sub-region.
• The worst locust swarms in decades in Kenya, Ethiopia and Somalia will only modestly limit agricultural production in the 2020/
21 harvest season.
• Côte d'Ivoire and Ghana's decision to try to control cocoa production will unlikely have a significant impact over the long term.
• Following the recent presidential elections in South Africa, the land expropriation debate will continue to feature heavily in
political discourse.
• Our poultry consumption outlook for the MENA region has been dampened significantly by the Covid-19-induced global
recession and accompanying fall in oil revenues, while austerity measures will most likely weigh on public investment within the
sector.
Most Countries In Recession This Year

Select Markets - Real GDP Growth (% chg y-o-y)
f = forecasts. Source: Fitch Solutions
Covid-19 Impact: Weaker Consumption In 2020, Recovery In 2021
We at Fitch Solutions expect a sharp downturn in economic activity in Africa and the Middle East in 2020, as the widening impact of
Covid-19 weighs on exports, fiscal revenues, investment and private consumption across the sub-region. Algeria, South Africa, Iran
and Nigeria will be among the countries recording the sharpest declines in GDP this year. Economic activity will recover strongly in
2021. Although the grave risks and concerns over global food supply that arose in March-April due to potential Covid-19 disruptions
to farm work and supply chains did not generally materialise on a global scale, we note that the pandemic is increasing food
insecurity and poverty levels in Africa in 2020 as a result of a weaker economic outlook. Along with other regions, Covid-19
will have a more significant impact on the consumption side of the agribusiness sector. We forecast meat consumption for Africa
and the Middle East to decline in 2020, before recovering in 2021 along with GDP growth. Consumption of staples will be broadly
unimpacted.
Related Research
• North Africa's Food Supply Outlook Adequate For Now Despite Covid-19, April 9
Covid-19 To Weaken Meat Demand

Africa & Middle East - Meat & Grains Consumption (% chg y-o-y)
1. Desert Locust Outbreak Continues In East Africa, Posing Risks To Production
Since mid‑2019, the region has been affected by a severe desert locust outbreak, the worst in 25 years. As of September 2020, the
situation remains serious in various countries in Africa, including Ethiopia and Eritrea. The Food and Agriculture Organization (FAO)
has described the situation in Ethiopia as 'very serious' on September 29, where an increasing number of immature swarms are
forming. While the locusts were contained at the beginning of 2020, swarms have been spreading over the year. The situation in
Kenya has improved, and a few residual immature swarms persist, according to the FAO. Local governments, with the help of the
FAO, have been implementing air and ground pesticide-spraying campaigns. Growing conditions for the current 2020/21 crop have
been otherwise favourable in Ethiopia, with ample rainfall. However, the desert locust poses clear downside risks to grains (corn,
sorghum, etc) production in 2020/21 and in 2021/22. A resurgence of the locusts in Kenya would pose downside risks to our
2021/22 forecasts.
Locust Outbreak Poses Risks To Crops

Kenya & Ethiopia - Major Foodcrop Schedule

2. Cocoa Price Floors Offer Limited Support For Ivorian And Ghanaian Farmers
Côte d'Ivoire and Ghana, who together account for around 60% of global cocoa production, announced in September 2019 that
they were looking to cap cocoa production in order to curb oversupply risks. This is their latest attempt to support global cocoa
prices and follows from their recent imposition of a ‘living income differential’ (LID) – a USD400/tonne charge over the futures price
for 2020/21 cocoa sales. While a laudable effort to support farmer incomes, we maintain our view that the two West African nations
will need to address a number of obstacles before they can effectively manipulate cocoa prices. The production ceiling, which has
been proposed in response to concerns that the LID will inadvertently encourage excessive cocoa production, will be difficult to
enforce in practice given that the supply of cocoa is inelastic. However, while we believe that the impact on global prices, all else
being equal, will be minimal in the long term, it could be disruptive in the short term.
Côte d'Ivoire: Largest Cocoa Producer But Small Processor

