It’s the 2023-2024 Egyptian citrus season is started well with a cheerful spirit and a high level of optimism. The production is characterized by an improved distribution of sizes in comparison to the prior season, which was characterized by size that were small. Production has been increasing, and the climate creates serious challenges to the competitors, while also having an impact positive on Egypt. All signs pointed to a great season. But the conditions changed quickly within just a couple of days, causing the war to the point of being unfixable. Conflict broke out across the Middle East, triggering the Red Sea crisis that dragged into 2024. In the industry of citrus particularly, the effects on the industry turned into a campaign that was “simply ineffective,” according to the Egyptian exporter Amgad Nessam.
Surprise guest to kick off the campaign
Amgad Nessem is the Export Manager of El Teriak Farms, a company that exports and produces citrus as well as other fruits. The manager explains how he had a great time during the season: “The outlook for the season looked extremely promising because we were finally rid of of tiny sizes that was a major issue last season. However, the mood changed fast at the conclusion 2023 as the conflict was able to spread across the region like the flames of a forest. What transpired next is recognized. The month of December was when Maersk announced the cancellation the operation of Red Sea routes, followed by 13 other shipping firms. We were frightened, waiting for an immediate return to shipping. However, by the time we reached January 20, 2024 the entire industry was in a state of turmoil and panic. The closer we came to the month of June, the time that signals the beginning of fruit flies and the closing of exports, the more were willing to accept that the event would end. At the close of the season Egyptian oranges were shipped at the same rate in the market local to Egypt.”
Egypt shut off from the half of its global market and surplus supply in Europe
The Red Sea separates Egypt from over half of the country’s citrus markets, which includes Saudi Arabia (and by extension the Gulf markets) which is the third biggest market for Egyptian citrus after Russia and Netherlands as well as various markets in Asia including India, Bangladesh, China, Malaysia, Hong Kong and many more. Nessem states: “In terms of volume the markets combined make up more than a quarter of Egyptian exports. i.e. over 800,000 tonnes of the orange alone, if we consider the figures from last year, keeping the fact that this season’s production has grown by a minimum of 25 percent. The effect on exporters who specialize on these markets is evident however the effect on all industries is spreading rapidly.”
The exporter added: “It implies that all exporters have to rely on a few market opportunities like Europe that aren’t able to absorb the volume of these exports. For El Teriak Farms, we export only to Europe However, we got involved in the crisis in the beginning of February, when the decline in demand affected our plans. We’re fortunate to be able to deal with serious and trustworthy customers and only export under contract, but we’ve also witnessed our costs drop as payment terms get harder to meet.”
The routes of transportation linking Egypt to Asia via the Red Sea, have become hazardous for many ship lines, and were swiftly removed from December to the present, while the other lines take an extended detour across Africa through to the Cape of Good Hope. The Nessem report: “In terms of transit time, this is an increase of twofold, ranging between an average of just 28 days, to over 60 days. The cost of transport has also increased by two-fold. The fact is that shipping companies have benefited maximum advantage of this situation. It is well-known that the shipping industry is not always at risk from the attack on the Red Sea. The emergence of new Asian firms replaced the old ones in the month of March, however they were uncommon and increased their costs significantly.”
Exports from Saudi Arabia and the Gulf countries along the Red Sea were maintained by ferry. But their costs was also pushed up by the surge of demand. It went between USD 2,000 and USD 6,600 as per Nessem. Even though the Gulf market can be attractive due to being able to absorb large volumes of goods but it has a sever pay and trade regime for Egyptian exporters. The Red Sea crisis has only worsened the situation which include commission-based exports, that Europe has been attempting to emulate this year when the crisis began.
Demand is slow, prices are falling prices, and more payment delays
Nessem says: “For reasons that escape me or because of cultural factors, Saudi importers impose a commission-based system of sales in Egypt. This is a major disadvantage because the system is opaque, and there’s no means of controlling the amount of merchandise sold. The system only applies upon Egyptian exporters, not Poland that exports its apple in Saudi Arabia or South Africa that exports its fruit in agreement. Our constant call to our Egyptian friends to initiate moving from this ambiguous area and to oppose this form of paying, which is a slap on all of Egyptian economy and industry.”
“This season due to the Red Sea crisis, European importers, confronted with plenty of supply, quickly realized they were able to implement this type of trade to Egyptian exporters from the start of February” says the exporter. “In the Netherlands as an example I’m estimating that the use of this payment method has grown by about 40% in the field of citrus. For us at El Teriak are concerned, like I mentioned it is a blessing to have a good relationship with our customers. However, we’ve been afflicted by the consequences of the oversupply. The normal terms for payment ranged from 80%-20% up to 50%-50 percent. The prices have dropped to 25%, on average.”
The severity of the crisis was ameliorated through circumstantial causes
The good news is that good fortune was that Red Sea crisis coincided with various other factors that helped. In the first place, climate change slammed Egypt’s rivals hard, especially in Spain. Nessem shares: “Right at the beginning this year we had to respond to the uncertainty by looking at new markets and were assisted by the shortage of Navel as well as Valencia oranges coming from Spain as well as other sources of competition. There was a significant demand for the oranges across the world, which included Canada, Argentina, and Brazil. In Europe as well, we discovered stores that were located in Georgia, Latvia, and Lithuania. We also received some orders from African nations as well. We had to be able to keep the season without making profits, but the situation would have been better if our usual Spanish production had taken place.”
The current crisis also has coincided with the introduction of a currency overhaul in Egypt. The government is implementing the ease of exchange of the Egyptian pounds against the dollar. This has led to the decline of the local currency. Nessem says “This will increase our expenses significantly however, it can also work in the opposite direction. In the end, it takes time to adapt to the results of this reform. However, it brings a good amount of stability to the economy. It also means that it is no longer necessary to depend on the black markets for the dollars we need just like prior to. March was not a great month but we began to experience the benefits of this stability in to April.”
“The Red Sea crisis is not going to be solved peaceably or politically”
A lot of Egyptian exporters had hoped that there would be a quick resolution to the Red Sea crisis, but it appears that the problem is here to remain. Nessem isn’t fooled “Unfortunately there is a chance that it appears that the Red Sea crisis will not be solved either through political means or in a peaceful manner. We’ve seen the way in which large world powers tried to end the delay of shipping lines and then, in the end, retreated. It is clear that the Red Sea crisis is just one of many wars that is looming over the Middle East, and the inevitable is bound to occur. Even in the most dire scenario it could mean a complete stop to all business. We’re taking advantage of the advantages of Egyptian sector of citrus, and in particular, the factor of climate which has been working to our advantage.”
What are the expectations for this season? “If you’re positive about the future, then we can say that the Red Sea crisis will still remain with us and that means that there’s been no change in the situation,” replies Nessem soberly. “As the citrus industry is involved, we’ll require a reduction in Egyptian volume in addition to lots of effort to create new markets. There’s still plenty of opportunity for markets that aren’t completely developed including Africa, the Americas, Africa, and European nations like Poland.”
Note that this article first published on the 3rd of October 2024 in Primeur publication in English as well as Spanish to coincide with Fruit Attraction 2024. Since the article’s initially published, the official figures of Egypt have revealed a decline of exports made to Asian countries and a rise in the volume of global exports and a drop in global exports based on value per ton.
More information is available here.
Amgad Nessem
El Teriak Farms
Tel: +201 207 976 920
[email protected]
www.elteriakfarms.com