WASHINGTON, Feb. 8, 2017 - When it comes to cheap wheat, U.S. exporters just can’t compete with the Russians. It’s why U.S. exports to Egypt – the world’s largest wheat-importing country – are dropping sharply.
Russia’s wheat exports are expanding, effectively pushing the U.S. out of Egypt’s massive market for cheap imports, says Steve Mercer, a spokesman for U.S. Wheat Associates (USW). And, as overall U.S. exports to Egypt plummet, most U.S. wheat exporters have turned their efforts to expanding markets elsewhere in Asia and Latin America, but some haven’t given up on the Egyptians.
USW is working with Egyptian bakeries and food manufacturers to help them produce everything from cookies to pasta for an emerging middle class, using U.S. wheat. It’s a slow process, Mercer said, but the result has been sales of thousands of tons of high-quality, relatively high-priced U.S. wheat into a market that is dominated by the cheapest wheat available.
From January through November last year, the U.S. shipped just $8 million worth of wheat to Egypt, according to data maintained by USDA’s Foreign Agricultural Service. That’s more than a 90 percent drop from the $101 million of wheat that the U.S. exported to Egypt during the same 11-month period in 2015.
The reason? Mercer said the answer was just one word: Russia.
Russia has been experiencing a steady growth in production since the collapse of the Soviet Union and the end of the Communist-style food collectives, Mercer said. New production methods, plus vast areas of good soil, are now allowing Russia to flood importing nations with cheap wheat that is now selling for about $1 per bushel less than what U.S. farmers can sell for.
“There’s no way a farmer in the U.S. right now, with the way prices are, would be willing to give up $1 a bushel or even 50 cents a bushel to sell to Egypt,” Mercer said.
It hasn’t been a smooth road for Russia. Severe drought crippled Russian grain farmers in 2010 and Russia has banned exports to protect domestic supplies. That turned into a major boon for the U.S., which sold about $808 million worth of wheat to Egypt for the 2010-11 marketing year, according to USDA data.
But those days are over. Russia is expected to produce another bumper crop this year, according to a January forecast from USDA’s Foreign Agricultural Service, and export a record-breaking 29 million metric tons of wheat in the 2016-17 marketing year. That’s up from 25.5 million tons in 2015-16 and 22.8 million in 2014-15.
“Russia has dramatically increased its ability to export wheat,” Mercer said. “They’ve had excellent crops for the last two or three years just like the rest of the world. And it goes to Egypt and the Middle East because it’s the kind of quality they can use and they don’t have to pay a lot for it. The United States, for Egypt, is the supplier of last resort.”
The vast bulk of Egypt’s wheat imports are purchased by GASC, a government agency that also mills the wheat and distributes flour to small bakeries across the country at heavily subsidized prices.
While price is the main concern of GASC, there are also smaller-scale private Egyptian importers who are striving to cater to an emerging middle class, says Mercer. It’s those importers that USW is concentrating on now, and Mercer stressed the efforts have already shown some success.
Cookie, cake and even pasta makers in Egypt have bought 60,000 tons of hard red spring wheat from the U.S. in the 2016-17 marketing year, according to USW data. That’s nearly double the 33,000 tons of HRS that private importers purchased in 2015-16.
“The middle class is looking for those kind of products,” Mercer said. “We’re trying to show those buyers – not the government buyers – that higher quality U.S. wheat is actually going to perform much better in those emerging products.”
One of the biggest surprises for USW was when representatives from an Egyptian tea company recently showed up at the group’s Cairo office and asked for help expanding into pasta production.
Durum is the primary type of wheat for pasta, but HRS can be used too, said Mercer, and that’s what suited the tea company. Mercer said he couldn’t disclose the Egyptian company’s name until after its new brand of pasta was on Egyptian store shelves.
“We have milling and baking technologists on staff – based in Casablanca (and) elsewhere in Morocco – who were able to meet with the company representatives, discuss their goals and production processes, and make recommendations on the class of wheat best suited to their operation, how to set up their mill and production process to get the best results from the imported HRS wheat,” Mercer said.