LHC: Global Cocoa Grindings; RHC: Main Cocoa Producers ('000 tonnes)
f = Fitch Solutions forecast. Source: National sources, ICCO, Fitch Solutions
3. Land Expropriation Debate To Remain A Key Issue In South Africa
Following the election of President Cyril Ramaphosa in the May 2019 South African elections, we believe that the issue of
land reform will continue to feature heavily in political discourse. However, we at Fitch Solutions maintain our view that South
Africa’s ruling African National Congress (ANC) party will pass legislation approving expropriation without compensation in limited
circumstances in the coming years. While South Africa’s 2020/21 budget proposes a reduction in agriculture expenditures, the
budget provides a modest increase in funding for land redistribution. Furthermore, it does not significantly reduce the risk for
expropriation without compensation due to broad public and government support for the policy. Political pressure on the ruling
ANC party to increase land redistribution has risen in recent years as despite decades of slow redistribution, South African inequality
remains among the highest in the world.
Land Reform Remains A Budget Priority

South Africa - Budget Allocation, ZARmn
Source: National Treasury, Fitch Solutions
4. Despite Operational Challenges, Opportunities Abound In SSA Poultry Sector
The outlook for Sub-Saharan Africa (SSA) poultry production is positive over the medium term, given robust demand growth and
the relative inefficiency of existing domestic poultry producers. Among major SSA markets, we believe that Ghana and Ethiopia have
the most promising outlook for poultry, while Kenya, Tanzania, and Côte d’Ivoire also have strong potential. Poor business climate
hurts Angola and Sudan’s attractiveness, while slow economic growth will severely limit prospects for success in Nigeria, SSA’s
largest economy. Steadily rising demand due to population and economic growth will be a significant tailwind to domestic
production, particularly of eggs, in several key markets. Across the region, operational challenges throughout the value chain will
persist, but enterprises with a higher degree of vertical integration will be better able to minimise risks.
Investment Climate Strongest In Ghana, Kenya

Major SSA Markets - Long-Term Economic Risk Index & Operational Risk Index
Note: Indexes are from 1-100, higher scores indicate lower risk. Source: Fitch Solutions
5. Covid-19 Adds To Already Challenging Economic Outlook In Middle East, Weighing On Meat Sector
Our poultry consumption outlook for the Middle East and North Africa (MENA) region has been dampened
significantly by the Covid-19-induced global recession and accompanying fall in oil revenues. On a regional basis, we
expect that MENA economies will see only modest growth over the coming years, and that oil-driven economies will see growth
slow significantly due to lower oil prices. We expect these dynamics will weigh on poultry demand and investment in the sector over
the medium term. Structural challenges to poultry production in many regional markets will persist. A lack of arable land throughout
MENA as well as growing water security issues will ensure that the region remains reliant on imported poultry and inputs.
Furthermore, we expect fiscal challenges will derail agricultural self-sufficiency aims that drove investment in regional production
capability.
Middle East Chicken Imports Stagnating

Select Regions - Poultry Imports By Destination ('000 tonnes)
f = USDA forecast. Source: USDA, Fitch Solutions
Competitive Landscape
EGYPT - MAJOR AGRIBUSINESS COMPANIES
Revenue Market Capitalisation
Company Sub-Sector Fiscal Y/E Employees
(USDmn) (USDmn)
Juhayna Food Industries Food Processing 454.5 12/2019 377.3 5,000
Delta Sugar Sugar 140.9 12/2019 82.2 na
Cairo Poultry Co Livestock 262.8 12/2019 108.0 1,223
na = not available. Source: Bloomberg, Fitch Solutions
Egypt Demographic Outlook

Demographic analysis is a key pillar of our macroeconomic and industry forecasting model. Not only is the total population of a
country a key variable in consumer demand, but an understanding of the demographic profile is essential to understanding issues
ranging from future population trends to productivity growth and government spending requirements.
The accompanying charts detail the population pyramid for 2017, the change in the structure of the population between 2017 and
2050 and the total population between 1990 and 2050. The tables show indicators from all of these charts, in addition to key
metrics such as population ratios, the urban/rural split and life expectancy.
Population
Egypt (1990-2050)
f = Fitch Solutions forecast. Source: World Bank, UN, Fitch Solutions
Egypt Population Pyramid

