The Barriers-to-Entry Series is a collaborative project between Business Forward and Endeavor Egypt. The series features interviews with some of Egypt’s high-growth Endeavor Entrepreneurs on what it takes to penetrate the sector in which they operate – namely, which barriers to entry they had to face and how they overcame them.
In the series’ third interview, Business Forward talks to the managing director of Natura Agro Amr El Meniawy about the processed food industry’s trajectory in Egypt, highlighting the opportunities and challenges that companies face in the highly competitive export market.
What’s the story of Natura Agro and what are the day-to-day operations like?
I took over this company in 1999. Before that, we used to sell only fresh produce; oranges; veggies, etc. Fresh produce doesn’t require a factory or complicated operations. In the early 2000s, we started processing some vegetables and began exporting them. In 2007, we took it a step further and began producing canned vegetables; cans; jars; basically any ‘preserved food.’
We mainly export most of our products. We competed in the local market for a while, but then slowed down on that front. We’re doing more fruits now, which is where the real demand is, and the [export] market isn’t that competitive in Egypt yet, so we have an edge.
Operations are basically mostly about the supply, which is obviously the most crucial factor in our line of business. 80% of our operations are about securing the supply of raw materials, like fruits and vegetables. The main challenge in the Egyptian market is to secure such supply, but other than that it’s relatively easy. We still have small operations in the fresh produce; it’s a market with big turnover, however profitability is next to nothing, and competition is very aggressive because competitors almost don’t have the burden of the cost. It’s very easy to operate in the [fresh produce] market and access it.
What makes your products stand out from competitors, locally and abroad?
Our primary edge is our variety of products. Our competitors work on products that could be described as commodities, like olives for instances. What we work on is very niche, like fruits and veggies. That’s what makes us special.
When you’re talking about export, the quality of such products in Egypt doesn’t usually satisfy the needs of markets such as Europe’s, which mostly depend on China, Vietnam, Indonesia to import these products. Asian export countries are now subject to taxes and so we currently have a geographic advantage to ship our products within 10-15 days, as opposed to those countries whose shipments can take up to a month. Price-wise, we’re better. Quality, if not better, it’s at least the same. So we have a lot of advantages.
What are the challenges when it comes to exporting to Europe?
Our exports have no barriers but the biggest challenge we have is maintaining quality, which is rooted in the lack of [technical] training and experience in Egypt’s labour market, and the incredibly high turnover.
Generally speaking, finding labour is not the problem as much as it is finding and retaining skilled labor or those who are at least committed to the job. With new hires, regardless of whether or not they’re educated, you have to start from scratch to train them and teach them the basics. Despite all that, they could still leave a month or two later because they’re seasonal workers and are only looking for immediate income. They would go to another factory for -literally- just EGP 50 more. It’s especially hard to retain them after investing that much in training them.
Another challenge specific to exporting is that it takes time to build a reputation in the markets we export to. They’re not used to getting products like ours from Egypt, so we had to slowly establish our presence in the market as they were trying the products out.
How’s the competition like and can small players enter the market easily?
Today, entry for small players is really challenging. In this sector, entry needs massive investment; you need to have a factory, and after inflation, it’s become more expensive to do that. You can’t do it for EGP 5 million anymore. Small players could start with a trade office; basically pay us for products then export it. That would be until they can generate a good database and solid revenue streams to establish small factories, then go bigger from there. That’s the way to enter the market. Other than that, you need a big investor to finance from the get-go. You need land, buildings, equipment, etc. It costs a minimum of EGP 20 million to build a small factory.
What role do automation and AI technologies play in your production?
We’re so far away from that. We’re at least a quarter-of-a-century behind advanced economies when it comes to that. It’s like we’re in the 80s; we’re still looking for labour to train. So investing in AI and whatnot is not realistic. We don’t have the caliber of technicians that can even operate these technologies, we’d have to get them from abroad, let alone maintain them. So if we’re getting the technology and operators from abroad, we might as well just build the factory oversees.
How do you plan to expand use of technology then?
We’re rolling out an ERP system in finance and we’re planning a CRM system as well and that’s part of our pursuit of institutionalization and having proper processes and systems in place.
As exporters, IT applications don’t work well with us. We’re addressing wholesalers not retailers, meaning we deal with the distributors not end-customers. Even the brand on my product on the supermarket shelf is not mine; we sell white labels. So I don’t need this technology now, it’s not useful for me. But if you’re talking about advanced equipment inside the factory, some people in Egypt get them, but the minute they’re broken, they have to wait for the foreign experts to come fix them. It’s not practical for us to implement them now.
How do you plan to expand your operations in general?
We’re going to invest more in the factory; the supply lines and buildings. We’re working on boosting productivity, trying to do the farming ourselves, and potentially import produce from Africa. But to expand the line of products, I don’t see it happening. We can invest in more machinery to lower labour costs and plant produce ourselves to reduce waste and cost. That’s how we’d expand.
How do you see the F&P sector in Egypt in general?
The sector is booming in Egypt, we have a huge market. The demand is still much higher than supply. Factories are in a good condition, but investment not so much. The investment environment, however, is vague because laws are being issued but not actually enacted so it’s a struggle for investors. Meanwhile, this is the sector that forms the foundation of the Egyptian economy, in my point of view. Egypt is an agriculture country; we plant everything, from tropical fruits to ordinary ones, to all other kinds of fresh produce.
Processing this produce is really important and needs more attention. We have to add value to our produce. Let’s say we’re planting cotton, does the global market really need cotton? We’re a bit disconnected from the world. The farmer plants produce that is disconnected from what the factory wants, and both are disconnected from the global market. We don’t pay attention to the global supply and demand dynamics.
Egypt just needs to get organized. We have a lot of potential in the sector for growth. All we need is more organization and consistency
Interview by Dunya Hassanein