2017 (LHS) & 2017 Versus 2050 (RHS)
Source: World Bank, UN, Fitch Solutions
POPULATION HEADLINE INDICATORS (EGYPT 1990-2025)

Indicator 1990 2000 2005 2010 2015 2020f 2025f
Population, total, '000 57,412.2 69,906.0 76,778.1 84,107.6 93,778.2 102,941.5 111,470.9
Population, % y-o-y 1.86 1.85 1.99 2.14 1.75 1.52
Population, total, male, '000 28,822.4 35,164.3 38,706.6 42,466.0 47,408.9 52,045.8 56,328.9
Population, total, female, '000 28,589.8 34,741.7 38,071.5 41,641.6 46,369.2 50,895.7 55,142.0
Population ratio, male/female 1.01 1.01 1.02 1.02 1.02 1.02 1.02
KEY POPULATION RATIOS (EGYPT 1990-2025)
Indicator 1990 2000 2005 2010 2015 2020f 2025f
Active population, total, '000 31,281.9 40,922.9 47,429.1 53,104.5 57,954.8 63,320.2 68,959.6
Active population, % of total population 54.5 58.5 61.8 63.1 61.8 61.5 61.9
Dependent population, total, '000 26,130.3 28,983.1 29,349.1 31,003.1 35,823.3 39,621.3 42,511.4
Dependent ratio, % of total working age 83.5 70.8 61.9 58.4 61.8 62.6 61.6
Youth population, total, '000 23,542.7 25,553.4 25,604.9 26,988.9 31,075.1 34,135.7 35,948.1
Youth population, % of total working age 75.3 62.4 54.0 50.8 53.6 53.9 52.1
Pensionable population, '000 2,587.6 3,429.7 3,744.1 4,014.2 4,748.2 5,485.6 6,563.3
Pensionable population, % of total working age 8.3 8.4 7.9 7.6 8.2 8.7 9.5
URBAN/RURAL POPULATION & LIFE EXPECTANCY (EGYPT 1990-2025)
Indicator 1990 2000 2005 2010 2015 2020f 2025f
Urban population, '000 24,961.7 29,917.7 33,035.3 36,182.3 40,451.2 45,070.9 50,121.8
Urban population, % of total 43.5 42.8 43.0 43.0 43.1 43.8 45.0
Rural population, '000 32,450.5 39,988.3 43,742.8 47,925.4 53,327.0 57,870.6 61,349.1
Rural population, % of total 56.5 57.2 57.0 57.0 56.9 56.2 55.0
Life expectancy at birth, male, years 62.2 66.2 67.1 68.2 69.1 69.9 70.6
Life expectancy at birth, female, years 67.0 71.1 71.8 72.6 73.6 74.6 75.5
Life expectancy at birth, average, years 64.6 68.6 69.4 70.4 71.3 72.2 73.0
POPULATION BY AGE GROUP (EGYPT 1990-2025)
Indicator 1990 2000 2005 2010 2015 2020f 2025f
Population, 0-4 yrs, total, '000 9,041.1 8,272.6 9,000.9 9,868.7 12,374.4 12,071.6 11,678.5
Indicator 1990 2000 2005 2010 2015 2020f 2025f
Population, 70-74 yrs, total, '000 732.2 1,012.7 1,096.8 1,133.5 1,193.7 1,669.4 1,810.6
Population, 75-79 yrs, total, '000 452.9 607.4 719.8 781.9 809.3 863.5 1,232.0
Population, 80-84 yrs, total, '000 231.7 301.8 355.3 421.3 460.7 485.5 532.9
Population, 100+ yrs, total, '000 0.2 0.4 0.6 0.7 0.8 1.0 1.2
POPULATION BY AGE GROUP % (EGYPT 1990-2025)
Indicator 1990 2000 2005 2010 2015 2020f 2025f
Population, 0-4 yrs, % total 15.75 11.83 11.72 11.73 13.20 11.73 10.48
Population, 100+ yrs, % total 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Agribusiness Methodology
Connected Thinking
We use a simple and transparent forecasting model as a base for our industry forecasts, but rely heavily on our analysts' expert
judgment to ensure our forecasts capture all of the insights we derive using our unique Connected Thinking approach. We believe
analyst expertise and judgement are the best ways to provide the most accurate, up-to-date and comprehensive insight to our
customers.
Our Connected Thinking approach to forecasting and analysis integrates macroeconomic variables from Fitch Solutions Country
Risk to provide our customers with unique and valuable insight on all relevant macroeconomic, political and industry risk factors
that will impact their operations and revenue-generating potential in the industry/industries they operate in.
Agribusiness Methodology
For the Agribusiness industry we have historical data and five-year forecasts for up to 17 commodities per market, including the
production and consumption of key grains, softs and meat.
Our forecasts are a combination of regression modelling and analyst expert judgement.
Our Agribusiness analysts interact with other analytical teams in Fitch Solutions, including Country Risk, Food and Drink, and
Infrastructure. This is to ensure they have a comprehensive understanding of external factors that may impact the Agribusiness
industry outlook.
Within the Agribusiness industry, issues that might result in analyst expert judgement could include but are not limited to:
• technological developments that might influence future output levels (for example greater use of biotechnology)
• dramatic changes in local production levels due to public or private sector investment
• regulatory environment and specific areas of legislation, such as import and export tariffs, and farm subsidies
• changes in lifestyles and general societal trends
• formation of bilateral and multilateral trading agreements, and political factors
There is a constant rolling cycle of data monitoring, with databases being updated on a quarterly basis. Analysts will intervene
outside of these cycles to implement forecast changes when necessary.
Historical figures for Agricultural commodities production and consumption are based on data published by local Agriculture
ministries and when necessary are supplemented by data from the US Department of Agriculture, the UN Food and Agricultural
Organization (FAO) and the International Cocoa Organization.
Sector-Specific Methodology
Production
Our production forecasts are based on a regression model, using a market's own historical time series.
We also apply analyst intervention to refine and finalise the various Agricultural commodities production forecasts based on
exogenous and endogenous variables or events not captured by our regression model.
AGRICULTURAL COMMODITIES FORECAST

Grains Softs Dairy Meat
Wheat Sugar Whole milk powder Pork
Corn Coffee Liquid milk Beef and veal
Barley Cocoa Butter Poultry (excluding turkey)
Rice Cotton Cheese
Soybean Palm oil
Consumption
Our consumption forecasts are based on a regression model using a market's own historical time series and key macroeconomic
explanatory variables from Fitch Solutions Country Risk, such as private final consumption, inflation and interest rates.
We also apply analyst expert judgement to refine and finalise the various agricultural commodities production forecasts based on
exogenous and endogenous variables or events not captured by our regression model.
Agribusiness Market Value
The construction of the Agribusiness market value is done in two steps:
• Fitch Solutions constructs an in-house model of the Agribusiness market, where for each commodity its forecast production
value is multiplied by its commodity price. This is repeated for each commodity in the Fitch Solutions Agribusiness universe and
then aggregated to give a Fitch Solutions Agribusiness total market value. Commodity prices reflect either market prices or
production prices; this depends on the commodity in question and whether or not sufficient data is available.
• Fitch Solutions uses an in-house Agribusiness total market value model as a benchmark model to forecast the FAO's gross
production value. If necessary, analysts can subjectively intervene in the model to take into account qualitative data.
To summarise, the final Agribusiness market value is historical data from the FAO gross production value which is then forecast
using an in-house Fitch Solutions Agribusiness market value model that is objectively and subjectively estimated.
The model itself is priced in US dollars. Conversion to local currency and euros is done directly using Fitch Solutions Country Risk
exchange rate forecasts.
Fitch Solutions ensures that the internal model best matches the FAO gross production value definition and construction to ensure
that the internal model serves as a useful benchmark.
FAO Definition of Gross Production Value (USD)
The value of gross production has been compiled by multiplying gross production in physical terms by output prices at farm gate.
Value of production measures production in monetary terms at the farm gate level. Since intermediate uses within the agricultural
sector (seed and feed) have not been subtracted from production data, this value of production aggregate refers to the notion of
gross production.
Fit
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ondon. E14 5GN, UK
Tel: +44 (0)20 7248 0468
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Web: www.fitchsolutions.com
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Q1 2021

Commodity Price Analysis .......................................................................................................................................................28

Upstream Analysis ......................................................................................................................................................................40

Downstream Analysis ................................................................................................................................................................60

Egypt Demographic Outlook....................................................................................................................................................71

Agribusiness Methodology ......................................................................................................................................................74

Egypt Highly Dependent On Neighbouring Countries For Water

Source: FAO, Fitch Solutions

Latest Updates And Structural Trends

Egypt Agribusiness Covid-19 Impact

Impact On Production And Supply Chain:

Consumption And Food Prices

Covid-19: Longer Term Implications For Agribusiness

Global 2.6 -4.2 4.4

Emerging markets 3.8 -2.0 4.9

Developed markets 1.7 -5.8 4.2

US 2.3 -4.0 3.9

China 6.1 2.2 5.8

f = forecast. Source: Fitch Solutions. Last updated: September 30 2020

EGYPT - GRAIN PRODUCTION AND CONSUMPTION OUTLOOK

na = not applicable. Source: Fitch Solutions

Source: Fitch Solutions

1. Government Initiatives To Boost Production

2. Corn Consumption Growth To Outpace Wheat

Robust Livestock Demand Bolster Corn Consumption

Note 2020/21 is a USDA forecast. Source: USDA, Fitch Solutions

Consumption Growth To Constrain Self-Sufficiency

e/f = Fitch Solutions estimate/forecast. Source: USDA, FAO, Fitch Solutions.

3. Self-Sufficiency Goal Remains Elusive And Imports To Continue

Rising Grain Imports Amid Weakening Currency

Note: 2020/21 is a USDA forecast. Source: USDA, Fitch Solutions

GRAINS PRODUCTION AND CONSUMPTION (EGYPT 2016-2024)

EGYPT - RICE PRODUCTION AND CONSUMPTION OUTLOOK

na = not applicable. Source: Fitch Solutions

Source: Fitch Solutions

1. Heightened Water Scarcity Concerns Will Lead To Rice Production Decline

Egypt Highly Dependent On Neighbours For Water

Source: FAO, Fitch Solutions

2. New Subsidy Scheme To Induce Rice Consumption

Wheat To Lose Short-Term Growth Advantage Owing To New Subsidy

f = Fitch Solutions forecast. Sources: USDA, Fitch Solutions

3. Increased Imports To Provide An Opportunity For Exporters

RICE PRODUCTION AND CONSUMPTION (EGYPT 2016-2024)

EGYPT - LIVESTOCK PRODUCTION AND CONSUMPTION OUTLOOK

na = not applicable. Source: Fitch Solutions

Source: Fitch Solutions

1. Poultry Production To Slow On Fears Of Bird Flu

2. Greater Beef Demand From New Subsidy Scheme

Greater Deficits Will Require Additional Imports

f = Fitch Solutions Solutions forecast. Source: USDA, Fitch Solutions

LIVESTOCK PRODUCTION AND CONSUMPTION (EGYPT 2016-2024)

EGYPT - DAIRY PRODUCTION AND CONSUMPTION OUTLOOK

na = not applicable. Source: Fitch Solutions

Source: Fitch Solutions

1. Foreign Direct Investment To Drive Milk Output Growth

Dairy Growth Steady

f = Fitch Solutions forecast. Source: OECD, FAO, Fitch Solutions

2. Buoyant Growth In Consumption

DAIRY PRODUCTION AND CONSUMPTION (EGYPT 2017-2024)